Agenda item

To consider the report of the External Auditors (Grant Thornton).

The Director External Audit (Grant Thornton) referred to the new approach to the value for money assessment which changed in 2021 introduced by the National Audit Office to a much broader scope of work using the three pillars of

• Financial sustainability
• Governance
• Arrangements for improving economy, efficiency and effectiveness.

She advised that, rather than report by exception, they now had to offer a more detailed narrative statement giving positive assurances as well as those areas which require attention and scope for improvement. She also referred to the three classifications and recommendations that could arise from the work that they undertake as part of the assessment including:-

• Improvement -  with more value added and improved recommendations to help improve and strengthening the Council’s existing arrangements;
• Key recommendations - if a significant weakness in arrangements was found, a key recommendation was required to be issued, and to formally follow up any such recommendations as part of the following year’s assessment and report on progress; and
• Statutory recommendation – this was limited to the most serious of weaknesses and requires Council to sit to receive the recommendation, debate and respond with a plan of action to address.

On that basis, she drew Members’ attention to the Executive summary of the report and identified three possible areas with scope for further improvement of the existing arrangements. It was not uncommon in this first year of the new regime to have a baseline assessment where there are a number of recommendations and it is consistent from findings from many other local authorities. She referred to one area of significant weakness relating to the governance arrangements of Exeter City Living. The recommendation was set out which included along with the potential impact on the authority, the management response and action being taken to address that particular matter.

The Director Audit responded to the following Members’ comments –

• in terms of a comparison, there was still some 2020/21 work to complete on the national picture. They were aware of a number of authorities where a key recommendation had been identified, with an escalation to a higher level of a statutory recommendation for a small number. The National Audit Office published all the Auditor’s data on the reports.

• the audit had commenced with Exeter City Living in the context of it being the most significant entity in the Group Accounts, but the team also considered the arrangements for other group entities where the activity was significant in the context of the Council’s operations. They also consider other entities in varying stages of formation, as risks can be more prevalent in the set up phase and it was important to identify risk and exposure as early as possible.

• in respect of dormant and new companies, External Audit also make a determination before a Value for Money (VFM) assessment is conducted. If they are aware of a significant group entity in the process of being established they will pick that up as part of that process through a review of papers, discussion with officers and engagement with the Audit and Governance Committee.

• a view on considering what is deemed to be commercially sensitive information should be given close legal consideration by the Council’s Monitoring Officer. It was not appropriate for her, as External Auditor to comment on documents that were deemed commercially sensitive for the authority. They had noted the scope to improve the visibility of operation and performance of an external company to the authority to see how the performance was being reported in terms of holding the company to account.

• establishing a shareholder board was a mechanism that could be used to manage governance of the Councils’ external companies, but it was important to consider the most appropriate model of governance for the individual authority

·      company directors had a specific legal duty to act in the best interest of that company, and there may be an issue for officers in that position who may be expected to hold and challenge the company to account. She had no concerns over Member representation.  The Director Finance contributed to this discussion and confirmed that he along with the Corporate Director were no longer Directors of one of the Council’s companies, Exeter City Living.

The Director Finance confirmed that the review of the governance of external companies was underway and he would enquire on the timeframe for the process from the Leader and the Chief Executive & Growth Director. Following some discussion, a proposal to ensure the Chartered Institute Public Finance and Accountancy (CIPFA) Guidance was taken into consideration in the review of governance arrangements for Exeter City Council was made. It was anticipated that the report on the outcome of the review would be made to the Executive and then Council before coming back to the Audit and Governance Committee.

The Director External Audit stated that their report had included a factual interpretation of the current regulations relating to what should be included in the Minimum Revenue Provision (MRP) calculation, which has an element of interpretation by some authorities. The proposed consultation should make this clearer. Capital loans to third parties should be in the spirit of what they were intended, and incorporated as part of the MRP calculation.  The Director Finance had met with the Government’s Capital Financing team and discussed this issue. He understood the challenge that the Government has in relation to ensuring all Councils were properly addressing this issue and protecting future taxpayers.

The Director External Audit stated that when delivering value for the tax payer it was important to focus on the important risk areas, identifying the lowest level of tolerance. The starting point was an authority’s Risk Register and reviewing the significance of the risk to the organisation of the high value areas which often support the Council’s strategic objectives.  She invited Members to make a case for any areas of key risk for future focus of their value for money assessment.

The Audit and Governance Committee noted the report and added two further recommendations:

(1)     to ensure the options as set out in the Chartered Institute Public Finance and Accountancy (CIPFA) Guidance are taken into consideration in the review of governance arrangements for Exeter City Council companies; and

(2)     Audit and Governance Committee to receive a report on the approved Governance arrangements once adopted by Council.