The Audit and Transparency Committee of Kensington and Chelsea Council met to discuss the external audit plan for 2024-25, review audit risks, and receive updates on risk management and the committee's forward plan. The committee also reviewed the draft report from Councillor Gerard Hargreaves, Chair of the Audit & Transparency Committee.

External Audit Plan 2024-25

Grant Thornton, the council's external auditor, presented their audit plan for the 2024-25 financial year. Phil Jack Lim, senior manager for Grant Thornton, outlined the audit's scope, risk areas, materiality, and proposed fees. Key discussion points included:

• Significant Risks: The audit will focus on management override of controls, valuation of land and buildings (including council dwellings and investment properties), valuation of the pension fund net asset, and the change in financial systems from SAP to Oracle.
• Materiality: Materiality was set at £16.23 million, approximately 1.9% of the council's prior year gross expenditure.
• Value for Money: The audit will review the delivery of the council's savings plans, particularly in temporary accommodation, the Housing Revenue Account (HRA)'s financial sustainability, and the implementation of the new finance system.
• Audit Quality: Councillor Liz Murrall questioned Grant Thornton's audit quality inspection findings, noting that Grant Thornton had moved from a tier one to a tier two firm in terms of inspections by the Financial Reporting Council[^1] (FRC). She also questioned the fairness of claiming excellent scores based on a smaller number of Public Interest Entity (PIE) audits compared to competitors like BDO. [^1]: The Financial Reporting Council (FRC) is the UK's independent regulator responsible for promoting high quality corporate governance and reporting.
• IFRS 16 Leases: Councillor Joanna Gardner raised concerns about the £100 million of leases reported for the implementation of IFRS 16[^2], questioning the impact on the balance sheet. [^2]: IFRS 16 is an international accounting standards board (IASB) standard that specifies how an entity will recognise, measure, present and disclose leases.
• Oracle Implementation: Concerns were raised about the scope of work being done in auditing the transfer of data to the new Oracle system. Assurances were sought that the audit would test the actual data and systems within the IT delivery system, not just the data transfer.
• Pension Fund: Councillor Liz Murrall noted that there was no performance materiality set in the pension fund, and asked how it was being tested.

Informing Audit Risks 2024/25

The committee reviewed a report assessing key areas of audit risk identified by Grant Thornton. The report included a series of questions posed to management along with their responses. Key discussion points included:

• Related Parties: Councillor Liz Murrall asked about the process for handling non-compliance by councillors in returning related party declarations.
• Fraud Cases: Councillor Liz Murrall questioned the sudden drop in fraud cases compared to the prior year, with 266 new referrals and 365 completed investigations in the prior year, compared to 540 new referrals and 1,219 investigations in 2023-24.
• Community Privilege: Councillor Liz Murrall noted a payment out of the fund for the community privilege, and asked about changes to the arrangement for the Notting Hill Heat Network Company.
• Solicitors Fees: Councillor Liz Murrall requested that the list of solicitors and fees be reviewed by the Chair of the Audit and Transparency Committee and the Chair of the Overview and Scrutiny Committee.
• Fraud Issues: Councillor Liz Murrall asked if fraud issues identified outside of the audit cycle should be reported to the Chair.
• Development Laws and Regulations: Councillor Liz Murrall questioned whether there was a perceived gap in reporting development laws and regulations to the Audit and Transparency Committee.
• Briefing Sessions: Councillor Liz Murrall asked if the committee felt it was being briefed sufficiently during the year.
• Safe Court: Councillor Andrew Ling asked what happened once a council officer reported a concern to Safe Court, and whether anything ever came back to the committee.

Risk Management Update

The committee received an update on the council's management of key strategic risks. Maxine Holdsworth, Chief Executive of Kensington and Chelsea Council, noted one new risk, an increased score on one risk, and the removal of two risks. The new risk was around the rising costs and challenges in employing and caring for children with complex needs. The score was increased on the risk around support for bereaved and survivors and local residents, due to the government announcement of the deconstruction of Grenfell tower¹. The risks around corporate performance monitoring and CQC inspections were removed. Key discussion points included:

• Financial Risks: Councillor Claire Simmons asked about the risk of ongoing finance for local authorities.
• Cyber Security: Councillor Tara Usher asked about the annual review of management systems related to cyber security, and whether the risk should be downgraded given the systems in place.
• Major Incident Response: Councillor Claire Simmons questioned the caveat in risk five on page 161, regarding the council's capacity to respond to a major incident.
• Risk to Residents: Councillor Andrew Ling asked about the balance between risks to the council and risks to residents, and when a risk is considered to have come to fruition.
• Lancaster West Estate: Councillor Claire Simmons asked about the change in the delivery model for the Lancaster West estate.
• Notting Hill Carnival: Councillor Claire Simmons asked for an update on the Notting Hill Carnival, and whether the committee had confidence that discussions would progress at a rate that was satisfactory.

Report of the Chairman of the Audit and Transparency Committee

The committee reviewed the draft report of the Chairman of the Audit and Transparency Committee. Councillor Liz Murrall noted a few typos, and that the report mentioned meeting with the external audit separately, but not the internal audit.

Action Tracker and Forward Programme

The committee reviewed the action tracker and forward programme. Councillor Claire Simmons requested that the tracking of recommendations and management actions be added to the action tracker. Councillor Tara Usher suggested a deep dive into cyber security, and Councillor Claire Simmons suggested a deep dive into the child care costs.