The Audit and Governance Committee met to discuss the external audit progress, the internal audit progress, the internal audit charter, the risk report, and the treasury report. The committee approved the Internal Audit Charter and noted the other reports. A suggestion was made to add a self-assessment of the committee's effectiveness to the work programme, but this was not agreed.

State Street Loan

The committee received an update on the repayment of the State Street loan, which had been a long-standing issue for the council. Councillor Stephen Woodliffe raised the history of the loan, saying:

there was attempts in 2012-13 to get rid of this loan, but we didn't make any progress. So the question is, you know, what happened then for them to suddenly throw in the towel and give us what we wanted.

Sean Howsam, Treasury Manager from PSPSL, explained that the loan had been sold to the Rolls Royce pension fund, who were keen to exit the loan to reduce their governance requirements. They offered the council a one-off opportunity to repay the £1,000,000 loan with a premium of £470,000, which was considerably lower than previous quotes. The council has now replaced the State Street loan with a £1,000,000 Public Works Loan Board (PWLB) loan at a rate of 4.1% for five years. Mr Howsam calculated that this would save the council around £660,000 over the life of the loan.

Councillor Anne Dorrian congratulated Mr Howsam on his big, big achievement in redeeming the loan, and requested that the final note on the State Street Loan include:

• the year it was taken out
• that the methodology of taking out such a loan could rely simply on one single officer making that decision on their own without bringing that decision through political leadership or indeed field council
• the total amount that it's cost this council in the lifetime of the loan.

Q1 Treasury Report

Sean Howsam, Treasury Manager from PSPSL, presented the Q1 Treasury Report 2025-26¹, which covered the period ending 30 June 2025. The report noted that the Bank of England base rate had been reduced in May from 4.5% to 4.25%, and that it had since been reduced to 4% during quarter two.

The report also provided an update on the council's property fund investments. Mr Howsam noted that the M&G UK property fund is liquidating its assets and the council has received distributions of just over £200,000 to date, leaving an amount of just under £200,000 outstanding of its original investment. He also noted that the AEW fund has received redemption requests of 90% of the fund and has suspended the trading of its shares to avoid fire sales of assets.

Councillor Richard Austin asked if the council should be considering a change of strategy going forward on the property funds. Mr Howsam responded that the council is regularly in discussions with the Section 151 Officer² and senior leadership team in relation to the property funds, but that they need to consider the market circumstances, the likely duration of getting out of those funds, and the forecast for property funds going forward. He added that if the council exits the property funds at a loss, they would have to finance that loss from their reserves in the year that the loss crystallises.

Councillor Anton Dani asked if the council had any strategies in place to prepare for the economic situation, including inflation and the upcoming budget. Mr Howsam responded that the council keeps the interest rate forecast under regular review and tries to maximise investment returns. He added that the council takes into account the forecasts for inflation when setting the budget for future years.

Councillor Stephen Woodliffe noted that the council had investments in four councils based in Scotland, and asked if the differences between Scottish and English law were taken into account when lending money to these councils. Mr Howsam responded that while there are some differences in the processes, Scottish local authorities are still backed by the government and would have to make contractual payments even if they were in financial difficulty.

Q1 Risk Report

Suzanne Rolfe, Group Manager of Insights and Transformation, presented the BBC Q1 Risk Report³, which covered the period ending 30 June. She highlighted several changes to the risk register, including:

• The wording of the civil contingency risk has been reviewed and updated, and the battery storage risk will be picked up locally and raised with the Lincolnshire Resilience Forum.
• The wording of the Environment Act risk has been updated, linked to the extension of the depot lease and the Waste Improvement Program Board.
• The business continuity risk will be combined with the civil contingency risk.
• The health and safety risk has increased in schools due to a number of overdue outstanding audit actions, which are being addressed by the director of the health and safety clinics.
• A new risk has been added around the IT server room, and a project is underway to address the risks to the infrastructure from fire and data logs.
• The partnership risk table has been updated to include the impact of local government reorganisation and the workforce development strategy.

Councillor James Cantwell raised the battery storage risk, and Ms Rolfe confirmed that it would be picked up locally in the council's own risk register and also raised with the Lincolnshire Resilience Forum so that they can be picked up regionally.

Councillor Anton Dani asked how the council defines the local economy in the context of the strategic risks, and Ms Rolfe responded that it is specifically the risk of the local economy impacting on the council and the council's ability to deliver its priorities and its services.

Councillor James Cantwell asked how the council's safeguarding apparatus was structured, and Ms Rolfe responded that she could share the council's strategy and process with the committee.

Internal Audit Progress Report

Claire Goodenough, Head of Internal Audit and Risk, presented the Internal Audit Progress Report⁴, which shared the progress for audit delivery and outcomes since the start of the financial year. She reported that delivery is on track with plan expectations, with around 60% of the plan having been completed at the time of the drafting.

Ms Goodenough drew attention to an insufficient control report that had been issued, which arose as there were no controls in place for the audit team to test, despite there being a scope and approach that had been agreed. She explained that this was unusual and that an assurance audit would be undertaken towards the end of the year to provide the committee with assurance around the actions taken as a result of the insufficient controls report.

Councillor Stephen Woodliffe expressed concern about the insufficient controls and the absence of the Section 151 Officer from the meeting. He requested that in future, when there are questions for the Section 151 Officer, someone should be present who can answer them.

Councillor James Cantwell asked about the IT cyber security audit, and Ms Goodenough explained that the audit had been undertaken by a co-sourced partner and that she had addressed the poor feedback with their manager, who had amended their practices as a result.

External Auditors Progress Report

Rosie Kelly, KPMG Engagement Manager, provided a verbal update on the external audit for the year ended 31 March 2025. She reported that the audit was approximately 85% complete, a significant improvement on the previous year, and that they were on track to present their completion documents to the November audit committee.

Ms Kelly noted that they had faced difficulties during their work over a significant risk of the valuation of land and buildings, in particular the timeliness and quality of responses from the internal valuer. She added that they had been working closely with the finance team to resolve these issues and it should not prevent them from finalising the audit.

Ms Kelly also raised the issue of six councillors who had not returned their declaration of interest to the finance team, which was preventing them from confirming the completeness of the related parties disclosure note.

Councillor Anne Dorrian criticised the Democratic Services team for chasing up elected members' declaration of interest forms, stating that this was the responsibility of group leaders. Amanda Dickinson clarified that she had gone through group leaders to chase members, and that this was being done as a favour to help Ms Kelly and the team out.

Internal Audit Charter

Claire Goodenough, Head of Internal Audit and Risk, presented the Internal Audit Charter⁵, which is the official document that sets out the conditions and requirements for delivering internal audit across the council. She explained that it is good practice to review the charter when there is a fundamental change, such as a change to audit leadership, a change to reporting structure, the constitution of the audit committee, or a change to the internal audit professional standards.

The committee approved the charter, proposed by Councillor Andy Izard and seconded by Councillor Stephen Woodliffe.

Work Programme

The committee considered the work programme⁶. Councillor Anne Dorrian suggested adding a self-assessment of the committee's effectiveness, but this was not supported by other members.

Councillor James Cantwell noted that there is already a robust self-assessment process in place, where each member has to fill out a detailed survey on their abilities and what they think the committee is doing well and what it hasn't done well. Councillor Stephen Woodliffe praised the chairman and the committee's performance, and said that he did not think any extra training was required.