Venue: Mandela Room
Contact: Susan Lightwing
Welcome and Evacuation Procedure
The Chair welcomed all present to the meeting and read out the Building Evacuation Procedure.
Declarations of Interest
any declarations of interest.
The minutes of the Corporate Affairs meetings held on 23 and 29 September 2022 were submitted and approved as a correct record, subject to the following amendment:
29 September 2022 – M Rutter (Ernst Young) – name to be moved from heading “Officers” to “Also in Attendance”.
Teesside Pension Fund Audit Results report 2020/21
Due to issues in relation to insurance and some adjustments that were needed, as well as national advice and guidance that was awaited, this item was deferred for consideration at a future meeting.
AGREED that the Teesside Pension Fund Audit Results Report 2020/2021 was DEFERRED.
The External Auditor presented the Value for Money
The Council had taken positive
actions to respond to the Auditor’s previous recommendations, including the
commissioning of external work by CIPFA to assist in identifying the root
causes of relationship issues at the Council and an action plan to address them,
implementation of an Improvement Board with an external chair and strong
representation from elected members and senior officers, and reporting of those
actions through full Council.
These steps were in line with
expectations and the future actions identified to date appeared to be
appropriate steps towards addressing both the depth and breadth of cultural and
governance issues at the Council.
It was clear however, that there
was significant concern amongst a number of stakeholders over the ability of
the Council to deliver on these actions, characterised by expressions of a lack
of confidence in the acceptance by individuals of the significance of the
governance issues identified at the Council and the commitment of all necessary
stakeholders towards meaningful change.
It would take all of the Council’s elected members and senior officers
working together to address the issues faced by the Council, however it
remained unclear whether this could be achieved.
In addition, the Improvement Plan
prepared by the Council focused on actions to be completed over the next 90
days. Whilst these were positive first
steps, the Council would not be able to enact the necessary cultural changes
within the Council which were required within this timescale, and concerted
effort over a much longer period of time would be required.
It was clear that significant
barriers to implementation of the Improvement Plan existed, however the actions
taken to date had been appropriate and given sufficient prominence amongst Elected
Members and senior officers. On this basis, the External Auditor did not
consider that it was either necessary, or would be beneficial, to escalate
their recommendation through the exercise of additional auditor reporting powers
(including statutory recommendations) at this time. The Council was currently taking appropriate
steps and should be given time to demonstrate whether those steps could have
the necessary impact on the Council’s culture and governance.
The External Auditor would
continue to monitor the progress of the Council against the Improvement Plan as
part of the value for money assessment, where EY recognised the Council’s
governance as a risk of significant weakness, and would report on the Council’s
progress through the value for money commentary. Should this assessment provide evidence that
the Council was not making satisfactory progress against the Improvement Plan,
or the actions taken were not having the necessary effect on the Council’s
culture, the External Auditor would reconsider whether a statutory
recommendation or exercise of other auditor reporting powers might be appropriate. The Auditor
confirmed that all documentation from the Improvement Groups was shared with
them and formed part of their evidence base.
AGREED that the report
was received and noted.
A copy of the update Annual
Governance Statement (AGS) 2021/2022 was presented. The AGS set out the Council’s position at the
end of the 2021/22 financial year in relation to compliance with the Local Code
of Corporate Governance (LCCG) which set out the standards to be achieved
across the corporate governance framework.
The following areas were highlighted:
made during 2021/2022 - This section would normally set out progress made
against the previous year’s Annual Governance Statement which had been
considered 12 months before this statement.
Delays in the signing off of the 2020/21 AGS meant that document had
only recently been approved and it therefore contained little movement between
the table set out in the 2020/21 AGS and this document, at this stage. Actions due to be delivered in October in
relation to delivery of officer training in relation to understanding
governance and delivery of advice and challenge had been completed.
Audit during 2021/2022 – details of 20 audits undertaken during the year were
set out at Appendix 1 to the submitted report.
Affairs and Audit Committee during 2021/2022 – corporate governance related
items considered by the Committee.
and Scrutiny during 2021/2022 – items considered by the Board.
Governance related events during 2021/2022 which included:
of Executive Members
culture and Member/Officer relationships
X and CCTV internal audits
and cost of living
Development Company activity during 2021/2022.
Concern was voiced by several
Members in relation to Member/Officer relationships and whether those
individuals responsible could be identified.
The Monitoring Officer explained that at future meetings of the
Standards Committee, Members would receive notice of all Code of Conduct
complaints that had been submitted and whether they had, or would be, dealt
with formally or informally.
In relation to measuring progress
it was confirmed that the Improvement Action Plan included milestones which
provided a quantitative measure. A
baseline survey of staff and Members had been completed and this would be
repeated as a qualitative measure. This
would provide a good basis for evidence that would be provided to the
Internal Audit were currently
undertaking an assessment of the Middlesbrough Development Company and
considering the future role of the Company and any possible recommendations or
changes to strengthen governance arrangements.
It was clarified that if the MDC was to continue, governance changes
would be needed to ensure best practice.
The Auditor confirmed that the field work on this audit had been completed
and some initial findings had been shared with Officers.
The final query from Members was
with regard to communication with Officers via telephone and email. It was confirmed that this issue was being
addressed by one of the Improvement Board sub groups.
AGREED that the Annual Governance Statement 2021/2022 was received and noted.
The External Auditor presented the Audit Planning Report for the year ended March 2022.
The Audit Planning Report set out how External Audit intended to carry out their responsibilities and provide the Corporate Affairs and Audit Committee with a basis to review the proposed audit approach and scope for the 2021/22 audit in accordance with the requirements of the Local Audit and Accountability Act 2014, the National Audit Office’s Code of Audit Practice, the Statement of Responsibilities issued by Public Sector Audit Appointments (PSAA) Ltd, auditing standards and other professional requirements. The Planning Report also aimed to ensure that the audit was aligned with the Committee’s service expectations.
The plan summarised External Audit’s initial assessment of the key risks driving the development of an effective audit for the Council, and outlined the planned audit strategy in response to those risks. External Audit’s planning procedures were substantially complete subject to final review, however the 2020/21 audit was not yet complete and should any material changes arise these would be communicated to the Committee as appropriate.
Group materiality had been set at £6.9 million, which represented 1.5% of the gross expenditure on provision of services per the draft Statement of Accounts. The threshold used for materiality assessment had been decreased from the 1.8% of gross expenditure used in the prior year due to the increased interest in the Council’s Statement of Accounts as a result of the significant weaknesses in governance.
Group performance materiality had been set at £3.4 million, which represented 50% of materiality. The percentage of materiality used for performance materiality from 75% to 50% had been decreased as the volume and size of misstatements identified in recent audits led Audit to conclude there was a higher risk of undetected misstatement.
All uncorrected misstatements relating to the primary statements (comprehensive income and expenditure statement, balance sheet, movement in reserves statement, cash flow statement and collection fund) greater than £0.3 million would be reported. The reporting threshold for the prior year’s audit was £0.4m. Other misstatements identified would be communicated to the extent that they merited the attention of the Corporate Affairs and Audit Committee.
The Auditor highlighted the following audit risks and areas of focus along with any changes from the prior year:
• Risk of fraud in revenue and expenditure recognition.
• Misstatements due to fraud or error
• Variation of land and buildings.
• Accounting for infrastructure assets.
• Valuation of defined benefit pension liability.
• Member and senior officer relationships.
• Provision of Children’s Services.
In relation to Accounting for infrastructure assets it was clarified that the Council’s records were not sufficiently detailed to allow identification of individual assets or components. It was confirmed that the Council had now had a system in place to capture this information but there was insufficient detail for previous years and a reconciliation exercise needed to be undertaken.
It was noted in that report that a high volume of correspondence with regards to the Council was received by the Auditor and ... view the full minutes text for item 22/41
The External Auditor presented
the Outline Audit Planning Report which set out how External Audit intended to
carry out its responsibilities as auditor.
The purpose of the report was to
provide the Corporate Affairs and Audit Committee with a basis to review the
proposed audit approach and scope for the 2021/22 audit in accordance with the
requirements of the Local Audit and Accountability Act 2014, the National Audit
Office’s Code of Audit Practice, the Statement of Responsibilities issued by
Public Sector Audit Appointments (PSAA) Ltd, auditing standards and other
professional requirements. The report
was also intended to ensure that the audit was aligned with the Committee’s
The plan summarised External
Audit’s initial assessment of the key risks driving the development of an
effective audit for the Pension Fund, and outlined the planned audit strategy
in response to those risks. External
Audit’s planning procedures were substantially complete subject to final
review, however the 2020/21 audit was not yet complete and should any material
changes arise they would be communicated to the committee, as appropriate.
Materiality had been set at
£50.7m, which represented 1% of the Fund’s net assets at 31 March 2022 as per
the draft financial statements.
Materiality was also set at 1% of the Fund’s net assets for the prior
Performance materiality had been
set at £25.3m, which represented 50% of materiality. The percentage of materiality used for
performance materiality had been decreased from 75% to 50% as the size of
misstatements identified in recent audits led the Auditor to conclude there was
a higher risk of undetected misstatement.
All uncorrected misstatements
relating to the primary statements (Fund Account and Net Asset Statement)
greater than £2.5 million would be reported.
The reporting threshold for the prior year’s audit was £2.3m. Other misstatements identified would be
communicated to the extent that they merited the attention of the Corporate
Affairs and Audit Committee.
The Auditor highlighted the following audit risks and areas
of focus along with any changes from the prior year:
due to fraud or error
of pooled investment vehicles.
of private market investments.
of directly held property.
of investment income.
AGREED that the report was received and noted.
The internal audit progress
report was attached as Annex 1 to the submitted report and reported on progress
against the internal audit work programme. A summary of current work in
progress, internal audit priorities for the year, completed work, and follow-up
of previously agreed audit actions was also included. Two draft reports had been issued: Payroll
and Burial Grounds and those reports would be finalised for the next
meeting. A final report on Main
Accounting had also been issued with substantial assurance. A number of actions had been implemented by
management and revised target implementation dates had been agreed for 17
actions which would be followed up.
The counter fraud progress report
was attached as Annex 2 to the submitted report and detailed progress against
the counter fraud work programme. A
range of work such as activity to promote awareness of fraud, work with
external agencies, and information on the level of fraud reported to date was
included in the report.
AGREED that the Committee noted the progress of internal audit and counter fraud work in 2022/2023.
The Director of Finance presented
a report on Capital Strategy. The
Capital Strategy 2022/2023 Mid Year Update Report provided a high-level
overview of how capital expenditure, capital financing and treasury management
activities contributed to the provision of local public services at the
Council. In addition, an overview of how
the associated risks involved were managed and the implications for future
financial sustainability were provided.
The Capital Strategy report for
the Council covered the following areas:
the Investment Strategy was funded.
relevant Prudential Indicators to monitor the performance, affordability and sustainability of the capital
expenditure being proposed in line with the requirements
of the prudential code.
Management arrangements in place for investing surplus funds and borrowing to fund capital
types of investments the Council made as part of managing its cash balances – the Annual Investment
Revenue Provision policy – including outlining how much the Council set aside to re-pay debt built up to
fund prior year’s capital expenditure in the Borough.
The Director drew the Committee’s
attention to the following:
The table at paragraph 8 of the
submitted report showed the Council’s capital expenditure, how this was
financed and the amount of borrowing.
There had been a significant amount of slippage in this year’s programme
and therefore approximately £20 million less borrowing compared to the
budget. The cost as a percentage of
revenue budget was 8.9% which was below the guideline of 10% and allowed some
headroom if any emergency works were required.
The forecast overall total long
term external debt at the end of 2022/23 was expected to be around £250
million. This should be compared with
the estimated Capital Financing Requirement (the underlying value which the
Council needed to borrow to fund capital activities) of £283 million. The Council therefore had an expected
under-borrowed position of circa £33 million or 12%, which had provided some
annual savings in interest payments, as other revenue and capital cash had been
used in lieu of borrowing.
On local authority borrowing,
there had been much interest from both regulators and the media in recent
months around individual councils taking significant amounts of long-term debt
from the Public Works Loan Board (PWLB) for the sole purposes of commercial
activity – generally property investment.
Under the Prudential Code, local authorities had lots of freedom to
conduct and self-regulate their own borrowing and investment activities. The Director confirmed that Middlesbrough did
not use PWLB funding for property investment.
Increasingly local authorities
were moving to an annuity basis of Minimum Revenue Provision (MRP) provision
which catered for lower debt repayments in earlier years, with the consequence
of greater amounts in later years, recognising that interest paid was higher in
the earlier years. It was proposed that
the Council moved to an annuity basis of MRP provision on unsupported debt from
2008. This was the significant part of the Council’s capital financing
The impact of the MRP change would be to improve the management ... view the full minutes text for item 22/44
Any other urgent items which in the opinion of the Chair, may be considered