To receive apologies for absence.

Apologies for absence had been received from committee members Councillors Dave Boulter and Bob Matthews.  Councillor Watson was unable to attend in person but participated in the meeting as a non-voting, virtual participant.

To receive details of any member nominated to attend the meeting in place of a member of the committee.

The following substitutes were noted: Councillor Sebastian Bowen for Councillor Bob Matthews; and Councillor David Summers for Councillor Dave Boulter.

To receive any declarations of interests in respect of schedule 1, schedule 2 or other interests from members of the committee in respect of items on the agenda.

No declarations of interest were made.

To approve the minutes of the meeting held on 28 June 2021.

The minutes of the meeting held on 28 June 2021 were received.

Attention was drawn to the action log attached to the minutes.  It was commented that the changes that had been made following the last meeting, highlighting updates in red font and new actions in blue font, were helpful.

Resolved:  That the minutes of the meeting held on 28 June 2021 be approved as a correct record and be signed by the chairperson.

To receive any written questions from members of the public.

No questions had been received from members of the public.

To receive any written questions from councillors.

No questions had been received from councillors.

To consider the external auditors audit finding report for the year ended 31 March 2020.

The committee considered the external audit findings report for the year ended 31 March 2020.

Jon Roberts, engagement lead for Grant Thornton, presented the report and made the following key points: the report was being received later than usual due to issues around value for money; an initial external audit findings report had been provided to the committee in September 2020 and ‘The Audit Findings for Herefordshire’ document attached at appendix A to the report indicated original text in black font and new text in red font; it was reported that the council had proper arrangements in place in all areas considered, except for in relation to the governance over the capital programme and children’s services and a qualified conclusion was issued in respect of the value for money assessment; attention was drawn to the value for money sections and the significant risks identified which would be reflected in the external auditors annual plan 2020/21; a matter which had resulted in certificates of completion being withheld for a number of years had been addressed; and an overview was provided of the reasons for the proposed audit fee variations.

Questions and comments were invited from committee members and responses were provided, the principal points included:

1.           The additional explanations provided since the previous iteration were welcomed and it was suggested that a separate glossary would be helpful going forward.

2.           With reference made to the finding in the ‘Value for Money’ money section (agenda page 42) - ‘The Cabinet member for infrastructure and transport proposed that a progress review be brought back to Cabinet after six months.  Whilst the Council is working on implementing these recommendations, the six-month review suggested by Cabinet has not been achieved.’ - it was commented that the ‘Major contract performance update’ report had been considered by Cabinet on 29 July 2021 (minute 32 of 2021/22 refers), so the finding did not reflect the current situation.  The chairperson noted the position with reporting post balance sheet events and suggested that such reports needed to be specific about the date of publication, so that it was clear that subsequent events would not be reflected in the report.  Jon Roberts confirmed that the report commented on the adequacy of the arrangements for the financial year ended 31 March 2020.

3.           In response to a question about journal authorisation (agenda page 48), Jon Roberts explained the significance of journals and that the risk of management override of internal controls was included in every audit plan.  The chief finance officer confirmed that he was assured about the systems and processes in place but had undertaken to explore local amendments to Business World.  It was confirmed that this situation was encountered within other authorities who shared concern about customising financial software packages and the subsequent risk that that entailed.

4.           With reference made to the comment ‘We have continued our review of relevant documents up to the date of giving our report, and have identified one further significant risk where we needed  ...  view the full minutes text for item 16.

To agree the annual governance statement 2019/20.

In accordance with paragraph 4.2.13 (b) of the Council’s constitution, the chairperson considered that this item should be discussed at this meeting as a matter of urgency.

The committee considered the annual governance statement 2019/20.

The vice-chairperson drew attention to the ‘Principle B: Ensuring openness and comprehensive stakeholder engagement’ section (supplement page 32) and it was suggested that consideration be given to the syntax of the sentence ‘Whilst the council supports and advices suggestion from independent person is to tightening of rules covering training, disclosure and complaint resolution for parish councillors’.  The interim head of legal services agreed to reword the sentence.

Resolved:  That the annual governance statement 2019/20, at appendix 1 of the report, be approved.

To seek the view of the committee as to whether the draft annual governance statement (AGS) for 2020/21 properly reflects the risk environment the council is operating in and the appropriateness of any actions required to improve it.  The draft will be published with the draft statement of accounts.

In accordance with paragraph 4.2.13 (b) of the Council’s constitution, the chairperson considered that this item should be discussed at this meeting as a matter of urgency.

The chairperson said that the draft annual governance statement for 2020/21 appeared to contain inconsistencies and errors of fact, he was not satisfied with the document in its present state, and questioned whether this item could be deferred.  In response, the interim head of legal services explained the publication of documents requirements under The Accounts and Audit (Amendment) Regulations 2021.  The chairperson noted that the document was now in the public domain.  The chief finance officer said that the draft statement could be published with a note to identify that it would be subject to further work and revisions.

Committee members discussed the matter, the key points included:

1.           Concern was expressed that the document had been circulated after the publication of the main agenda pack, thereby reducing the time available to read it.

2.           The vice-chairperson said that various queries about the document had been forwarded to the relevant officers.

3.           In response to a question from a committee member on the ‘significant partnerships 2020/21’ section, Jacqui Gooding, internal audit manager for South West Audit Partnership, said that it was up to officers to address the recommendations of a SWAP audit but an update would be sought on the position in relation to the Local Family Justice Board.

4.           Consideration was given to the work to be undertaken by officers to address committee members’ concerns, for the committee to reconvene to receive an updated document, and for a revised draft annual governance statement to be released in due course.

5.           A committee member acknowledged that the Covid 19 pandemic had impacted on the normal course of business but was uncomfortable with the position with this document.

6.           Committee members were requested to forward their comments on the document to councillorservices@herefordshire.gov.uk

The intention to revisit an updated document at the next committee meeting was noted.

Resolved:  That the document was noted.  That an amended draft document be considered at the next committee meeting.

To approve the 2019/20 statement of accounts and associated letter of representation to Grant Thornton, the external auditors.

The committee considered the 2019/20 statement of accounts and associated letter of representation to Grant Thornton, the external auditors.

The head of corporate finance presented the report, the principal points included: the position with the delivery of an overall underspend in 2019/20 of £0.6m and the increase in the general reserve balance to £9.1m; the increase in earmarked reserves due to the allocation of grant funding from central government due to the Covid 19 pandemic; and asset valuations were reported as being subject to ‘material valuation uncertainty’ as a precaution to reflect the potential impact of the pandemic on the economy.

Questions and comments were invited from committee members and responses were provided, the principal points included:

1.         With reference made to the ‘legal implications’ section of the report (agenda page 67), it was requested that all dates include the relevant year.

2.         There was a discussion about revaluations in terms of property, plant and equipment.  Jon Roberts, engagement lead for Grant Thornton, advised that International Standard on Audit (UK) 540 (revised) would require the committee to have a full understanding of the estimation processes that the council had followed and auditors would be undertaking more work in this area.  The chairperson noted the need for training to be arranged for committee members.

3.         In response to questions, the chief finance officer: acknowledged the underspend in adults and communities and commented on the challenges associated with balancing the budget to the penny for services which were dependent on people’s needs; noted that the outturn had been reported to cabinet on 25 June 2020 (minute 157 refers); and confirmed that the allocation of the budget, including the adult social care precept, was agreed by Council.

4.         In response to a question on ‘Herefordshire’s proportion of the net deficit on the Worcestershire County Council Pension Fund as at 31 March 2020 is £259.5m’ (agenda page 79), the chief finance officer provided an overview of the position with the pension fund.  The chairperson noted the public availability of the minutes of the Pensions Committee (note: at the time of publication, these can be found via the following link: https://worcestershire.moderngov.co.uk/ieListMeetings.aspx?CommitteeId=391).

5.         There was a further discussion about the treatment of valuations in the accounts and the possible impact of the pandemic on land and property prices.

6.         With reference made to the ‘1.3 Borrowing Costs’ section in the statement of accounts (agenda page 92), it was questioned whether ‘at least £10k of annual interest cost’ for certain schemes was appropriate given current interest rates.  The chief finance officer said that this de minimis level had been in place for some time and was broadly in line with other authorities but it could be looked at.

7.         In response to a question, the chief finance officer commented on property maintenance and insurance provision.

8.         The chairperson requested further information on aged debts and the quantums involved.  Jon Roberts noted that the audit of aged debts was an important procedure and agreed to come back  ...  view the full minutes text for item 19.

[Note: the meeting was adjourned for a comfort break between 12.15 pm and 12.30 pm]

For the committee to receive the external auditor’s annual audit letter for 2019/20 and determine whether further action or inclusion in the committee’s work programme is appropriate.

The committee received the external auditor’s annual audit letter for 2019/20.

As per the point made in minute 16, paragraph 2. above, a committee member re-iterated that the ‘Major contract performance update’ report had been considered by Cabinet on 29 July 2021 (minute 32 of 2021/22 refers), so a comment on agenda page 200 did not reflect the current situation.

Resolved:  That, having regard to the external auditor’s annual audit letter 2019/20, as at appendix A to the report, the committee did not determine any further actions to be recommended or items to be included in the work programme specifically arising from the document.

To review and agree the external auditor’s audit plan for 2020/21.

The committee reviewed the external auditor’s audit plan for 2020/21.

Jon Roberts, engagement lead for Grant Thornton, presented the report, with attention drawn to: the significant risks requiring special audit consideration; the changes arising from the new Code of Audit Practice and the new auditing accounting estimates standard; and the audit fees section.

The chairperson commented on the need to engage with the council’s valuers and actuaries to enhance the understanding of the committee.  In response to questions from the chairperson:

·                The chief finance officer said that he was content that the ‘risks of significant VFM weaknesses’ (agenda page 229) were a fair reflection of the council’s position and noted that financial sustainability was a live topic for all local authorities and the council had its own financial pressures.

·                Jon Roberts said that he would confirm whether the council’s counter fraud specialist had been involved in the fraud risk assessment (agenda pages 250-255) and commented on fraud risk assessment from an accounting perspective.

Questions and comments were invited from committee members and responses were provided, the principal points included:

1.         In response to a question from the vice-chairperson regarding the difference in the scale fee published by Public Sector Audit Appointments Ltd (PSAA) of £95,792 and the total audit fees of £156,792 (‘Audit fees – detailed analysis’, agenda page 233), Jon Roberts: confirmed that the quantum of work expected by the regulator had increased; commented on the findings of the ‘Independent Review into the Oversight of Local Audit and the Transparency of Local Authority Financial Reporting’ by Sir Tony Redmond; and, in response to the findings of the Redmond Review, the government had announced additional funding in 2021/22 to support local bodies to meet the anticipated rise in audit fees; noted the potential impact of other standards going forward, such as the International Financial Reporting Standard 16 relating to leases; and said that he would provide further clarification on ‘local risk factors’.

2.         It was noted that there were some erroneous references to this committee being the ‘audit and procurement committee’ and not the ‘audit and governance committee’.

3.         In response to a question from a committee member, the chief finance officer provided a brief overview of the council’s involvement in Hoople Ltd, said that this was reflected in the group financial statements, and noted that an undertaking had been given to provide the committee with an overview of how the company operated and managed its risks.  It was noted that the council was also involved in a range of partnerships.  In response to a further question from the vice-chairperson on a point made in the annual governance statement 2019/20 (agenda supplement page 37), the chief finance officer confirmed that a project board was to be established to manage the council’s relationship with Hoople Ltd.

4.         In response to a question from a member in attendance about the risks associated with the governance of the Public Realm contract and the Hereford City Centre Transport Package (agenda page 229), Jon Roberts  ...  view the full minutes text for item 21.

The purpose of this report is to enable the committee to provide independent assurance on the adequacy of the risk management framework together with the internal control of the financial reporting and annual governance processes by considering the head of internal audit’s annual report and opinion, and the level of assurance it gives over the council’s corporate governance arrangements.

The committee considered the head of internal audit’s annual report and opinion.

Jacqui Gooding, internal audit manager for South West Audit Partnership (SWAP), presented the report and, drawing attention to the ‘Internal Audit Annual Opinion Report 2020/21’ included at appendix A, summarised the key points of the ‘Executive Summary’, ‘Internal Audit Annual Opinion 2020/21’, and ‘Plan Performance 2020/21’ sections.  It was reported that, having considered the balance of the 2020/21 audit work, a ‘reasonable assurance’ opinion was offered in respect of the areas reviewed during the year.

Questions and comments were invited from committee members and responses were provided, the principal points included:

1.         The vice-chairperson welcomed reference to the introduction of a ‘new one-page audit report, that summarises all the key messages of the audit’ (agenda page 282) but noted that these had not yet been received at a committee level, and felt that these could provide committee members with a better understanding of the scope and work involved.

In response to a question about the ‘Summary of Internal Audit Work 2020/21’ section and the ‘reasonable’ opinion in relation to ‘Capital Programme / Capital Projects’ (agenda page 285), Jacqui Gooding emphasised that this report would reflect a point in time, adding that internal audit had recently been asked to undertake additional work on the Hereford City Centre Transport Package (HCCTP).  In response to a further question, it was commented that a lot of work had been undertaken to establish controls for capital programme / capital projects but this had not been fully implemented or embedded yet across the council.

2.         A member in attendance, noting that there were no priority 1 actions and 12% of audit opinions were ‘limited’, questioned how Herefordshire compared to other local authorities.  Jacqui Gooding said that information could be provided to committee members and briefly outlined how the audit opinions for 2020/21 compared to 2019/20.

3.         With reference made to the comment ‘As a result of the additional work arising from the COVID-19 pandemic, it has been agreed to defer some of the less urgent audit work to 2021/22’ (agenda page 275) and in response to a question, Jacqui Gooding confirmed that a report had been provided to the audit committee outlining the work that had been deferred and quarterly planning meetings were being held with relevant officers to identify those deferred audits which should be included in the 2021/22 plan.  It was noted that the position would be made clear in the progress report due to be received at the next committee meeting.

4.         A committee member commented on potential risks associated with mental health and the long-term effects of Covid on the council’s resources.

5.         The chairperson said it would be helpful to understand the date on which any elected member of the council had been informed about the overspend on the HCCTP.  Jacqui Gooding advised that a new piece of work that had been commissioned which would include a review of what was reported and at what time during the process.  ...  view the full minutes text for item 22.

To consider the committee’s work programme.

The committee considered its work programme.

It was suggested that the format of the work programme document, as at Appendix 1 to the report, be adjusted to split the rows across more than one page.

Further to minute 18 above, the committee discussed the potential to hold an additional meeting to discuss the draft annual governance statement for 2020/21.  Following further reflection, it was considered that the item should be considered at the next scheduled meeting.

Resolved:  That the work programme be agreed.

The next scheduled meeting is Thursday 30 September 2021, 10.15 am.

However, the committee is asked to consider an alternative date in the week commencing 20 September 2021 to assist with the consideration of the re-thinking governance proposals and subsequent passage of a report to Council.

It was reported that the Solicitor to the Council had requested that the next meeting be brought forward from 30 September to 27 September 2021 to assist with the consideration of proposals from the re-thinking governance working group and the subsequent passage of a report to Council.

It was agreed that the next scheduled meeting would be held on Monday 27 September 2021.