The Audit Committee of Tower Hamlets Council met on Wednesday, 3 December 2025, to discuss the external auditor's interim value for money report and the Council's response to statutory recommendations. Key areas of discussion included financial reporting, internal controls, procurement, and the effectiveness of the internal audit function, alongside significant weaknesses identified in the Council's governance arrangements, particularly concerning social housing and the capacity of its senior leadership team.

External Audit Interim Value for Money Report and Statutory Recommendations

The Audit Committee received the interim Value for Money (VfM) Report from Ernst & Young LLP (EY) for the year ended 31 March 2025. The report highlighted ten significant weaknesses and four statutory recommendations, building upon issues previously identified by Deloitte. These concerns span financial reporting, internal controls, procurement, and the effectiveness of the internal audit function. EY noted that while the Council has taken steps to address these issues, the pace of improvement has not always matched the scale of the challenges, leaving the Council exposed to further risks.

EY issued three statutory recommendations in February 2025 concerning:

1. Arrangements for reliable and timely statutory financial reporting: The Council has made progress in clearing a backlog of unpublished accounts and publishing the 2024/25 draft accounts ahead of the statutory deadline. Improvements have been noted in audit responses and working paper quality compared to the previous year.
2. Arrangements to manage risks effectively and maintain a sound system of internal control: The Council is developing a comprehensive action plan, with progress reported quarterly to the Corporate Management Team (CMT) and overseen by the Audit Committee. The Council also received the 'Public Sector Risk Management Award' in November 2025.
3. Contract Management and Procurement: A comprehensive Procurement Improvement Programme has been implemented, focusing on governance, transparency, controls, and training. Systemic changes include revised RFQ thresholds, contract management training, strengthened purchase order processes, and the introduction of expenditure panels. An additional draft statutory recommendation was made regarding the effectiveness of internal investigations.

EY also identified significant weaknesses in:

• Effectiveness of the Internal Audit Function: Despite an 'Generally Conforms' rating in a 2024 External Quality Assessment, EY noted concerns about the assurance level provided in the Head of Internal Audit's opinion, citing issues such as the handling of Project NextWage and Project Winter/Autumn investigations, and a lower attainment of 'reasonable' assurance for individual reviews compared to other local authorities. EY recommended a further independent external review with a broader scope.
• Annual Governance Statement (AGS): EY noted that the AGS did not fully reflect the scale of issues faced and recommended alternative arrangements for its preparation from 2025/26 onwards to safeguard professional independence, aligning with CIPFA guidance.
• Capacity of the 'Golden Triangle': EY highlighted significant turnover within the three statutory officer roles (Chief Executive, Section 151 Officer, Monitoring Officer) and expressed concern over the slow response to filling the permanent Section 151 Officer role, leaving the Council exposed.
• Audit Committee Effectiveness: EY identified weaknesses in the Audit Committee's effectiveness, including concerns about its independence due to Cabinet member membership, inconsistent member contribution, potential misunderstandings of its role, lengthy and late papers, and a lack of consistent oversight of recommendations. EY recommended enhanced training, a review of membership, annual reporting to Full Council, and strengthened oversight of recommendations.
• Best Value Inspection: EY noted that the Council's response to the Best Value Inspection and Ministerial Directions was still in its early stages, with significant work required to embed improvements into 'business as usual' practices.
• Social Housing: EY reported significant weaknesses following the Regulator of Social Housing's C3 grading, citing serious failings in meeting safety and quality standards, and weaknesses in transparency, tenant influence, and complaints handling. EY recommended that the Council address these issues to comply with legal and regulatory requirements and ensure tenant safety, and to consider the adequacy of governance over its subsidiaries.

The Council acknowledged these findings and presented a comprehensive response, including a Value for Money Response Mobilisation Plan with four workstreams: Financial Management & Accountability, Audit Investigations & Assurance, Procurement & Contract Management, and BVI, Core Services & Capability. This plan aims to coordinate, prioritise, and accelerate the Council's response to EY's findings, with a desired end state of having a comprehensive action plan approved by 19 December 2025 and progressed to a point where both the Council and external auditors have confidence by 30 June 2026.

Risk Management and Internal Audit

The Council presented its updated Risk Management Strategy & Framework for 2025-30, which aims to integrate risk management into the Council's culture and processes. The strategy outlines roles and responsibilities, risk appetite levels, and a cyclical process for identifying, assessing, managing, monitoring, and reviewing risks. The Resources Directorate Risk Register was also reviewed, highlighting several high-risk areas including financial standing, cyber security, and the capacity of the 'Golden Triangle'.

The Internal Audit and Anti-Fraud Progress Report for 2025-26 indicated that while progress has been made, the delivery of planned audit engagements has been slower than anticipated due to a focus on follow-up exercises and delays in procuring a new contract partner. Implementation rates for internal audit recommendations were reported as 82% for 2023-24 and 70% for 2024-25. The report also detailed the assurance opinions for completed audits, with several receiving 'Limited' assurance.

Other Matters

The Audit Committee also noted the Council's draft Annual Governance Statement for 2024/25, which reflects revised arrangements for its preparation following CIPFA guidance. The statement acknowledges areas for improvement, including risk management, reporting and audit practices, and political behaviours and capacity building.

The meeting also covered updates on the Council's Continuous Improvement Plan (CIP), which is structured into four programmes: Vision, Partnerships and Participation; Governance, Political Culture and Decision Making; Culture and Workforce; and One Corporate Team. These programmes aim to address systemic challenges and embed sustainable improvements across the organisation.

The Audit Committee resolved to note the reports and recommendations presented, with ongoing monitoring of progress against action plans to be provided.