Agenda item

To receive the interim Auditor Annual Report for the year ended 31 March 25.

Sophia Brown (Grant Thornton – External Auditor) was invited to introduce the London Borough of Brent Interim Auditor’s Annual Report 2025 in relation to value for money work for the financial year 2024-25.

In presenting the report, it was confirmed that the report remained in draft form and could not be finalised until the audit opinion on the financial statements for the same period had been issued. The Committee were advised that the majority of the work had been completed. Upon finalisation, the report would include specific commentary on the accounts audit and the outcome of a separate piece of work currently underway on procurement. Should the findings of that work be available in time, they would be incorporated into the final version.

The Committee was then directed to the executive summary within the committee report. Members were reminded that the findings related specifically to the 2024-25 financial year. It was noted that in the previous year, one significant weakness had been identified in relation to financial sustainability, particularly concerning the use of reserves and the financial challenges faced by the Council. For the current year, that recommendation had been updated to reflect the latest position. A new significant weakness had also been raised in the same area, with the Key Recommendation focusing on the savings required over the medium term. It was emphasised that while the two issues were intrinsically linked, they had been separated to ensure clarity of focus and distinct actions for each. A further significant weakness had been identified in relation to the Council’s self-referral to the Regulator of Social Housing, which had been previously identified.

Attention was drawn to the progress made on last year’s improvement recommendations, as detailed in Appendix C of the committee report. Seven recommendations had been closed, including one relating to savings, which had been incorporated into Key Recommendation 2. One recommendation concerning procurement arrangements remained outstanding. Members heard that 3 new improvement recommendations had been raised for 2024-25. These related to the use of the Property Strategy to review the Council’s asset base, maintaining a strong focus on the cumulative deficit of the Dedicated Schools Grant, and strengthening financial planning within the Housing Revenue Account (HRA). An additional recommendation had been made regarding arrangements for producing the year-end financial statements.

Having thanked Sophia Brown for introducing the report, the Chair then moved on to invite questions and comments from the Committee, with the following comments and issues discussed:

• As an initial query, the Chair requested clarification on the distinction between Key Recommendations, Improvement Recommendations and Statutory Recommendations. In response, Sophia Brown (Grant Thornton – External Auditor) explained that Improvement Recommendations were previously used to highlight areas of good or best practice. The approach had since evolved such that failure to address an Improvement Recommendation within the following year could result in the identification of a significant weakness. Where a significant weakness was identified, a Key Recommendation would be raised. These were formally reported to the Committee within the Auditor’s Annual Report. At Brent, the full report was also presented to Full Council in February, which was considered good practice but not universally adopted. Should Key Recommendations remain unaddressed, and the situation deteriorated, the matter could escalate to a Statutory Recommendation. Statutory Recommendations fell under the Local Audit and Accountability Act (2014) and were considered serious. They were reported to the Secretary of State and required presentation to Full Council within one month of issuance, ensuring all members were made aware. Failure to address statutory recommendations could result in further escalation, including the issuance of a public interest report.

• Members queried the inclusion of the Dedicated Schools Grant (DSG) deficit in the committee report, noting that the issue affected multiple councils. It was also observed that the statutory override had been repeatedly extended, with members questioning why the matter had been specifically highlighted in Brent’s report. In response, Sophia Brown (Grant Thornton – External Auditor) confirmed that the statutory override had recently been extended. However, it was emphasised that the override was not guaranteed and should not be relied upon indefinitely. It was acknowledged that Brent had maintained a strong focus on the DSG deficit. Discussions with Kim Wright (Chief Executive) and Minesh Patel (Corporate Director, Finance and Resources) had confirmed that significant work had been undertaken to reduce the deficit from a peak of approximately £16m to a current position of £13m with the ongoing focus on this area noted and forming the basis of its inclusion in the report.

• Members requested further detail regarding the disposal of Council assets, to which Amanda Healy (Deputy Director Investment and Infrastructure) explained in response that the reference to asset disposal related to corporate assets owned by the Council. A review was being undertaken through the asset strategy to identify opportunities for improved utilisation or disposal. Where assets were underused or the cost of bringing them back into appropriate use was prohibitive, options for disposal were considered. This could involve the transfer of freehold or full disposal, depending on the circumstances. It was clarified that the process was not limited to housing assets and could include land or buildings of various types. Minesh Patel further added that the Council owned a wide range of assets, many of which were not housing-related. Examples included facilities located in parks such as pavilions. The importance of understanding the full asset base and identifying opportunities for optimal use was emphasised. It was also noted that while some councils in financial distress had resorted to widespread asset disposal, Brent was not currently in that position.

• Views were sought from officers around their level of confidence in the valuation of Council assets as well as the frequency with which those valuations were revisited and sense-tested. In response, Minesh Patel  noted that asset valuation was one of the contributing factors to delays in the audit process. The importance of understanding the nature and value of each asset was emphasised. Valuations were undertaken by independent valuers who assessed each asset based on their existing use or potential future use. It was confirmed that this process was designed to ensure objectivity and accuracy in the valuation of the Council’s asset base.

• Independent members queried whether there were concerns regarding the accuracy of the Council’s reserves, particularly in light of other financial pressures and use. In response, Sophia Brown (Grant Thornton – External Auditor) clarified that this was not currently an audit issue. It was explained that the level of usable general fund reserves was monitored to ensure they did not fall below the minimum threshold set by the Council. Should reserves approach a precarious level, this would be flagged accordingly. It was further noted that the audit issues affecting the financial statements were primarily related to Property, Plant and Equipment (PPE). Any prior period adjustments (PPAs) would typically impact unusable reserves rather than usable reserves.

• Independent members referred to the committee report’s mention of increased demand for supply-managed housing and queried the origin of the projected figure of circa 18% growth in relation to temporary accommodation and homeless households. In response, Sophia Brown (Grant Thornton – External Auditor) explained that the figure was derived from Council data and reflected year-on-year budgeting for 2025-26, based on increases observed in 2024-25. Members were further advised that projections for 2025-26 were expected to exceed those of the previous year. The report also included commentary on new properties anticipated to come on stream towards the end of the financial year, which would contribute to addressing the increased demand.

• In querying the risks to the Housing Revenue Account (HRA) arising from refurbishment costs, members requested clarification on how reserves were calculated and what level of reserves was considered appropriate. In response, Sophia Brown (Grant Thornton – External Auditor) stated that it was not within the external auditors remit to determine the appropriate level of reserves. Instead, she reviewed the Council’s own minimum threshold and assessed the year-on-year trajectory of the reserve balance. Members were advised to consider the reserve level in the context of the 2025-26 budget, including whether it would be maintained, replenished or reduced. Monitoring this trajectory throughout the year was essential to assessing financial resilience. The Chair recalled that a formula existed for calculating recommended reserve levels and requested that this be circulated to Members.

In seeking to bring consideration of the item to a close, the Chair thanked officers and members for their contributions and as a result of the outcome of the discussion, the Committee AGREED to note and endorse the contents of the report with the final version, once complete to be referred to Full Council in February 2026 and the following identified as specific action:

(1)  That the existing formula for calculating recommended reserve levels be circulated to committee members.