Agenda item

To receive the External Auditor Annual Report for the year ended 31 March 24.

Having been welcomed by the Chair, Sheena Philips, Senior Audit Manager, Grant Thornton, was invited to introduce the draft External Audit Annual Report 2023-24.

Key issues highlighted in presenting the report were as follows:

·             The report provided the auditors commentary relating to the Council’s proper arrangements in relation to three areas, Governance, Financial Sustainability and Improving economy, efficiency and effectiveness.

·             The Executive Summary provided in relation to the Value for Money assessment of the Council’s arrangements.  Whilst no significant weakness had been identified in the Council’s arrangements for Governance or Improving Economy, Efficiency and Effectiveness a significant weakness had been raised in respect of the Council’s Financial Sustainability.

This had been raised as a result of the risk assessment undertaken which had identified the use of £13.5m of reserves during to balance the Council’s revenue budget. In 2023-24, going financial pressures identified (particularly in relation to homelessness), a forecast overspend of £14.4m in 2024-25 with a further budget gap of £16m forecast for 2025-26 and £7m in each year for 2026-27 & 2027-28, with the Future Funding Risk Reserve balance being £10m at July 2024.  Taken together these had been assessed as representing a significant weakness in financial stability.  As such Grant Thornton had identified the need for significant and challenging decisions to be made in order to ensure a realistic budget was set the Council was able to avoid continued use of reserves to meet unplanned expenditure. Sheena Phillips added that Brent’s situation was not an uncommon one in the current local authority sector further noting that whilst identified as a significant weakness Brent was not currently at risk of needing to issue a section 114 notice.

·             The detailed commentary in terms of the review of arrangements supporting the significant weakness identified in relation to the Council’s financial sustainability which included the plans in place to address the significant financial pressures identified in relation to the short and medium term plans (rated red), action being taken to address the funding gaps identified and deliver achievable savings in response (rated amber), plans to support the sustainable delivery of services in accordance with strategic and statutory priorities and other key programme ( rated amber and green respectively)and identify and manage risks to financial resilience (including unplanned changes in demand) (rated green).

As a result of the assessment a key recommendation had bene made in term of the need for the Council to urgently take the difficult decisions needed top ensure that a realistic budget could be set for 2025-26 which could be delivered without the need to further draw on reserves with an additional area for improvement had also identified in relation to the Council demonstrating how revenue investment in services was designed to support delivery of the priorities within the Borough Plan.  It was also noted the prior year recommendations in relation to a cumulative Equality Impact Assessment being undertaken to cover the life of the Medium Term Financial Strategy and options to address budget shortfalls arising from the planning process and identify whether savings achieved were recurrent or non-recurrent had been carried forward to be addressed as part of the 2025-26 budget setting process.

·             The detailed commentary in relation to the review of the Council’s Governance arrangements focussed around the process for monitoring and assessing risk in order to gain assurance over the effective operation of internal controls. Including arrangements to prevent and detect fraud (rated as green), approach towards the annual budget setting process (rated green), processes established to ensure budgetary control and provide relevant, accurate and timely management information in support of statutory financial reporting requirements (rated as green), arrangements in place to ensure decisions were taken in an informed was supported by appropriate evidence and allowing for challenge and transparency by the Audit Committee (rated green) and monitor and maintain appropriate standards (rated as amber).  As a result of the assessment areas for improvement had been identified in terms of the need to remove outdated policies from the Council’s website, prioritise the revision of the Council’s Procurement Strategy in line with the Borough Plan and focus on community wealth building and social value and to enhance the Members Gifts & Hospitality register to include additional detail on “exceptional items to ensure transparency.

·             The detailed commentary in relation to the review of the Council’s arrangements for improving economy, efficiency and effectiveness focussed around use of financial and performance information (rated amber); the evaluation of services provided to assess performance and identify areas for improvement (rated green); the delivery of the Council’s role within significant partnerships and engagement with stakeholders to assess delivery of objectives (rated amber) the arrangements for commissioning and procuring of services (rated amber).  As a result of the assessment, areas for improvement had been identified in terms of the need for the Council to consider enhancing its partnership governance arrangements, enhancing transparency by reporting procurement waivers on a quarterly basis and ensure (as part of the going development of the Council’s performance management framework and implementation of the balanced scorecard approach for 2024-25) that specific Directorate KPIs were included in the Corporate Performance Report.

·             The summary of all Value for Money (VFM recommendations raised in 2023-24 and progress in follow up of previous recommendations.

Prior to seeking comments on the issues highlighted within the Auditors Annual Report, David Ewart (as Chair) and Councillor Chan (as Vice Chair) advised the Committee that they had already met the Council’s Scrutiny Chairs, and Council leadership to ensure the importance of the recommendation and weakness identified in relation to the Council’s arrangements to ensure financial sustainability were recognised and appropriate arrangements were established to address the findings.

In seeking to assure the Committee in this respect, Minesh Patel (as Corporate Director of Finance and Resources & Section 151 Officer) advised that the weakness identified had been recognised and been anticipated given the extent of financial pressures and challenges identified.  Whilst focussed on 2023-24 and produced before the 2025-26 budget had been set, members were advised that actions had already been taken to address the concerns and risks identified within the draft 2025-26 budget proposal, which had included the identification of significant savings (£16m) in addition to a package of additional in-year savings during the 2024-25 financial year.  It was, however, also felt important for the Committee to recognise this as the start of a challenging process moving forward with the risks and pressures expected to continue over 2026-27 and 2027-28.  As a result, the management actions identified in response would be included as part of future plans and in response to the VFM report as a means of recognising the seriousness of the risks highlighted.

The Chair thanked Sheena Phillips for the report and then invited the Committee to raise any questions they might have, which are summarised below:

·             In response to the key recommendation identified in relation to the importance in maintaining sustainable levels of reserves details were sought on the way this was being addressed on a corporate basis given the financial pressures identified across the Council.  In response, Minesh Patel outlined the way in which the key recommendation and improvement recommendations identified within the VFM report had been allocated corporate leads in order to ensure the necessary action and responses were delivered to manage the ongoing use of reserves and also deliver the required level of savings in order to maintain a balanced budget.  Despite the considerable efforts to maintain financial control, members were advised that the operating environment and wider economic context faced by the Council remained volatile with the Council having lost at least £222m from its core budget.  Whilst recognising the efforts made to innovate, identify efficiencies and generate income members were advised these measures alone would no longer be sufficient over the longer term resulting in the need identified to deliver significant savings during 2025-26 supported by a more fundamental shift in approach towards the services delivered with the difficult nature of these decisions having already been acknowledged and laid out in the draft 2025-26 budget.

In terms of future options, it was felt the issues highlighted also supported the need for wider reform of the Local Government Funding regime with the outcome of the Government’s Fair Funding review also seen as crucial in ensuring the necessary levels of financial support for key services was provided as part of future and longer term funding settlements.  Directors of Finance across London were also seeking clarity from the national government so that local policymakers could work with certainty, even if no greater financial support would be offered. 

Members noted the ongoing lobbying being undertaken across the sector on this issue being led through the Local Government Association (LGA) not only in relation to the wider need for reform of the funding framework but also in relation to the need for longer term settlements and funding to match current pressures being experienced in relation to demand led services such as Adult & Children’s Social Care and homelessness.

·             In response to a query, further clarification was provided on the difference between a key and a statutory audit recommendation with the Committee advised that the improvement recommendation in relation to the Member Gifts & Hospitality register was already due to be considered by the Constitutional Working Group and revision of the Council’s Procurement Strategy having already been raised by the Vice Chair (with the support of Councillor Molloy) with the Leader and key officers for review, with the Director Strategic Commissioning & Capacity Building also invited to attend a future meeting of the Committee to update on progress.

As no further issues were raised the Chair thanked Sheena Phillips for presenting the report and the Committee RESOLVED to note the draft Brent External Audit Annual Report 2023-24 including the key recommendation made in relation to the Council’s financial sustainability and action being taken in response for reference on to Full Council in February 2025.

The Committee were advised that reference of the report to Council include a focus on the significant weakness identified in relation to the Council’s financial sustainability and actions being taken in response as part of the 2025-26 budget process.