The Audit and Risk Committee met to discuss external audit reports from BDO and Grant Thornton (GT), consider management responses, and review the committee's work programme. The committee approved the audited Statement of Accounts for the London Borough of Barking and Dagenham and the Pension Fund for the financial years 2019/20 to 2022/23, delegating authority to the Strategic Director of Resources to finalise the accounts with BDO for publication.

Here's a breakdown of the key discussion points:

• BDO Audit Reports and Management Response
• BDO's Audit of the Pension Fund Accounts
• Management's Response to BDO's Audit Reports
• Grant Thornton's Audit Progress Report and Sector Update
• Management's Response to Grant Thornton's Report
• Committee Work Programme

BDO Audit Reports and Management Response

The committee reviewed BDO's audit of the Council Statement of Accounts for the financial years 2019/20 to 2022/23, including associated value for money reports. Steve Bladen, BDO Partner, summarised the key messages, noting that BDO intended to issue a disclaimer of opinion¹ on all four years' worth of audits. The primary reason for this was the continuing investigation into the lawfulness of transactions, specifically prepayments and loans, between the council and the pension fund. BDO's view, supported by their legal advice, was that the council did not have the legal power to enter into these transactions.

The Strategic Director, Richard Harbord, acknowledged the difficulties, noting that the PSAA would mediate on the fees, and that nobody in the senior Finance Department was present for any of those years. He stated that the council had reversed all the entries related to the pension fund transactions, ensuring no financial loss, and gave an undertaking that the London Borough of Barking and Dagenham would never repeat such actions. While the council had its own legal advice deeming the transactions lawful, they would not engage in them again as they were not considered sensible.

Councillor Rocky Gill raised concerns that the transactions were not agreed by the Pension Committee, and that she had been raising concerns about them for many years. She also highlighted the lack of stability in the finance team during that period.

Mr Bladen clarified that BDO would update the breakdown of additional fees and provide it to the Strategic Director of Resources before submitting it to the PSAA. He also highlighted the need for the council to focus on governance arrangements, particularly around subsidiary companies, and on financial sustainability, given significant budget gaps.

Councillor Josie Channer emphasised that the transactions happened relatively recently, and that systems and processes should allow new staff to understand past decisions. She suggested that the council should have access to the relevant employee's email inbox to investigate the reasons behind the transactions.

Councillor Dorothy Akwaboah questioned the lack of continuity and access to information for incoming senior officers.

Mr Harbord explained that the council had changed its account system during this time, making it difficult to trace earlier transactions. He also noted a succession of interim Section 151 officers, with limited handover, and that the officer responsible for the pension fund at the time had since left the council.

He assured the committee that the pension committee's setup had been completely changed, with advisors now attending and everything being reported to the committee. He also stated that the council had brought stability to the finance department with new, permanent senior staff.

Councillor Adegboyega Oluwole concluded that the code of audit practice had not been duly followed and sought assurance that this would improve.

Councillor Gill asked for clarity on the determination of fees for 2018-19 and whether legal costs would be added to the 2019-20 fees. She also sought clarity on BDO's concerns around subsidiary companies, specifically whether it was the complexity, performance, or financial transactions that were the issue.

Mr Bladen clarified that the fee increase for 2019-20 reflected the legal advice taken, and that the concerns around subsidiary companies related to the council's oversight and assurance that they were meeting their objectives.

Mr Harbord added that the questions raised about the companies were legitimate, and that the council had commissioned a detailed report from EY, which formed the first year of the value for money assessment for Grant Thornton.

Councillor Mohammed Khan emphasised the need for careful agenda distribution and sufficient time for members to review documents.

BDO's Audit of the Pension Fund Accounts

BDO's representative explained that the 2019-20 pension fund audit was close to completion a year prior, but progress stalled due to a lack of engagement from the pension fund accountant. The only remaining queries related to cash transactions around year-end. The representative stated that the opinion on the 2019-20 pension fund would reference the lawfulness of the transactions, and that the 2021, 2022 and 2023 audits would be simple disclaimed opinions. He also noted inconsistencies and errors in the unaudited accounts.

The BDO representative explained that they had taken their own legal advice because they felt that the council's legal advice had not been specifically directed to the nature of the transactions undertaken.

Mr Harbord responded that the pension fund accountant had gone on maternity leave, and that BDO had asked the wrong question of their solicitors. He stated that he had discussed the matter fully with the council's KC, who was clear that the council had not acted unlawfully.

Councillor Gill asked if the situation was unique to Barking and Dagenham, or common among other local authorities. The BDO representative responded that prepayments were common, but loans were not, and that regulations changed in 2016 to largely prevent cash sharing between general funds and pension funds.

Councillor Khan asked how the funding from the pension fund audits were being reflected in planning for the 2025-26 accounts. Mr Harbord responded that the council had corrected the accounts and were waiting for the pension fund accounts to be audited.

Councillor Oluwole asked who made the decision regarding the transactions between the council and the pension fund. The BDO representative responded that it would have been the pension fund officer, which was why the auditors had raised the issue.

Councillor Gill asked if Mr Harbord had ever come across this situation in other authorities where he had worked. Mr Harbord responded that prepayments for employers' contributions always got clearance from the actuary, but that these were not prepayments of employers' contributions.

Management's Response to BDO's Audit Reports

Mr Harbord introduced the item, noting that the annual governance statement had not been properly dealt with in previous years. Shabana Kausar, Director of Financial Services, summarised the key findings in the BDO report, including historical deficiencies in quality control and reliance on temporary staff. She stated that management actions had been put in place to strengthen processes, particularly around property valuation checks. She also stated that governance issues had been addressed, and that value for money points had been improved.

Councillor Gill asked about the contingency plan to ensure continuity measures were fully embedded, and whether the finance team was now all permanent. She also asked for more detail on the quality assurance checks and planned improvements for 2025-26.

Mr Harbord responded that the majority of the staff were now permanent, and that they were embedding new processes. Ms Kausar added that additional quality assurance processes had been introduced, and that a lessons-learned session would be held in January to feed into the planning process for 2025-26. She also mentioned succession planning and knowledge sharing.

Councillor Khan asked for details of management's reasoning for disagreeing with the auditor's conclusions on the legality of the transactions between the council and its pension fund. Ms Kausar responded that the council was going with its KC's opinion, and that they had revised their treasury management strategy and strengthened governance processes to prevent a recurrence of such issues.

Councillor Channer stated that she was not convinced that the council was fully learning the lessons from the transactions between the pension fund, and that she would like to know who authorised the employee to make such a decision.

Mr Harbord responded that the employee was the head of Treasury and Pension, a senior officer who was considered competent at the time. He stated that they would never find out exactly what the motivation was, but that he thought he was doing the right thing. He also stated that financial regulations had been changed to make such transactions more difficult.

Stephen Warren, Independent Member, asked what procedures had been performed to satisfy officers that there were no material events arising after the preparation of the accounts, and what officers had done to satisfy themselves that it was appropriate to sign the management representation letters.

Mr Harbord responded that they looked at post-balance sheet events every year and were content that the accounts had no material post-balance sheet accounts. He also stated that he understood the letters of representation and was content to sign them.

Grant Thornton's Audit Progress Report and Sector Update

Ibukun Oluwasegun, Grant Thornton Audit Manager, presented a progress report for the financial year 2024-25, noting that the priority was on in-year transactions and closing balances. She stated that 25% of the samples had been completed to date and that they were working through remaining samples with officers.

Paul Dossett, Grant Thornton Partner, added that the government was keen on rebuilding assurance and had written to them to ask how this particular audit was going. He stated that the process of rebuilding assurance would start after they had surety over the in-year transactions for this year. He also flagged that the audit opinion for 2023-4 and 2024-5 would be a disclaimed backstop opinion.

Mr Dossett reassured members that practice note 10 of the auditing practices requires, or states that, accounting practices, states that all public bodies are going concerns until services cease.

Councillor Khan asked Mr Harbord to provide assurance that he was going to revisit the thousands of pages of documents.

Management's Response to Grant Thornton's Report

Mr Harbord introduced the item, stating that it was a response to the points made by Ms Oluwasegun about progress.

Ms Kausar added that there had been a different approach to running the audit process this year, with regular discussions to ensure that the auditors could meet their deadline. She also stated that some of the areas that had not yet been looked at, especially like the group accounts, would be improved for 2025-26.

Mr Harbord stated that they were going to do a much more detailed programme for closing the accounts next year and for doing the working papers. He also stated that detailed processes had been written out so people could pick up and follow what they were doing.

Councillor Gill asked what level of confidence members could have that the additional results were competent and experienced. She also asked how challenging the finance market was in terms of recruitment of experienced staff.

Mr Harbord responded that the people working on the audit at this current time were highly competent and had been doing a very good job. He also stated that the jobs market was almost impossible, and that it was very difficult to recruit qualified accountants.

Councillor Akwaboah asked how far the council had progressed with growing their own talent. Mr Harbord responded that they had done a reorganisation of the finance department and increased the number of accounting technicians, apprentices and trainees at the bottom of the department.

Councillor Warren asked what level of confidence officers could provide that the figures for IFRS 16 were accurate, complete and supportable. Ms Kausar responded that they had an implementation plan and were looking to get an additional resource to help the team to get ready. She also stated that she would give a written update on that for the next meeting.

Committee Work Programme

The committee reviewed its work programme for the year. It was noted that an additional committee meeting was being planned for 18 February to sign off two years' accounts from Grant Thornton.

Councillor Warren noted that there were no references to reviewing the accounts of subsidiaries, and that it had been difficult for the committee to make the case that the subsidiaries should be coming to this committee. He stated that he anticipated that from May onwards, the committee would play a full-throttled role in reviewing those accounts.