The Audit Committee of Hertfordshire Council met on Friday 25 July 2025 to review the council's financial health, governance, and risk management. Key discussions included the draft 2024/25 accounts, treasury management performance, the annual governance statement, and updates on risk management, anti-fraud activities, internal audit progress, and whistleblowing. The committee noted the council's financial position, governance arrangements, and ongoing efforts to mitigate risks and combat fraud.

Draft Accounts and Audit Update

Matthew Nendick, Finance Manager, presented the draft Statement of Accounts for 2024/25, which were published on 30 June 2025. The audits of both the council's accounts and the Huffshire Pension Fund have commenced, with KPMG noting good progress and a positive working relationship with the auditors. Notable changes in this year's accounts include the adoption of IFRS 16, which alters the accounting treatment of leases, and the accounting for the council's Dedicated Schools Grant (DSG) deficit. Hertfordshire County Council (HCC) entered a DSG deficit for the first time in 2024/25, amounting to £25.5 million. A statutory override, introduced in 2020, currently prevents this deficit from impacting the general fund until 2028, with the government expected to provide a national solution.

Councillor Graham raised concerns about the complexity of accounting practices, particularly the retrospective application of IFRS 16, which he felt could raise suspicions among residents. Councillor Needham questioned the potential impact on the general fund if the government does not provide a solution to the DSG deficit by 2028. Matthew Nendick confirmed that if no solution is found, the deficit would indeed impact the general fund, potentially leading to considerable financial difficulties for the council.

The committee noted the publication of the draft Statement of Accounts and the Statement of Accounting Policies contained within it. The committee also acknowledged that an additional meeting might be required in the autumn to ensure the accounts are formally signed off, ideally without a disclaimer of opinion.

Treasury Management Service and Prudential Indicators 2024/25

Kate Iles, Finance Manager, presented the end-of-year report on the Treasury Management Service and Prudential Indicators for 2024/25. The council's treasury management activities are conducted within the framework of CIPFA's Treasury Management Code of Practice, requiring the approval of a Treasury Management Strategy annually. The report indicated that all treasury management indicators were met during 2024/25, with no breaches.

The council maintained a diversified investment portfolio, with liquidity managed through money market funds, instant access bank accounts, and fixed-term deposits with the Government's Debt Management Office. The council also holds £29 million in long-term strategic pooled funds, which had a market value of £27.2 million at the end of March 2025, representing a capital loss of £1.8 million. This loss is currently held in an unusable reserve due to a statutory override, which has been extended until March 2029.

In terms of borrowing, the council undertook new borrowing of £135 million during the year to fund its capital programme and invest in assets. Advice is sought from Arlingclose, the council's Treasury Management Advisor, on loan duration, amount, and type. The majority of the council's loans are with the Public Works Loan Board (PWLB). The council's borrowing portfolio is regularly reviewed for opportunities to reduce costs through restructuring loans. While no restructuring was undertaken in 2024/25, discussions are ongoing with a lender of commercial loans, the impact of which will be reported in the next treasury update.

Councillor Crystal inquired whether the £568.6 million of long-term borrowing outstanding included the high-needs block. Kate Iles clarified that the high-needs block impacts the level of borrowing required due to the council's policy of internal and external borrowing. Councillor Graham expressed satisfaction at the repayment of £9.4 million of LOBO loans, noting that one had been called in due to an interest rate increase, and the council had refinanced it through a PWLB loan. He also questioned the variation in PWLB borrowing rates and the council's strategy for timing borrowing. Kate Iles explained that borrowing is a combination of cash flow forecasting and rate monitoring, with advice to borrow gradually.

The committee noted the Treasury Management Report.

Annual Governance Statement 2024/25 and Code of Corporate Governance 2025/26

Chris Wood, Head of Assurance Services, presented the draft Annual Governance Statement (AGS) for 2024/25 and the updated Code of Corporate Governance for 2025/26. The AGS reviews the council's governance framework, concluding that it remains reasonable and fit for purpose. However, the review identified several governance issues requiring improvement, with an update on the previous year's issues also provided.

The statement highlighted recent changes, including a new administration following the May 2025 elections, the appointment of a new Chief Executive and Director of People, and the introduction of the OneHCC initiative. The council is also undertaking a risk management review and has established a Budget Delivery Board. The AGS noted that the council's external auditors, EY and KPMG, had issued disclaimed opinions on the 2022/23 and 2023/24 accounts, respectively, due to national issues and pending legislation. However, KPMG's value for money risk assessment found no significant weaknesses.

Councillor Graham supported the new risk register format, finding it clearer and more concise. He also raised a point about the reconciliation between the previous 37 risks and the current 18, suggesting a diagram would be helpful to understand how risks have been managed. Councillor Hill sought clarification on the risk assessment for climate change, noting a discrepancy between the agenda pack and the online register.

The committee approved the draft Annual Governance Statement and the updated Code of Corporate Governance.

Risk Management Update

Chris Wood, Head of Assurance Services, provided an update on the risk management framework and the council's corporate risks. A significant review has led to a streamlined corporate risk register, reducing the number of risks from 37 to 18, themed around strategic, finance, people, service delivery, and statutory duty. Risk descriptions have been simplified, and reporting structures have been changed. A new five-by-five risk matrix is planned for introduction.

Councillor Hill raised concerns about the shortage of social care workers, including the lack of foster carers, and the impact of national insurance changes. She also inquired about anti-social hours payments. The response indicated that the council's directly employed staff are shielded from national insurance changes via a government grant, but care providers are not exempt, and the knock-on impacts are still being assessed.

Councillor Needham questioned how the risk of insufficient funding for SEND is being reduced, given the ongoing discussions about increased spending. The response indicated a slight reduction due to efforts to speed up EHCP completion, but acknowledged that overall costs and high needs funding remain areas of concern.

Councillor Graham supported the new risk register format and suggested that the Audit Committee should see a reconciliation of the previous 37 risks to the current 18. Councillor Crystal inquired about the frequency of risk management updates, and it was confirmed that deep dives on selected risks occur approximately four times a year. Councillor Roberts highlighted the importance of health and safety duties and suggested it as a potential area for future review.

The committee agreed that the focus report for the next meeting would be on the shortage of social care workforce in the whole sector, with a request to include a definition of social care workforce and whether it encompasses foster carers.

Anti-Fraud Report 2024/25

Nick Jennings, Head of Shared Anti-Fraud Service (SAFS), presented the annual anti-fraud report for 2024/25. The report detailed the work undertaken by SAFS and the council to protect public funds from fraud. High levels of fraud were detected, with prevented fraud significantly exceeding losses. The report highlighted the effectiveness of the council's investment in its counter-fraud function, demonstrating a positive return on investment.

Key findings included:

• Fraud Detected: £1.2 million in fraud loss/savings from 30 closed investigations, with 43 cases still under investigation estimated at £1.4 million.
• Fraud Prevention: Significant savings were generated through proactive work, including £1.7 million in new council tax revenue from the Council Tax Review framework and potential benefits of up to £1.6 million from New Homes Bonus reviews.
• Training: 85% of staff completed mandatory e-learning modules on anti-fraud, anti-bribery, and anti-money laundering.
• Executive Reports: Six executive reports were issued, focusing on weaknesses in systems and processes, particularly in Adult Care Services and Children's Services.
• Data Matching: The National Fraud Initiative (NFI) exercise identified 31,000 matches for review, with initial savings of £6,000 identified, and an estimated further £550,000 expected. The Hertfordshire FraudHub identified 1,100 potential matches, leading to 70 errors/frauds with £9,000 in savings.
• Referrals: A significant increase in fraud allegations was noted, with 347 received in 2024/25, a rise from 295 the previous year. Blue Badge abuse, mandate fraud, and fraud against care services were highlighted as areas of concern.

Councillor Needham inquired about councillors accessing anti-fraud training and the nature of fraud related to special guardianship orders. Nick Jennings explained that special guardianship order fraud often involves continued payments after a child has moved to a different care setting. He confirmed that the possibility of councillors accessing training would be investigated. Councillor Crystal also asked if fraud alerts were sent to members, and Nick Jennings clarified that alerts are typically sent to officers due to their confidential nature, but a bi-monthly overview report could be shared. Councillor Hill asked about planning for AI-related fraud and the impact of the 37 days of reduced operational days for adult social care. Nick Jennings explained that IT security is addressing AI threats and that the reduction in adult social care days was due to a change in funding arrangements.

The committee noted the report on anti-fraud activity.

Delivery of the 2025/26 Anti-Fraud Plan

Nick Jennings provided a progress report on the delivery of the 2025/26 Anti-Fraud Plan. The report indicated that the plan is progressing well, with SAFS issuing five fraud alerts and two fraud threat reports covering areas such as polygamous working, mandate fraud, and economic crime. Three executive reports have been issued, focusing on direct payment fraud, overtime fraud, and misuse of council assets, primarily within Adult Care Services and Children's Services.

The report highlighted a significant increase in fraud allegations received, with 96 in the first quarter, a step up from previous years. Two cases have been referred to the legal team for prosecution, involving significant losses, particularly in adult care services. The National Fraud Initiative (NFI) work is progressing well, with reported savings of £550,000 as of the second quarter. All KPIs appear to be on target.

The committee noted the report on the delivery of the 2025/26 Anti-Fraud Plan.

SIAS Internal Audit Progress Report

Darren Williams, Head of Shared Internal Audit Service (SIAS), presented the progress report on the delivery of the council's internal audit plan for 2025/26. As of 29 June 2025, 20% of the planned audit days had been delivered, with 17% of projects completed to draft report stage. The report detailed the outcomes of 11 assurance projects and four grant certifications.

Proposed amendments to the audit plan include deferring an audit on Section 106 and CIL to 2026/27 due to expected planning reforms, and cancelling two grant certification activities as they are no longer required. A new audit on Pensions Administration, focusing on the Firefighters Pension Scheme, has been added.

One limited assurance audit was reported concerning Purchase Cards, identifying three medium priority recommendations related to control weaknesses in credit limit increases and card blocking. The report also provided an update on outstanding audit recommendations, noting four medium priority recommendations that are over 12 months overdue. Discussions are ongoing regarding the implementation status of some recommendations, with a view to classifying them as implemented if they are now business-as-usual activities.

The committee noted the Internal Audit Progress Report and approved the proposed in-year amendments to the 2025/26 Audit Plan.

Whistleblowing Annual Report 2024/25

Chris Wood, Head of Assurance Services, presented the annual whistleblowing report for 2024/25. The report indicated a significant increase in the number of whistleblowing reports received, from four in the previous year to sixteen in 2024/25. Of these, seven related to employment matters, which were directed to HR. Four cases were considered to meet the criteria for whistleblowing under the council's policy. Following investigation, allegations in two cases were not upheld, one was upheld, and one remains under review. Comparative data from other local authorities showed Hertfordshire's figures to be not dissimilar to councils of a similar size.

Councillor Needham inquired about the whistleblowing procedure, specifically whether employees could escalate concerns through line management or go directly to a reporting officer. Chris Wood clarified that while escalation through line management is an option, direct reporting to one of the three designated whistleblowing reporting officers is also possible, and most reports are received directly.

The committee noted the Whistleblowing Annual Report.

Future Work Programme

The committee reviewed and noted the proposed future work programme, which includes further internal audit progress reports, a risk management update, and a risk focus report. The committee also noted that good news on audits was anticipated in the autumn.

The meeting concluded with the committee agreeing to note the future work programme and confirming that there were no further items of Part I or Part II business. The committee finished at 11:30 AM.