Agenda and minutes

To receive any declarations of interest.

There were no declarations of interest received at this point in the meeting.

The minutes of the Corporate Affairs and Audit meeting held on 15 August 2023 were submitted and approved as a correct record.

A joint report of the Chief Executive, Director of Finance and Director of Legal and Governance Services was presented to provide the Committee with information in relation to the planned reporting arrangements for delivery of the action plan that was agreed by Council on 18 September 2023, in response to 11 statutory recommendations made by the Council’s External Auditors Ernst & Young LLP (EY), exercising their powers under Section 24, Schedule 7(2) of the Local Audit and Accountability Act 2014.

The agreed recommendations and supporting action plan that was agreed by Council on 18 September 2023 was attached at Appendix 1 to the submitted report. 

Progress against the action plan would be reported to the Audit Committee as a standing item until delivery of all actions was complete.  Progress would also be reported to the Independent Improvement Advisory Board (IIAB) that had been established to oversee delivery of the Council’s Corporate Governance Improvement Plan, as set out in the report to Council on 18 September 2023 that outlined phase three of the Corporate Governance Improvement Plan.

The Chair of the IIAB and the Council’s three statutory officers would also meet regularly with both the External Auditor and the Department of Levelling Up, Housing and Committees in separate meetings to discuss the Board’s independent view of the Council’s progress against both the Section 24 action plan and phase three of the Corporate Governance improvement Plan.  Progress against the CGIP would be reported as a standing item to each ordinary meeting of full Council to maintain Member visibility.

Since the report was approved by Council on 18 September 2023, two actions had been completed in line with their target dates as follows:

1.         A review of all existing purchasing cards had been completed. A process was in place for reducing the number of cards across the business and mandatory training had been developed for cardholders identified moving forward.  Training for the initial cohort would be complete by November 2023 and then there would be a rolling programme of training aligned with the assignment of cards going forward.

2.         Pre-2021 ‘open’ exemptions had been identified and a full analysis of would be reported to the Audit Committee in December within the

annual assurance report on Procurement activity.

The first meeting of the Independent Improvement Advisory Board (IIAB) had taken place on 2 October 2023 and another meeting was scheduled for November.  It was confirmed that a note of actions points had been made rather than recorded minutes.  This point was queried by Members as it had been stated at a recent Council meeting that minutes would be kept of IIAB meetings.   The Monitoring Officer confirmed the question had been raised at Council and agreed that this position would be corrected.

The first meeting had set the scene for the IIAB to understand Middlesbrough Council and discussion had also taken place regarding engagement with Members.  An informal two-way conversation with Members was envisaged as well as the formal process, and this was high up on  ...  view the full minutes text for item 23/3

A report of the Interim Director of Finance (Section 151 Officer) was presented to update the Audit Committee on the audit of the Council’s Statement of Accounts and provide new information on action proposed by the Department for Levelling Up Homes and Communities (DLUHC) to address the current audit backlog.

The report provided an update on the outstanding audit of the Council’s Statement of Accounts for 2021/22.   In addition, the Council draft accounts for 2022/23 had yet to be finalised for publication although the statutory date for doing this was 31 May 2023.   There was also an update from DLUHC in relation to the national backlog of audits currently outstanding within the local government sector and initial proposals on how to address this.

The completion of the external audit of the Council’s last two years financial statements and value for money assessment took significantly longer to finalise than in previous years:

•           For 2019/20, this was completed on 2 March 2021 (the statutory date for these audited accounts was 30 November 2020).

•           For 2020/21, this was completed on 29 April 2023 (the statutory date for these audited accounts was 30 September 2021).

In previous years to these, the statutory deadlines had been achieved.

Reasons for the delays had been reported to the Corporate Affairs and Audit Committee several times before and were grouped into three main categories:

1.         Onerous regulatory requirements for external auditors, mainly from the National Audit Office and the Financial Reporting Council. This had required extensive additional work to be undertaken and evidence to be gathered by auditors as part of their examination of the Council’s financial statements and transactions. This had been in response to a high number of corporate failures in the private sector.

2.         A significant amount of additional work had been required on the value for money assessment, mainly in relation to the Ofsted judgement on the quality of Children’s Services being delivered by the Council, and the governance issues within the Council which had recently led to a set of statutory recommendations being issued.

3.         Extra work, evidence and focus on the Going Concern Assessment, given the well-publicised issues on local authorities and their financial sustainability.

In addition, there had been resource constraints and recruitment issues within both the Council’s financial team and for Ernst & Young (EY), the external auditors, over most of this period.  The Head of Finance and Investment confirmed that the Council had brought in additional resources to assist with completion of the accounts and provide better resilience.  

The deadline for publication of the draft accounts for 2022/23 was consulted on by DLUHC during April 2023 due to some concerns as to whether this could return to normal following the pandemic. The outcome of this was announced on 3 April 2023 and the deadline returned to 31 May date. There was no penalty for failing to meet the statutory deadlines. However, it was important for local authorities and their stakeholders to have assurance of the Council’s financial position  ...  view the full minutes text for item 23/4

The Head of Internal Audit, Veritau, presented a report to provide the Audit Committee with an update on the delivery of internal audit and counter fraud

work and on reports issued and other work completed since the last update report to Committee.

The internal audit progress report was contained at Appendix 1 to the submitted report.  This included a summary of current work in progress, internal audit priorities for the year, completed work, and follow-up of previously agreed audit actions.

Good progress had been made since the last update.  Seven reports had been finalised and 3 reports were in draft.  One of the 3 draft reports – Homecare - had been finalised since this report was written.  

The final report on Middlesbrough Development Company was reported to the August meeting of the Corporate Affairs and Audit Committee.  Five of the final reports provided substantial or reasonable assurance.  The opinion on the Children’s Commissioning and Contract Management audit was limited and actions had been agreed with target dates.  The actions would be followed up to ensure they had been completed.

Annex E to the submitted report provided details of the follow up of agreed actions and one action has been completed since the last report to Committee.   This was a priority 3 action relating to the audit of the main accounting system.  A total of 18 actions with original due dates that had passed were still outstanding.   Of those 18, 15 had revised target dates agreed and the remaining 3 were being followed up.

Members asked questions in relation to the prioritisation of audits, the length of time taken to complete and overdue actions.  The purpose of Internal Audit was to help the Council and its managers to mitigate and manage risk.  Interna Audit focussed on areas that would be of most benefit to the Council and likely to be the most risky.

The counter fraud progress report was contained at Appendix 2 to the submitted report.  A range of work was detailed including activity to promote awareness of fraud, work with external agencies, and information on the level of fraud reported to date.

Veritau had worked with Human Resources to update the Council’s Whistleblowing Policy.  The updated policy was finalised in June 2023 and reflected national guidance and best practice as well as detailed guidance for managers on how to address whistleblowing concerns.  A central log of whistleblowing reports was now being maintained by Veritau.   With the support of the Communications Team, the revised Whistleblowing Policy was highlighted to all Council employees as part of World Whistleblowers’ Day on 23 June.

Middlesbrough had participated in a National Day of Action against Blue Badge fraud in June 2023, alongside 80 other councils. The exercise involved making checks on blue badges displayed in the town to determine if they were being properly used by legitimate badge holders.  The Counter Fraud and Neighbourhood Safety Teams worked together to check 38 badges on the day, which resulted in one penalty charge  ...  view the full minutes text for item 23/5

A report of the Head of Internal Audit, Veritau, was presented to update Members on the impact of fraud nationally and in particular on local authorities; summarise outcomes from the annual review of the Council’s counter fraud policy framework; and present an updated Counter Fraud Strategy action plan and Fraud Risk Assessment.

Fraud was a significant risk to the public sector.  The government estimated that between £33.2 and £58.8 billion of public spending was lost to fraud in 2020/212.  At a local level, fraud could impact a council’s ability to support public services and cause reputational damage.  To effectively combat fraud councils should have a counter fraud framework that helped to prevent, detect and deter fraud.

Covid-19 payments to businesses and the public concluded last year.  Councils across the country had been working with the former Department for Business, Energy and Industrial Strategy (BEIS) to complete reconciliation and assurance exercises.    BEIS estimated that 8.4% of payments (£985m nationally) was lost to fraud from the initial Covid-19 schemes at the start of the pandemic. Later schemes lost 1% (£83m) of payments due to fraud.   Councils and central government were currently working together to recover money lost due to fraud through Covid-19 grant schemes.

The Government had reacted to those losses and set up a public sector fraud authority to give advice and improve the fraud mechanisms in Government.   New legislation, which might affect public sector organisations, was being introduced to criminalise larger organisations who failed to prevent fraud from occurring.  The Bill was currently going through Parliament and the Committee would be kept updated on progress.

Veritau began providing counter fraud services to the Council in January  2020.  Raising awareness of fraud within the authority and with the public had been a key priority.  This had resulted in year on year increases in the numbers of cases of suspected fraud being referred to the team.  The chart at paragraph 8 of the submitted report showed the number of referrals received by the team since 2020, and the source of the referrals.

Between 1 April and 31 August 2023 the team received almost as many referrals as the total received in the previous year.  The number of referrals from Council officers and the public had also grown each year.  The team was increasingly taking more responsibility for the investigation of data matches highlighted by the National Fraud Initiative.

The Council’s current counter fraud and corruption strategy was adopted in 2020.  The strategy set out the Council’s aims for counter fraud work up to 2024.  The strategy also included actions needed to maintain and develop counter fraud arrangements at the Council.  The associated strategy action plan was reviewed and updated annually.  This year’s update was contained in Annex A to the submitted report and detailed progress made against last year’s plan and introduced new priorities for the counter fraud team in 2023/24 taking into account local and national developments.

New objectives this year included:

•           Presenting a new counter fraud strategy  ...  view the full minutes text for item 23/6

The Chair suggested that the Audit Committee might need to meet more frequently in future to meet an increased workload which included the Section 24 Report updates, outstanding accounts and completed audits.  The Democratic Services Officer would circulate a provisional date for a meeting in November 2023.

AGREED that a provisional date would be circulated for a meeting of the Audit Committee in November 2023.