Agenda and minutes

Apologies for absence were received from Councillors Lo (with Councillor S Butt substituting) and Mashari, and Independent Members Robert Cawley, Sheila Darr and Karen McArthur. 

Mr Sullivan participated in the first part of the meeting remotely.

Conrad Hall (the Council’s Chief Finance Officer) informed Members that he had received apologies for absence from Grant Thornton LLP, the Council’s new external auditor, due to the high volume of work associated with the end of year accounts. It was RESOLVED that the Council’s Chief Finance Officer would write to Grant Thornton LLP, expressing the Committee’s disappointment with the firm not being able to send a representative to attend the meeting.

Members are invited to declare at this stage of the meeting, the nature and existence of any relevant disclosable pecuniary or personal interests in the items on this agenda and to specify the item(s) to which they relate.

David Ewart declared that he had worked together with Martin Smith, Chair of i4B Holdings Limited, at the London Borough of Ealing and that he had known Steve Lucas (Senior Manager, KPMG - External Audit).

To hear any deputations received from members of the public in accordance with Standing Order 67.

There were no deputations.

Ø  To approve the minutes of the Audit Advisory Committee meeting held on 20 March 2018 as a correct record.

Ø  To approve the minutes of the Standards Committee meeting held on 27 March 2018 as a correct record.

It was RESOLVED that the minutes of the previous meeting of the Audit Advisory Committee, held on 20 March 2018, be approved as an accurate record.

It was RESOLVED that the minutes of the previous meeting of the Standards Committee, held on 27 March 2018, be approved as an accurate record.

To consider any matters arising from the minutes of the previous meeting.

It was noted that an update on the operation of i4B Holdings Ltd and First Wave Housing Ltd had been included in the agenda for the present meeting.

A written update on the implementation of the action plan created by the Housing Benefit Team to address the findings of the External Audit Report on grants and returns 2016/17 (item 9 from the minutes of the previous meeting of the Audit Advisory Committee) would be circulated to all Members and would be discussed at the next meeting if necessary.

An update on the Public Sector Internal Audit Standards (PSIAS) self-assessment had been included in the Internal Audit Annual Report 2017/18 (Agenda Item 11). 

The report updates the Audit and Standards Advisory Committee on gifts and hospitality registered by Members and a recent High Court case on standards.

Debra Norman (the Council’s Director of Legal and Human Resources and the Council’s Monitoring Officer) introduced the paper which provided an update on gifts and hospitality registered by Members and a recent High Court case on standards. She reminded the Committee that Members were required to register gifts and hospitality received in an official capacity worth an estimated value of at least £50 individually or cumulatively from one person or organisation. Declarations were published on the Council’s website and were open to inspection at Brent Civic Centre. Ms Norman directed the Committee’s attention to Appendix 1 to the report which set out the gifts and hospitality registered by Members in the period between 20 March and 30 June 2018. Furthermore, since 14 May 2018 onwards Members had been required to record the value or the approximate value of gifts and hospitality (among other details) and an update would be provided in the next quarterly update report.

Ms Norman spoke of a recent High Court case on standards concerning Ledbury Council’s decision to impose sanctions on a Councillor under its staff grievance procedures, banning them from serving on any committees and from communicating with any staff, following complaints of bullying and harassment. The High Court had decided that councils cannot run a grievance procedure alongside, or as an alternative to, a standards procedure under the Localism Act 2011, and that complaints regarding a Member's conduct had to be dealt with under the Council’s standards arrangements. Furthermore, the Court had noted that the involvement of the Independent Person in the formal Members’ complaint process was an important safeguard which could not be bypassed.

Ms Norman informed Members that interviews for the Independent Person vacancy been concluded and that Mr William Goh had been appointed. 

RESOLVED that the contents of the Standards Update report, be noted.

Mr Sullivan left the meeting at 6:10 pm due to poor internet connection.

Following the Emergency Preparedness Task Group Report by Councillor Ketan Sheth and presented to Audit Advisory Committee in January 2018, it was resolved that an Emergency Preparedness item be added to the Committee’s forward plan to be discussed in July 2018.

This report briefly outlines the progress made against the recommendations in the report, details the type and number of incidents in Brent since the writing of the report and provides some information around initiatives and programmes of work under way to enhance our resilience and response arrangements.

Carolyn Downs (the Council’s Chief Executive) introduced the paper which outlined the progress made against the recommendations of the Emergency Preparedness Task Group Report presented to the Audit Advisory Committee in January 2018. It also contained information about the type and number of incidents in the Borough since January 2018 and the initiatives and the programmes of work under way to enhance Brent’s resilience and response arrangements. Ms Downs highlighted that 15 senior managers had been trained as incident Silver and an on-call rota had been in place since 20 November 2017. Furthermore, the Emergency Planning College had delivered a Member’s awareness session on the role of Councillors during a Civil Emergency and was due to deliver training for incident Silver officers. Ms Downs noted that further details about specific actions could be found in section three of the report (pages 23 and 24 of the Agenda pack).

Members welcomed the report and expressed their satisfaction that the work of the Task Group had been taken forward. However, they enquired whether all Councillors could be provided with out of office contact numbers for key officers and organisations and it was agreed that Daryl Jooste (the Council’s Civil Contingencies Manager) would circulate a list.

RESOLVED that:

(i)            The contents of the Emergency Preparedness Update report, be noted;

(ii)          The Committee’s appreciation of the work of the Emergency Planning Team be formally recorded; and

(iii)         A list of out of office contact numbers for key officers and organisations be circulated to all Elected Members.

The Audit and Standards Advisory Committee has been provided with a report from i4B, with a cover report from the Council as i4B’s shareholder. At its last meeting the Committee requested that a more rounded view of risks was presented, with a clearer delineation between those risks being managed by the Council and those being managed by i4B.  

Martin Smith (Chair of i4B Holdings Limited) introduced the report which reflected the discussion that had taken place at the Audit Advisory Committee meeting in March 2018 and its emphasis was on the impact of the Council’s wholly owned investment company – i4B Holdings Ltd (i4B / the Company) on the Local Authority.

Mr Smith informed the Committee that developing the Company’s risk register had required a long period of time as it had been necessary to gain a clear understanding which risks related to i4B and which had an impact on the Council. Furthermore, the Company’s risk register had become more sophisticated as it contained information about the status of a risk (live or closed), while risks related to the operation of i4B had been included in the Council’s risk register. Members heard that Directors took risks seriously and that the register was reviewed at every Board meeting, e.g. on a monthly basis. Furthermore, recommendations from outstanding audits had been taken on board and an action plan for their implementation had been created (Appendix 4 on pages 65-69 of the Agenda pack).

In relation to the benefits for the local authority, Mr Smith commented that the Company operated at a loss, which was in line with its Business Plan, but it was expected to make a small surplus in the third year of its existence. It was noted that challenges related to rent collection and a slower rate of acquisition of properties had contributed to the Company being forecast to break even later than it had been originally anticipated (section five of the report on pages 32-34 of the Agenda pack). As far as non-financial benefits were concerned, Mr Smith said that Company had helped the Council to avoid costs associated with placing residents in temporary accommodation – as of June 2018, 123 Brent families had been placed in i4B properties which were in good condition and had a generally affordable rent (section six of the report on pages 35-36 of the Agenda pack).

Mr Smith directed the Committee’s attention to First Wave Housing Ltd (FWH) – the Council’s other wholly owned company – and said that given the similarities between FWH and i4B, it had been agreed that where applicable, the findings from audits for i4B would be implemented for FWH. Nevertheless, a schedule of internal audit arrangements had been developed. Two internal audits had been planned so far – Fraud Risk Assessment which would start during the week commencing 13 August 2018 and Responsive Repairs Process which was due to commence in second week of October.

The Committee heard that a fifth Director who had worked for a housing association had been appointed to i4B Holdings Ltd and First Wave Housing Limited which ensured that the Boards of both companies consisted of an odd number of members.

As the Independent Advisor to the Committee could not participate in this part of the meeting, it was suggested that the he could put his comments related to aligning the  ...  view the full minutes text for item 8.

The Audit and Standards Advisory Committee is asked to consider the borrowing strategy set out in Appendix A.

Daniel Omisore (Head of Finance at Brent Council) introduced the paper and explained that in order to deliver its capital programme, it was likely that the Council would be required to borrow up to £230 million by 2020/21 and potentially more thereafter.

He also noted that the proposals set out in the paper are all within the operating boundaries already approved by Cabinet when setting the Treasury Management Strategy and Prudential Indicators for 2018/19 as part of the budget setting process.

Mr Omisore set out some of the reasons for this borrowing requirement, including  historical capital spend, the current c£800m capital programme and the previous borrowing strategy which has been to utilise cash reserves, cash balances and cash flow in lieu of borrowing in order to avoid interest costs. However the operating environment is changing. The council has an ambitious capital programme to deliver and over time cash balances are expected to reduce as reserves are drawn down to pay for earmarked and other projects. Having carefully considered these factors and projecting forward the balance sheet as set out in section 5 (page 101) the analysis points to a significant borrowing requirement by 2019/20.

Alongside this, given that interest rates are predicted to rise (para 6.8 – page 104) it makes sense to utilise a forward borrowing option as part of a wider borrowing strategy. The benefit of such an arrangement is that it allows the Council to agree a fixed rate in advance (that is broadly comparable with PWLB rates) for delivery in the future which would be in parallel to our capital commitments as profiled in the 3 year budget. As interest payments do not commence until the loan starts the Council is able to hedge against interest rate exposure.

The scale of the sums involved means this would be one of the biggest transactions the Council will have undertaken in many years so it was important to consider a number of funding options such bank debts, the Public Works Loan Board (PWLB), Local Authorities, the Municipal Bond Agency, Pension Funds and Cash Balances.  

Mr Omisore outlined the advantages and disadvantages of each alternative (paragraph 4.6 of Appendix A to the report (pages 98-100 of the Agenda pack)) and reiterated that all options would be considered as part of a diverse borrowing strategy.

He said that borrowing money from the PWLB might not be a preferred option at this time as it did not offer what the Council was looking for – i.e. fixing the interest rate at the present levels and drawing the money in the next two/three years. As far as borrowing from the Municipal Bonds Agency was concerned, it was noted that this will also be considered at the time but will be dependent on economic and other market factors.

Mr Omisore went on to say that a forward borrowing option allowed Brent to arrange money for the future, but the Council had to draw the sum down on the pre agreed date even if  ...  view the full minutes text for item 9.

The report updates members on Treasury Management activity and confirms that the Council has complied with its Prudential Indicators for 2017/18.

Sawan Shah (Finance Analyst at Brent Council) introduced the report which updated Members on Treasury Management activity over the last financial year and provided information on the current level of investments and borrowing. Mr Shah spoke of the economic background over the past year and noted that the UK economy had grown at the same pace in 2017 as in 2016. Q1 2018 Gross Domestic Product had showed year-on-year growth of 1.2% but the most recent quarterly growth rate had been 0.1%. Political events had continued to give rise to a very uncertain environment – although economic activity had gained momentum in the Eurozone and the US economy had continued to grow steadily, uncertainties over Brexit, geopolitical tension and the imposition of tariffs that had been initiated by the US had had a negative impact on the economy.

Referring to Brent Council, Mr Shah said that the Local Authority had a portfolio of long-term borrowing, amounting to £411 million, which had been used to finance previous years’ capital programmes. With short-term interest rates being much lower than long-term rates, it had been more cost effective in the short-term to use internal resources rather than undertake further long-term borrowing. By doing so, the Council had been able to reduce net borrowing costs and had been successful in reducing the overall treasury risk as overall long-term borrowing had been reduced slightly. However, it might not be possible to continue using internal resources in the future so the situation would need to be monitored. In relation to investment activity, Mr Shah noted that interest rates on the Council’s investments rose slightly as a result of the Bank of England’s decision to increase interest rates.

The Committee welcomed the report.

RESOLVED that:

(i)            The contents of the 2017/18 Treasury Management Outturn Report, noted; and

(ii)          The 2017/18 Treasury Management Outturn Report be forwarded to Council in compliance with the Chartered Institute of Public Finance and Accountancy’s Code of Practice on Treasury Management.

Councillor Perrin left the meeting at 7:00 pm.

This is the annual report from the Head of Audit and Investigations. It includes an opinion on the overall adequacy and effectiveness of the Council’s internal controls and presents a summary of the Internal Audit work undertaken during the year.

Michael Bradley (the Council’s Head of Audit and Investigations) introduced the report which presented a summary of the Internal Audit work, included an opinion of the overall adequacy and effectiveness of the Council’s internal controls and commented on follow up reviews undertaken by the team. Mr Bradley noted that the level of implementation of recommendations of past audits had been good. He directed the Committee’s attention to Appendix A (page 139 of the Agenda pack) which contained details of key findings from audits of high-priority areas undertaken in 2017/18.

In relation to the self-assessment against the Public Sector Internal Audit Standards (PSIAS), Mr Bradley informed Members that as the peer review process administered by the London Borough of Croydon had not been successful in identifying another Local Authority to undertake the peer review at Brent, it had been proposed that the newly appointed Internal Audit Manager conducted it.

The Chair commented on the high number of limited assurance audits (paragraph 3.8 of the report (pages 134-135 of the Agenda pack)) and said that, although this was a concern, it was a sign that the Audit Team had been selecting audit areas effectively. The Committee endorsed the work that had been carried out on follow up reviews as audits did not add much value to services unless their recommendations had been addressed. Although Members expressed concern that key financial systems such as Treasury Management and Payroll continued to receive limited assurance, it was noted that actions had been taken to address this.

The Committee thanked the Internal Audit Team for their work.

RESOLVED that the contents of the Internal Audit Annual Report – 2017/18, be noted.

This report provides an update on the counter fraud work for the period 1 January 2018 to 31 March 2018 (Quarter 4) including key activity for the year end.

Michael Bradley (the Council’s Head of Audit and Investigations) introduced the report which provided an update on the counter fraud work for the period between 1 January 2018 and 31 March 2018. He said that the Counter Fraud Team had focused their work on internal fraud, tenancy and social housing fraud, external fraud and proactive counter fraud activity (sections three, four, five and seven of the report (pages 147-156 of the Agenda pack). The Chair conveyed a comment on behalf of the Independent Advisor that using the average national value of each recovered property as calculated by the Audit Commission at £18,000 had been an underestimate in Brent and requested the figure to be adjusted to reflect the actual value in the Borough.

The Committee noted that despite the reduced amounts of funding the Local Authority received, its remit had expanded which meant that there could be more opportunities for fraud and enquired what measures could be taken to address this. Mr Bradley said that the Counter Fraud Team had been effective in targeting areas to work in. He pointed out that although senior managers across the organisation had been supportive of the work of the Team, understanding risks remained important so more could be done in relation to risk management, especially in times of change.

A Member asked if the scope of the work of Audit and Investigations Service covered the Council’s wholly owned companies – i4B Holdings Ltd and First Wave Housing Ltd. In response, Mr Bradley explained that the Council provided internal audit services to the companies while PricewaterhouseCoopers (PwC) had been contracted to be First Wave Housing’s external auditors. Furthermore, as Head of Audit and Investigations, Mr Bradley was responsible for preparing the Audit Plans for the companies which outlined the work that would be completed throughout the year. The Committee requested that any audit and counter fraud reports prepared for the companies were included in agendas for future meetings.

RESOLVED that:

(i)            The contents of the Counter Fraud Annual Report 2017/18, be noted;

(ii)          The Committee’s appreciation for the work of the Counter Fraud Team be formally recorded;

(iii)         Audit and counter fraud reports prepared for i4B Holdings Ltd and First Have Housing Ltd be presented to the Audit and Standards Advisory Committee; and

(iv)         The average value of each recovered property be adjusted to reflect the actual value in the Borough.

The report sets out the draft Annual Governance Statement (AGS) for 2017/18 as required by the Accounts and Audit Regulations 2015.

Michael Bradley (the Council’s Head of Audit and Investigations) introduced the report which set out the draft Annual Governance Statement (AGS) for 2017/18 as required by the Accounts and Audit Regulations 2015. He highlighted that although escalation of risks to senior management had been an area of weakness for the Local Authority, no significant governance issues had been identified.

Members noted that the sections on the Scrutiny Committees and the Audit and Standards Advisory Committee 4.4.4, 4.4.5 and 4.4.6 (pages 171-172 of the Agenda pack) had to be updated for future reference. 

RESOLVED that:

(i)            The contents of the draft 2017/18 Annual Governance Statement cover report, be noted;

(ii)          The draft 2017/18 Annual Governance Statement be referred to the Leader of the Council and the Chief Executive to sign;

(iii)         The signed 2017/18 Annual Governance Statement be circulated to all Elected Members via the Members’ Bulletin.

The report provides the conclusions of a Risk Management Framework Review and feedback on a new approach that has been piloted with two departments. The final part of this report provides a draft implementation plan to embed and enhance Brent’s Risk Management culture and provide ongoing assurance on the currency and validity of the Corporate Risk Register.

Michael Bradley (the Council’s Head of Audit and Investigations) introduced the paper which provided an update on the conclusions of a Risk Management Framework Review and feedback on a new approach that had been piloted with two departments. Mr Bradley said that a review of the risk management framework had been undertaken as per of the internal audit plan. It had assessed the policy and procedures in place; the process and reporting of risk identification; treatment and monitoring; and the risk culture of the organisation.

Members of the Committee welcomed the report and noted that the Council’s attitude towards risk management had improved. However, they enquired what steps had been taken to encourage Heads of Service to become involved in risk management and take responsibility for specific risks. Mr Bradley explained that discussions how individuals could be trained to own and manage risks at service level would take place at Corporate Management Team (CMT) and Departmental Management Team (DMT) meetings.

The Committee noted that it was the 2018 Risk Management Criteria and Thresholds template that had been provided as Appendix A to the report and not the 2014 one.

RESOLVED that:

(i)            That the contents of the Risk Management Framework Review report, be noted; and

(ii)          The draft implementation plan to embed the Risk Management Strategy be endorsed.

Please note that this item has been withdrawn.

The Chair informed Members that the External Audit Progress Report had been incorporated within the report to those charged with governance (the ISA260 report).

It was noted that work on the objection relating to the Lender Option Borrower Option (LOBO) loans had been nearly completed and provisional findings would be issued in August or September 2018. Andy Sayers (Partner, KPMG – External Audit) commented that this deadline would allow KMPG to address aspects that had been raised with other Local Authorities which accelerate reaching a final position on the objection to Brent’s accounts. 

RESOLVED that the contents of the update on LOBO loans provided by Mr Sayers, be noted.

It was RESOLVED that Agenda items 16 (Statement of Accounts & External Auditor’s Report) and 17 (Draft Statement of Accounts) be considered under a single Agenda item.

The Audit and Standards Committee has responsibility for considering issues raised by the external auditors as part of the process of approving the annual statement of accounts.

Please note that the following appendices have been attached to this item:

Ø  Draft External Audit Report 2017/18 (ISA260)

Ø  Draft Letter of Representation

The Chair provided background to the reason why the publication of the Draft Statement of Accounts 2017/18 had been delayed. He reminded Members that this was the first year when the Council’s accounts had to be completed by 31 July (the previous deadline had been 30 September). A Draft Statement of Accounts had been published on the Council’s website in late May and updated versions had been circulated on Friday 20 July 2018 and Thursday 26 July 2018. The draft ISA260 report had also been circulated on Friday 20 July 2018.

Benjamin Ainsworth (Head of Finance at Brent Council) introduced the Draft Statement of Accounts 2017/18 and the External Auditors Report to those charged with governance (the ISA260 report). Referring to the ISA260 report he said that it set out the anticipated results of the audit as per paragraph 3.3 of the Cover Report (page 186 of the Agenda pack). Furthermore, the version of the report included in the Second Supplementary Agenda pack explained the difference between the previous version of the Draft Statement of Accounts and the one published on the day of the meeting (changes to the previous version of the ISA260 report had been highlighted in red). Mr Ainsworth informed Members that the Draft Statement of Accounts had been considered by Cabinet on 16 July 2018 and it was expected that it would be signed by the statutory deadline of 31 July 2018. He explained that the Council and one of its wholly owned companies – i4b Holdings Ltd – were audited by KPMG, while the other wholly owned company – First Wave Housing Ltd (FWH) – was audited by PricewaterhouseCoopers (PwC) which meant that PwC had to sign off the FWH accounts before KPMG could sign the Group Accounts for the Council and the companies.

Conrad Hall (the Council’s Chief Finance Officer) notified the Committee of a complication that had arisen – PwC had been provided with a Statement of Accounts which had the wrong date on it. Guy Flynn (Director, PwC – External Audit, FWH) explained that although the mistake had been rectified, the statutory auditor, authorised to sign the accounts on behalf of PwC, was out of the country with no access to internet. Members expressed their discontent with the situation, pointing out that this left KPMG a very short period of time to consider the group accounts. Mr Flynn clarified that no changes had been made to the FWH accounts apart from the date on which they had been signed. Mr Hall stated it had been the Council’s error that the accounts had not been dated correctly and by the time this was identified, the statutory auditor had left the country. Andy Sayers (Partner, KPMG – External Audit) said that if PwC made the necessary arrangements to deliver the signed FWH accounts to KPMG on the morning of 30 July 2018, KPMG’s team would be able to examine the document and finalise the Council’s Statement of Accounts by 31 July 2018.    

It was  ...  view the full minutes text for item 17.

To note the Committee’s Forward Plan and agree a draft agenda for the next meeting, which would be reviewed and finalised by the Chief Finance Officer, the Head of Audit and the Chair of the Committee one month after the date of the current meeting.

The Chair encouraged Members to notify the Head of Audit and Investigation, the Chief Finance Officer and the Governance Officer, supporting the meeting, if they wanted to propose an item to be added to the Forward Plan or the agenda for a specific meeting.

RESOLVED that the contents of the Audit Advisory Committee Forward Plan, be noted.

Notice of items to be raised under this heading must be given in writing to the Head of Executive and Member Services or his representative before the meeting in accordance with Standing Order 60.

None.