Agenda item

The Committee considered the external auditors annual report, which provided an update on progress with the audit of the Council’s financial statements for 2024/25, value for money (VFM) arrangements, and the audit of the Teesside Pension Fund.

The external auditors outlined their responsibilities under the Local Audit and Accountability Act 2014 and the Code of Audit Practice.  Members were advised that audit work was ongoing and that the auditors had not yet issued their audit opinions on the Council’s or the Pension Fund’s financial statements, which were expected to be concluded in line with statutory backstop dates.

The report summarised progress against previously identified significant weaknesses and recommendations relating to value for money arrangements.  The external auditors confirmed that Council had made progress in improving arrangements for economy, efficiency and effectiveness, including the development of a refreshed Council Plan and clearer alignment between strategic priorities, performance monitoring and delivery.

Members were informed that no statutory reporting powers had been exercised by the external auditors and that no matters had arisen requiring reporting in the public interest.  It was also noted that there were no objections in respect of the Council’s accounts.

In relation to the audit of the Teesside Pension Fund, the external auditors reported that work was ongoing and that no significant issues had been identified at this stage.  The report also set out the key risks identified as part of the audit approach for both the Council and the Pension Fund, including management override of controls and the valuation of property, plant and equipment and investments.

In discussion, the external auditors explained that the report represented the final stage of the audit process, with the purpose of informing the public and Members of the findings arising from the audit.  It was confirmed that the audit opinion had not yet been issued, as the accounts remained in draft form in line with the Code of Audit Practice.  The auditors confirmed that the Council had complied with the requirement to publish draft accounts by the end of November and that the audit would be completed within the national backstop timetable.

Members discussed the Value for Money (VFM) arrangements section of the report, noting that progress had been charted under the governance theme and that relatively few new recommendations had been made.  Concerns were raised regarding financial sustainability, including ongoing overspends, pressures within the Dedicated Schools Grant (DSG), the outcome of the High Needs Review, and the impact on the Council’s reserves.  It was noted that borrowing may be required to address deficits, and that DSG expenditure had been identified as a significant weakness.

The external auditors referred to the uncertainty surrounding the 2024/25 financial settlement and advised that it was difficult to draw firm conclusions until the settlement position became clearer.  It was suggested that some of the pressures identified were based on historical data and reflected national funding challenges rather than solely local decisions.

A Member highlighted the projected increase in financial pressures over the next three years and asked what actions were being taken to address this.  Officers acknowledged the concern and noted that these issues were being considered as part of ongoing financial planning.

Members recognised that many of the challenges outlined in the report, including the rising demand in children’s services, adult social care and the impact of an aging population, reflected national trends affecting local authorities more widely, although the data presented was specific to Middlesbrough.

In response to questions regarding the absence of new significant weaknesses for 2024/25, the external auditors confirmed that reporting was confined by the requirements of the Code of Audit Practice and reflected the position at the time.

Members also discussed the alignment between the Mayor’s priorities and the Council’s performance framework.  The Head of Policy, Governance and Information advised that performance management arrangements for 2024/25 were being refreshed, with the next stage involving the development of departmental service plans and balance scorecards during 2026/27.

In relation to the Teesside Pension Fund, the external auditors confirmed that work on the 2024/25 accounts was ongoing and that the aim was to issue an audit opinion by February 2026, subject to the timely provision of evidence.  It was noted that this was a critical period for clearing the remaining audit backlog, and the importance of providing sufficient and timely information to enable an unmodified opinion was emphasised.  The external auditors advised that they were not aware of any internal delays at this stage but would raise the matter with the Director of Finance and Transformation if issues persisted.

AGREED that:

1.     The latest update on the external audit annual report was noted.