Agenda item

Report of the External Auditor, Grant Thornton

The Audit and Procurement Committee considered a report of the External Auditor (Grant Thornton) which provided an Annual Report for 2020/21.  It was noted that the report remained interim until such point as the 2020/21 audit of the statement of accounts was complete.

Under the National Audit Office Code of Practice (the Code), the External Auditors are required to consider whether the Authority has put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources.  The Auditor is no longer required to give a binary qualified / unqualified Value for Money conclusion.  Instead, Auditors report in more detail on the Authority’s overall arrangements, as well as key recommendations on any significant weaknesses in arrangements identified during the audit.

Auditors are required to report their commentary on the Authority’s arrangements under specified criteria.  As part of its work, the Auditor considered whether there were any risks of significant weakness in the Authority’s arrangements for securing economy, efficiency and effectiveness in its use of resources.  Risks were identified in respect of financial stability; governance; improving economy, efficiency and effectiveness; and Covid-19.

In respect of financial stability, the Auditor found that the City Council continued to perform well with regard to financial stability, with a record of stable financial and budgetary management.  Despite the challenging environment in which it operated during 2020/21, the Council maintained a good financial position and achieved a balanced budget.  It had also put forward plans to achieve balanced budgets for 2021/22 and 2022/23.

As at 31^st March 2021, the Council held £224m of usable reserves, including £7.6m in covid-related reserves that could be used to help mitigate future budget pressures.  This placed the Council in a strong financial position and the Council was well placed to manage any future shortfalls in funding.

The work had not identified any significant weakness in arrangements to secure financial stability at the Council.  The Auditor had made one improvement recommendation relating to cashflow management.  It was noted that the Council did not prepare an actual cash flow forecast but relied on an existing, long standing staff member with extensive knowledge of the Council’s business to estimate the Council’s cash flow forecasting without documenting the actual cash flow forecast.  It therefore recommended that the Council should prepare a rolling annual cash flow forecast as part of its treasury management process.  Officers indicated that whilst there had been a difference in opinion on what was being reported in relation to forecasting, the recommendation of the Auditor had been accepted.  The Committee were assured that forecasting took place on a regular basis, involving three members of staff.  The recommendations proposed ensured that documenting the work being undertaken was improved.

The Auditor’s work on governance had focussed on developing a detailed understanding of the governance arrangements in place at the Council and the changes instigated as a response to the pandemic.  The Council had appropriate leadership and management structures in place and its control systems were appropriate.  The Council was also open in dealing with complaints, ethical, and legal matters.  No significant weaknesses had been identified in the Council’s governance arrangements, although a number of improvement recommendations were identified in relation to internal audit.  In particular, the Auditor had noted that the Public Sector Internal Audit Standards (PSIAS), who monitor internal audit services for public sector bodies, had not undertaken an inspection of the Council in over six years and recommended that they be invited to undertake a review of the Council’s internal audit service at the earliest opportunity.  The Auditor further identified that during the year under review, the quarter 3 internal audit report showed that the Council was behind in implementing a number of internal audit recommendations, including in areas such as Sports and Arts Cultural Grants Process and Resourcelink Self Service Delegated Authority.  There was concern that non-implementation of recommendations could create further risks for the Council.  The Auditor recommended that internal audit recommendations should be implemented promptly by management and that this should be rigorously enforced by the Audit and Procurement Committee, including reporting on medium as well as high risk items.  In addition, the Auditor acknowledged that internal audit coverage across the Council’s services was good and extended to some of the Council’s wholly owned subsidiaries such as North Coventry Holdings Ltd and Coventry North Regeneration Ltd.  However, the service did not include Coombe Abbey Park Ltd, the UK Battery Industrialisation Centre Ltd and Tom White Waste Ltd.  The Auditor recommended an improvement regarding the use of internal audit across all of the Council’s subsidiaries and a need for transparency in arrangements.  Officers indicated that the recommendations proposed had been accepted and that further work was being undertaken in relation to internal audit recommendations that had not been implemented, particularly to push forward those recommendations that had been delayed due to the pandemic.  Discussions were also taking place regarding the involvement of the service across the whole of the City Council’s subsidiary businesses and, once completed, proposals would be presented to the Committee.

In considering the section of the report relating to governance, Councillor Sawdon proposed an amendment to the recommendation to Committee, which was seconded by Councillor Blundell, to remove the sentence “Our view is that the Ethics Committee of the Council is effective and continues to be a positive component of Council’s overall governance architecture.  We are satisfied that the Council responds positively to the complaints it receives and that the complaints do not highlight systemic weaknesses in the Council’s services.” on the basis that the Committee did not agree with that statement.  A vote was taken and the amendment was lost.

With regard to improving economy, efficiency and effectiveness, the Auditor had found that the Council demonstrated a good understanding of its role in securing economy, efficiency and effectiveness in its use of resources.  It had a clear strategic plan and performance system for monitoring progress.  It was recognised as an ambitious Council and had invested in the development of the area. It continued to face challenges with regard to such areas as educational attainment and workforce.  

It was recognised that the Council holds a portfolio of wholly owned and joint venture companies.  In response to external events at other councils, the Council was implementing changes to its ownership and governance structure over these organisations.  The Auditor considered the revised structure to be appropriate.  The Auditor noted that financial performance was not uniform and although some subsidiary entities perform strongly, others have been more impacted by the Covid-19 pandemic, resulting in losses.  This needed to be an area of focus for the Council under the revised governance arrangements.  The Auditor reviewed several areas in relation to improving economy, efficiency and effectiveness, which included performance review and benchmarking; performance monitoring and assessment; procurement; commercial ventures, outsourcing and shared service arrangements; group governance; and partnership working.  Overall, the Auditor’s work had not identified any significant weakness, although some improvement recommendations were made.  The recommendations included:

·  The Council should develop corporate level Key Performance Indicators (KPIs) to monitor consultation with the procurement team, and application of procurement policies.

·  The Council’s Annual Performance report would be enhanced by including more KPIs on cost in the section ‘delivering our priorities with fewer resources’.

·  The Council should review the unit costs of providing housing services across the various cost categories.

RESOLVED that, the Audit and Procurement Committee receive the report of the External Auditor (Grant Thornton).

Note: Councillors Blundell and Sawdon whilst receiving the report, requested that their objection to the statement in respect of the Ethics Committee be recorded.