Audit Committee - Thursday 23 July 2026, 6:30pm - Tower Hamlets Council webcasts

Audit Committee
Thursday, 23rd July 2026 at 6:30pm

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Welcome, everyone, to the meeting.

Thank you so much.

This meeting is being webcast, which means our considerations are meant to be on the

Internet at the moment and for the foreseeable future. So that should increase your inquiries

rather than reduce them.

I'd like everyone to introduce themselves quickly so that all the members, particularly

the new members of the committee, are aware of the officers here, the auditors and so

on.

That would be very helpful.

So let's go this way and start with our legal advisor.

I am Richard Ennis, I am the Interim Corporate Director for Resources and the Section 151

Officer.

Sir Tinde Jas and I'm the Director of Compliance.

I'm Chris Leslie, Director of Finance and Section Deputy 151 Officer.

Assane Khan, Corporate Head of Financial and Technical Accounting.

Paul Odeh, Interim Head of Pensions and Treasury.

Stephen Reid, appointed to external auditor, partnering with EY.

Good evening. My name is Elizabeth Jackson. I'm a partner from EY supporting Stephen on

the audit.

Good evening. Kim Bromley -Derry, lead Minister, Elaine Voy.

Good evening. Andy Grant, corporate head of procurement.

Good evening John Lloyd director of improvement and change.

Kate Brunning interim head of internal audit anti -fraud and risk.

Councillor Martin Parker from Bow West.

Councillor David Edgar from Limehouse Ward.

Councillor Marm Ehede from Mylin Ward.

Councillor Camilla Wilson from Whitchap Ward.

We don't seem to have anyone online, so is it OK if I turn off the teams?

That way you have a visual of just the room.

Rather than me.

Of people in the committee room, because there's no one online.

I see.

Is that OK?

But it will still be being webcast.

Yes, yes, it will still be webcast.

Thank you.

Next question.

Have you received any apologies?

It's too busy.

Have you received any apologies?

Yes, sir have had apologies from Councillor Halima Islam

Apologies not not formally members of the

Committee but the cabinet member for for resources

Councillor Ahmed has asked to give his apologies. He would normally expect to be here and the chief executive

has also would expect to be and has

I believe, to the committee as well.

I just wanted to recall those two not formerly members of the committee, but both would normally

be here, but due to your personal matters, neither can make the meeting tonight.

Yes, the Chief Executive explained that to me personally, so I was grateful for that.

Now, there's declarations of interest, and it's not to be made.

But certainly.

Are we talking about kabir Ahmed what are my day were you talking about?

Okay, thank you, thank you

Okay the declaration of interests

This is this has been covered but people need to always be mindful of that declaration particularly in relation to

Items as they occur and it may be that you need to excuse yourself

from the meeting, but very much a matter that you raised at the time and our lawyer be able

to advise you accordingly.

The item number two is the appointment of the vice -chair.

Are there any nominations for the...

Chair, I would like to nominate Foyse -Wyman, Councillor Foyse -Wyman.

Is that seconded?

I thought we'd second it.

Are there any other nominations?

Those in favour of Councillor Foyson -Armond?

Any against?

Okay.

Abstention?

Okay.

Councillor Foyson -Armond, thank you.

You have been elected.

This is appointed here, but I don't think it's elected.

It does say appointed, doesn't it?

But you've been elected amongst your peers to being vice chair, so thank you very much

for that.

Item 3, minutes of the previous meetings.

Now, these were the meeting of the previous administrations of the committee in the previous

administration.

There was the tendency, and it's often the tendency in these matters to spend ages on

what happened in the previous meeting in the process of infinite regression.

But it's best unless there are points that are raised about the accuracy or correctness

of them, it's best if we move on.

Is there anything at all?

No?

Thank you very much.

Item 4.

And this is for our auditors, we always ask EY if there's basically an audit planning

report, which is the year ended 31st of March.

It's on pages 17 to 82 in our pack.

But Stephen Reid, the partner for EY, will present them.

So thank you, Stephen.

It may be your colleagues will add to that.

Thank you.

Thank you very much, Chair.

So, yes, as you indicated, this document sets out our provisional audit plan for the 25 -26

financial year.

The plan sets out for the purposes of the committee our intended approach to the execution

of the external audit.

The plan will continue to be refined throughout the audit process as is the case every year.

Chair I thought what would be most useful is focusing on the overview section of the

plan and particularly in respect of the risks and materiality levels, so very much from

page 24 onwards and taking the committee through the key risks.

So as part of our risk assessment process, which includes building on our experience

of the audits of the council over the past two years, together with our discussions with

officers informing this plan, we've identified a number of fraud risks, significant risks

or other inherent risks and those are risks that as auditors drive us to spend additional

time or focus over those particular areas.

For all audits there are two presumptive significant or fraud risks and those are in relation to

management override of controls and revenue recognition.

So there's no judgement here on the council but as I say for all audits auditing standards

require us as auditors to spend more time on those areas and hence they are

designated as fraud risks and therefore also as significant audit risks. Those

those risks are in relation to management override of controls which

makes the presumption that where management to seek to influence the

overall reporting position of the council they would do that through

overriding controls and therefore we carry out specific procedures to ensure

that we are comfortable that there is no evidence of that in the year under audit.

The other two risks on that page 24 of the pack are in relation to revenue and

expenditure recognition. Again both presumptive risks under auditing

standards. Page 25 summarises significant risk over property plant and equipment.

So these represent very material balances on the council's balance sheet

together with the fact that in 25 -26 the council will be subject to a

full valuation of its property plant and equipment and because of those material

values and the judgments that are inherent in those numbers within the

Then it is an area we pay enhanced focus to.

Similarly, the implementation of IFRS 16, this is a new accounting standard from last year.

Again, this year we will pay particular attention to that area given the challenges that officers and ourselves had in being able to conclude on the implementation of IFRS 16 in the prior year.

Page 26 summarises an inherent risk on pension assets and liabilities.

Again very material numbers on the balance sheet of the council with a number of significant

assumptions and therefore we pay particular attention to that.

Of all of those risks that I have highlighted, there are no changes from the prior year.

There is a subtle change in focus on one of the revenue recognition risks but those are

consistent with prior year plans.

An additional risk for this year is in relation

to the minimum revenue provision and the changes

to the policy, the MRP policy, which the council

put in place for 24 -25.

We did identify in 24 -25 that that policy change

did result in a material impact on the council's reserves.

And we were unable to gain sufficient assurance

prior to signing the 2425 audit that we were comfortable with that change in policy and

therefore it will be an area of focus for this year.

We have removed two risks from the audit, one in relation to the transfer of planning

powers and we have also removed the risk over the overstatement of fees, charges and other

service income.

As I said, changing that one subtly.

In terms of materiality, page 27 sets out materiality and the approach to materiality

is consistent with prior years.

We designate the audit of Tower Hamlets as the highest risk category in accordance with

the EY methodology and therefore we apply a 0 .5 % threshold to determining planning materiality

that at a group level will be 7 .13 million for the year.

Performance materiality is 50 % of that, at 3 .56 million.

And then we will report all quantitative differences to the committee, over 360 ,000.

Clearly if there are any qualitative differences that we feel want the attention of the committee, we will also report them to the committee.

On page 28, outlines, Chair, the second area of our responsibilities in relation to forming

a view on the Council's value for money arrangements and in prior years, last year, the committee

or some of the committee will recall that we identified ten significant value for money

weaknesses and four statutory recommendations. Given the timing of the conclusion of the

24, 25 audit as I have discussed at this committee before, then my expectation is that again

this year we will be reporting the majority of those significant weaknesses and statutory

recommendations for 25, 26, while recognising the work that officers continue to complete

in addressing those matters and we might come back to that as part of the AGS statement.

But with those comments, Chair, very happy to pause there and take any questions on the

plan.

Thank you, Chair. Can you elaborate on how you came to your key risk in the planning

report?

Thank you, Councillor, very happy to. So there was a combination of a process that allowed

us to arrive at those risks. One was clearly we've been the auditor of the authority for

two years, so we have a good base understanding of the authority. And in addition to that,

we built on that through specific planning discussions with officers. A combination of

those activities and our core wider knowledge of the local government sector across England

allowed us to determine at this point in time what we saw are the key risks from an audit

perspective for the authority and that's very much what's captured in here.

Thank you chair, thank you Richard for your report. The question is not just

this part for the whole report so I've got a couple of question in my mind.

So first question would be do you think do you have any significant although you

mentioned some of the risk and concern but can you assure us you will be

able to finish your audit by the planned timeframe?

And also, what can the council do to reduce the cost of audits?

Thank you.

So, in terms of the timeline, so the actual year end audit has commenced.

We are at the very early stages and actually we had a catch up today with officers and

the team to team catch ups are ongoing.

The audit has started well. Now clearly we're at the very beginning of the audit.

I can confirm that we will conclude the audit and I think the report or the committee where the final audit results report together with the financial statements are due is at the end of November from memory.

The question, Councillor, is how much of the audit work are we able to complete?

So in prior years there is an appendix in the audit results report, which is what we

refer to as the assurance appendix.

I think from memory last year we were able to complete four areas of the financial statements

and provide assurance over those areas.

In conjunction with officers this year, officers have chosen to prioritise the balance sheet

accounts rather than the income and expenditure accounts and we're working through that.

So while we will certainly finish the audit, the opinion this year will be another disclaimed

audit opinion.

The real judgement and question will be how much of the work can we complete based on

the level of support and the quality of the information that we receive from officers

to allow us to discharge our obligations.

So that would be my answer to the first question.

In terms of the second question on the audit fees, clearly when PSAE set the fee for an

audit the assumptions underpinning that are that the control environment is working perfectly.

Now clearly as you have seen through your draught annual governance statement and the

reports that we have issued over the past two years including the nature of our findings

in relation to the financial statement audit but also the volume of significant value for

money weaknesses, as I said 10 last year and the four statutory recommendations, those

represent very significant matters and very unusual matters and until the council has

sustainably addressed those matters and the risk profile of the audit therefore decreases

and therefore we are required to do less work under auditing standards, it will be that

combination of factors in that order which would then allow us to reduce the scope of

the audit and hence the costs associated with that.

Thank you.

Two questions for me. One was about your overall sense of the progress the council has made on the basis of the audit work you've done so far

and your planning, you know, how positive are you feeling about change from last year in all the areas that you've been looking at.

And secondly, I wasn't quite clear from the combination of your report and something else somewhere about the point at which you could stop issue and disdained opinions.

So one of the problems seems to be the opening balances.

If the opening balances are not okay,

what is the point of bringing you two years of audits

where you're content with that?

And I just wanted to get some idea of what is the year

which if everything went well,

you could stop issuing disclaimed audit opinions.

Thank you, through you, Chair.

So in relation to the progress, Councillor,

I think it's too early for me to say

I'm an auditor so I like evidence before I give a view.

What I can talk about is that there has been

and there is positive engagement with the finance team

and with the compliance team

and with other officers in the council.

Clearly I see in my initial read

of the annual governance statement as well,

I see progress there in terms of how that's been compiled

and I guess the transparency that I am seeing there.

Again, I have yet to completely audit that,

but I think there are early positive signs

of encouraging engagement.

There always has been good engagement

from the finance team, I have to say,

but the real proof will be in the pudding

in terms of the delivery of the working papers

and the resolution of the inevitable audit questions

to allow us to conclude over each of those areas.

As I said to the previous committee,

then for 25 -26 I didn't expect there to be

much material movement in the significant

value for money weaknesses because the majority

of those items have been in place for the majority

of the 25 -26 financial year, so hence we would be reporting

and similarly with the statutory recommendations.

but what I would be keen to provide a view on once we get to the end of the audit and

report in November is that direction of travel that I see and what that might mean. In relation

to the piece on the disclaimers you're absolutely correct that in the corporate world when a

corporate entity receives a disclaimer it usually takes three cycles for that disclaimer

to roll out of the financial statements because of the end year transactions, then the comparatives

and then the movements between them. Local government is slightly different in that two

of the complexities in local government, and I'm speaking generally before I come back

to the council, is in relation to one PPE. PPE are complex balances in local authorities

and there's a whole debate about whether they need to be, but I'm not going to go there

tonight, and therefore that takes some working through. And then the nature of reserves,

in a corporate entity the reserves are usually the balancing number. In a local authority,

because you have usable and unusable reserves and then sub -classifications under usable

and unusable reserves, then the reserve picture is very complex and therefore that is a factor.

I think, and colleagues will keep me right, I think the last time this authority had an

unqualified opinion was 2017 -18 and hence that is another complication. When we start

to rebuild assurance, and there are two phases to rebuilding assurance, one is to complete

all of the planned procedures so that the assurance matrix that I referred to is green

for any particular year. I think officers are very sensibly this year

recognised that they are unable to support every balance in the financial

statements but actually the more important balances to support in a

particular year are the balance sheet balances because that supports that

rebuild of assurance and hence we're prioritising that work and officers have

the INE transactions with a view that they'll come back in next year subject

to how successfully we're collectively able to deal with the balance sheet. We

need two years obviously of the balance sheet and the full

financial statements being audited and then we can start to rebuild so if we

think 25 -26 would be year one without INE, 26 -27 would be hopefully year one

with everything 27 28 would be another year 28 29 so could be 29 30 before at

the earliest I feel at the current time before we get to an unmodified opinion

clearly all things being well the form of opinion would change so it would move

from disclaimed to qualified to unqualified so the opinion ought to

improve over that timescale. But to the next audit committee, all auditors have been asked

to prepare by MHCLG a risk and capacity assessment. We've shared that with officers and we'll

bring an addendum to the audit plan which sets that out to the next audit committee.

I'm very happy to pick up more detail of that discussion then. But very much the timescale

will be heavily informed by the progress that officers are able to make and us are able

to make this year.

Thank you very much for that Stephen, that was very comprehensive. I've just got two

questions, one is about the last thing you mentioned, this risk and capacity report,

is that for all councils that this being done?

the market and we are completing that and submitting that by the end of July as I assume

other auditors will also be doing. My question really is about the market. I'm not sure

and how you make a judgement about the difference between individual and cumulative materiality

in terms of alerting and reporting yourself because things can be divided up, can't they,

often, and be below the level and it's important that cumulative is the thing that you're looking

I just want some assurance on that.

Sure.

So there's two elements to my judgement around materiality.

One is qualitative.

So it might, from a numbers point of view, be below,

I'm sorry, be above materiality.

But it might be of significant, in my view,

of significant importance to users

of the financial statements.

So in that case I would report that to the Audit Committee in accordance with the requirements

placed on me.

In relation to the quantitative, I set out in the plan the minimum level that we would

report.

We have a process as part of our methodology that as the team are moving through the audit,

they will identify any matters above that threshold, they put it on a schedule and that

accumulates throughout the course of the audit.

As part of the audit closed meeting,

we'll sit down with officers and say,

do we agree that these are all the differences

that we've identified?

And some of those might be identified by officers.

Some of those might be identified by us.

And we'll have a discussion around which ones officers

feel are important enough to amend.

That will come back to this committee

so that you have visibility of this.

In addition to that, as part of our approach,

We also do a scan of the files so that anything that's below that level, but actually accumulatively

might add up, is also escalated as well.

So there's about three different approaches to address that risk.

That's very helpful.

And I think that the issue for not just the financial reporting of this, but the management

of budgets across the Council, is that officers are aware that they're contributing to a potentially

and materiality judgement.

Richard, you wanted to make a comment?

Thanks, Sherry.

I'm just to pick up a few points.

I think we are working really positively

with the EY, Stephen and his team,

where we're incredibly open,

transparent in everything we're providing.

I have to say they are working incredibly well with us

as well and in a very appropriately challenging,

but also appropriately helpful way with us.

So I do endorse the relationship point.

I think that's been really, really helpful for us.

The PSA and the public sector order appointments

in relation to the fee, they have indicated

they think the fee we are paying is appropriate

for us as an organisation given the risks

that we have and the scale of the challenges that we have.

So there is a view on that from a third party aspect.

Clearly we want to get that down more into a normal space.

And if we progress the work in the way we do,

I know that Stephen and the team will reduce that fee down,

but it's kind of on our side of the table

to make sure that we do the work necessary

to get the fee down rather than the other way around.

In relation to the reserves, I mean, many of you have seen,

We've published the cabinet papers for the in -year position and again in a very open and transparent way. We've included an appendix with all those

Reserves on so we think it's really important that that information is is that is out there and available for people to?

To look at as well

Okay, thank you very much

Members

I just want to note that item and thank EY for their presentation and for their continued vigilance on our behalf,

and on behalf of the taxpayers as well.

Okay, let's go now to item 5 .1, which is our terms of reference, which I'm supposed to be introducing.

The terms of reference which is set out in appendix one actually says there's nothing

that's delegated to us, goes through all these items and says none, none, none, none.

I think there may be something that's delegated to us.

We do have to make some recommendations to Council, including an annual report.

And so I'd like officers to look into whether there are any amendments to this list, because

at the moment we're just noting everything.

I think Kobi Rahmat needs to be taken out from there.

Ah, on the membership. Okay. Thank you very much, as noted.

But in terms of item B, is there anything else on the item of the terms of reference?

So otherwise, let's accept that and see what the precise,

because in some of the meetings last year,

we were asked to recommend,

and in others, we were asked to note.

Mostly, we're noting because we're requesting both officers

and EY to give an account to us of the nature

of financial reporting and budget management in the council

and risk and governance and so on.

And in the giving of an account,

it's basically to the public,

and then we are able to report to the Council.

Where we're making recommendations, then we need to have, we need to be clear the basis

on which we're making those recommendations.

That would be my view on that.

And I'd like to know where there are any.

I think it's an annual report to the Council, but I think there's also in relation to, for

example, on the statement of accounts we're supposed to decree, which we're going to see

later on.

Okay, so that's 5 .1.

Let's now move to 5 .2, which I'll move to Richard.

And then we're, I think, quickly moving to,

I'd love to have the title Director of Compliance,

actually, when I was working like them.

Everyone must walk in fear of using them.

I'm sure they don't.

Richard, over to you.

Yeah, I mean, just very quickly.

So we take really, really seriously

the external or the recommendations both the statutory and indeed the significant weaknesses

as well.

We've got a substantial plan in respect of those, notwithstanding the fact that around

the statutory accounts it will take some years.

We do want to show that progress each year.

We have thrown substantial resources at that and Crystal, Chris and Assan will say a bit

more about that when they get there.

But I do want to hand over to Satinder, first of all,

to talk through all of the remaining statutory

recommendations and the significant weakness,

just very briefly to draw out some of the key things

we're doing, and then through you, Chair,

we're open to questions if that's okay.

Thank you, Chair.

So I will take the paper as read if that's okay,

and I'll just highlight the key areas

and have to take questions at the end.

So if I could just ask everyone to move to page 96.

At the top of that page you will see that we have reworded what we previously reported

to the previous committees.

This was not to misalign with what EY raised previously, it was to align it to what EY

raised as part of their recommendations and use their wording so we could better track

across.

That was the first part.

I will go through each of the statutory recommendations, but as an overview, in total there were 10

significant weaknesses. As part of that there were four statutory

recommendations. There's an appendices attached to this which we've now reworked

updated from what was previously existed to focus on expanding and how

we can improve the immediate issues, what we've done to date, so the material

actions to date, what we are doing going forward and making sure we have

responsible officers connected to each of those actions. And then further from

that we will use that to demonstrate that this is going to be a cultural

So it's not just to solve the problem straightaway, but how are we ensuring that we are embedding

these continually?

So this action plan won't disappear once we believe we addressed one of the weaknesses,

but what it will do is help us make sure that we're tracking it year on year.

So if it's okay, I will just start from statutory recommendation two.

We'll come back to the first one because my colleague Chris will provide a bit of detail

on at the end of that.

The second one was to do with the effective operation of internal controls, which in essence

is about internal audit, but also making sure processes and controls across the Council

are operating how they should be doing.

We have brought in Kate as an interim head of internal audit to help us improve those

controls and she has been kind enough to provide a head of internal audit opinion, which demonstrates

her view from the previous year.

We have also, you will see in this report, we have noted an update on where we were with

overdue recommendations.

So previously it was agreed that only limited assurance recommendations would be reported

to this committee.

We are moving forward from that.

From September onwards we will report all recommendations to this committee.

We are driving to make sure those overdue recommendations are now closed and there is

is on page, just for reference, it's on page 105,

which demonstrates the progress that's been made

in the year from February 25 to date.

That's the key point I wanted to note

on that statutory recommendation.

There is further detail, of course, in the report.

The second recommendation I want to go through,

sorry, statutory recommendation I wanted to go through

was procurement and contract management.

We work with LumenSol who deal with a significant amount of our procurement processes and we also have an internal team.

With them we've been strengthening the procurement process in itself and we provided some detail over where we are with waivers and RFQs which in essence are processed to force expenditure to be approved in general.

Now, I would like to highlight one key factor.

When you strengthen rules in these areas, you generally do see a peak in waivers, naturally,

because people are a bit surprised in management.

It's a cultural thing.

They realise we now need to follow a process.

However, we do expect the waivers and everything to go down.

And if they aren't, if there is, I don't want to call them breaches, but if there are people

who are not following the process and controls, these are being escalated appropriately and

and in a timely manner to make sure we are changing the culture around that whole area.

The final stat rec was around internal investigations.

This in essence is your counter fraud, the processes around it, how it comes into the

Council, length of investigations.

It is a significant area.

We as Kate is working on improving the policies and procedures we have in place.

We are currently conducting an external review of the processes and procedures.

All of this will be implemented and is being implemented into the appendices so it follows

up.

The final statute of recommendation, before we take any questions, my colleague Chris

here will go into, and that's to do with your financial management and accountability, which

is around your financial reporting.

Yeah, thanks.

Yes, workstream one, as it relates to the accounts side of it.

So we have really focused our resources this year on the 25 26

Yes, sure, it's the start of the actual

Report you go to workstream one. I'll follow the link so that at the page

So 100 is where we actually start talking about that side of it

So that's the workstream one and for this year. We've really focused our resources on the 25 26

accounts for that and as you can see we've managed to publish the accounts

by statute deadline of the 30th of June this year and we've also had additional

staff recruited around that to help support and tackle the issues and we've

also had Grant Thornton engaged for additional capacity and their

specialist skills as well to provide that sort of expert advice. One of the key

parts of the recommendation is around ensuring that we have

Evidence provided the orders that is sufficient and appropriate and that's really been a key improvement that we've targeted

With additional cheques within our team and also having Grant Thornton as well to undertake some of the reviews

As well to ensure that they were a bust from that side

As resources been focused on 25 26, of course

We will then turn to a longer -term plan to provide assurance and get out of disclaimer audit opinions.

And really that side of the plan will be informed by the audit taking place.

And that's the next step to really build that longer -term plan for assurance and getting out of the disclaimer opinions.

Thank you, Chair.

And I'd like, I'd personally like the committee to look at page 114, 3 .21, which actually

is about ourselves. Now this obviously was a criticism of the audit committee in the

previous administration, but I think it would be, I don't expect to discuss this now, but

I do think we ought to take on board this.

I deleted this and, sorry, I've redrafted and put it on special

board so that I can see it at home,

this thing that we've got to do, which is about our training,

our membership, the reporting we have to do and strength and

oversight approach that we must have.

And I just wanted us to reflect on that.

Are there any other aspects of this?

You don't want to go into the 23 page detailed report

No chair, I will take it but happy to pick any specific poor records do we have specific points?

That's right. Well, I was just gonna make two comments really one the meeting the deadline 30 for June is great

I think that's good. I mean it must involve really quite a lot of work and being challenging so it's good to

write that

And in reading report I also found it encouraging the sort of range of expertise has been brought to bear upon different

Aspects of this and use of ground form from for example and others

I thought that gave me some encouragement that there's really quite a lot of resources going into this

We have a you know

a good range of expertise from outside of the council and the final comment is that I agree with your observation about training and

Moving forward on that and making sure that we have got the sort of training that equips us to our job as well as possible

items are order

The internal audit team has a rolling programme of school audits.

It aims to visit and audit all schools, or relevant schools, within a three to four year rolling programme.

In 25 -26, 12 schools were audited and the report provides summary information.

I'm pleased to tell the committee that there was an increase in the schools obtaining substantial

assurance.

Last year there were no schools getting a report giving substantial assurance and this

year there were three.

I could and should tell you the scope of the audit reviews.

the audits look at the school's financial systems

and also governance arrangements.

The work of the internal audit team

and the report that is produced supports the schools

in completing their school's financial value standard

returns to Ofsted

and also supports the section 151 officers

signing off of the school's financial value standard return.

I'll answer questions.

Are there questions on this report?

No?

Thank you very much.

Thank you.

There's some reassurance here.

Sorry, there's – who?

Oh, you need to turn your mic off.

She was waiting in case she had to come back.

Thank you.

Thank you very much indeed.

There is some reassurance here, particularly the fact that three schools are substantial.

Oh, I'm sorry.

Beg your pardon.

Thank you, Chair, and thank you for your report.

So I can see around 34 recommendations raised across 12 school audits.

Can you just elaborate a little bit more on how many have already been implemented

and within the timeframe is mentioned there?

As Sathinder mentioned earlier, the Council is carrying out a review of internal audit recommendations

that have already been made, but it's also reviewing and revising how it will change

and improve the follow -up of recommendations.

And at the moment, recommendations are followed up,

I believe, as schools are re -audited,

but that will change in the future,

and we will follow up recommendations as they become due.

Actually, one thing I should have said earlier is,

one of the benefits that comes out of this rolling programme

is that each year we share the findings of the,

essentially it's the report that you get today,

will be shared with all head teachers.

So schools have an opportunity to learn

any potential lessons from the findings

of the school audit programme outside of their audit.

So we seek to share the learning and drive improvements

through making all schools aware of the issues

that we find.

Thank you, Chair. Could you explain how the overall audit opinion is arrived at, please?

We develop a risk control evaluation matrix and it essentially contains expected best

practise and when we visit a school we will assess, well we will record how systems of

internal control and governance are operating at the school and we will test controls and

we will then determine the adequacy of the control that was in place against our expected

expected best practise.

The overall opinion is derived from a consideration

of any shortcomings, I should call them,

any areas of noncompliance.

It considers the materiality of risks,

reputational risks, governance risks.

So we develop an opinion that will be mind -blowing,

of the number of high priority, medium priority or low priority recommendations and also the

significance of any weaknesses found.

Thank you very much. Thank you. Is that noted and agreed? Yes, thank you. Now let's move

to the self -assessment of conformance of global internal audit standards. Could you talk a

I think it's quite difficult for members, myself as well, to understand how this...

because one can always see how do I compare to a target or norm,

how do I compare to what I did previously and how do I compare to others.

And I think it's important that the conformance standards are important.

I don't know whether we're ahead of, behind, what other authorities are doing in relation

to this.

So it would be helpful if you could outline that as well.

Thank you.

The head of internal audit is required to assess the functions conformance with the

global internal audit standard and the application note for public sector internal audit.

These came into place on the 1st of April, 2025.

They replaced the public sector internal audit standards that I think were in place since about 2013.

I think when you read the conformance report you'll think it's very repetitive,

but I have in the table that you have as an appendix to the report,

combined both the global internal audit standards

and the public sector application note.

So it's quite a long document.

I must tell, or I'd like to tell the committee, sorry,

that other local authorities and other public sector bodies

haven't always provided the evidence,

as I have done in your report.

They would rag rate the conformance with each of the standards but not tell you how

How conformance was obtained and I've done that specifically to improve the assurance that you have

From this and that's mindful of a wise

Reports on the internal audit function

So I so I thought that was very important to do and of course

this is the first time that you've had this report

and being presented with it.

So I thought it sets a good groundwork essentially

that maybe in future years you could just have reports

on where things have improved.

I think that we're in quite a good place.

Whilst when I was assessing conformance

with each of the requirements,

I used four possible scores from conforms,

generally conforms partially and doesn't.

The overall opinion on the conformance with the standards,

the maximum you can get is generally conformed.

So we do generally conform, so that's good.

There of course will be some that are better

because they didn't have a break

in the head of internal audit in post and things like that.

We're not the worst, but we won't be the best, I should say.

But I'm not fearful of where we are now.

You'll notice that, or have seen in the conformance

self -assessment, that there are limited numbers of areas

where I've said we don't conform.

And those are in respect of the external quality assurance

assessment and we will commission that later during 2026 and it will certainly

be completed and reported to committee by the ends of the financial year so we

can use it in next year's head of internal audit opinion statement because

the head of internal audit opinion statement that you'll see is an

appendix to the AGS requires that we have a statement on this.

There are a few other areas of limited conformance and those are around the use of technology,

for example, and the team has used internal audit software in the past but didn't find

it beneficial. So the way we work now works for the team and we don't think we need to

need internal audit software. I would also like to assure the committee that the team

has received training on major significant changes that were brought in by the Global

Internal Audit Standards, one of which is the use of root cause analysis and the inclusion

of that in their reports. Thank you.

Okay, thank you for that thorough response appreciate that are there any questions on this

Try to tease it out of you see you know you notice that but the subject doesn't work your appetite

I can tell but thank you very much for that. It's important

issue

Now let's go to the next item

Which I think is five

On page one ."[inaudible

Nikki speaking on phone in background possessed by telescope def pipeline elderly

Insurance. Richard.

Unfortunately my laptop's decided to not respond so I'll just have to wing it a bit.

The Committee receives an annual insurance report as a

that the insurance function provides, I believe,

good value for money.

You'll notice, I'd like to bring to your attention

in the report that the team review and reject

spurious claims and that,

I've just written it down earlier, actually,

out of 231 claims,

received during 25 -26, they rejected 134,

and the potential value of those claims

that they rejected is in the region of 1 .3 million pounds.

I should also say that the insurance team

have a fraud officer that helps them investigate

spurious claims and helps them reject it.

The insurance team is part of the

Insurance London consortium

That means that we have sort of joint purchasing power and when we go back to the market

We always seek to get best value for money. I

think you'll notice in the report that

It highlights that we self -insure

Quite significantly that's done

because it it reduces our reliance on the market and

fluctuations in in a premium

and increases and things like that.

It also reduces our costs, essentially.

The council has significant reserves

and is able to fund its self -insurance amounts.

I don't know if there's anything else

that you'd like to me.

Oh, I should say that our cover, of course,

reflects a changing external environment.

We've recently gone back to the market

for property and terrorism cover,

and that would have increased what would be

the implementation of Martin's Law, for example.

Things like the reinstatement costs of buildings

has increased with insurers wanting 100 % of costs.

It really is quite a hard market at the moment

because of many external factors.

Thank you.

Councillor.

Thank you, Chair.

Thank you, Officer.

I just wanted to know, in terms of the rejecting claims, how do we challenge it?

How do we challenge the reject claims?

Well, when somebody makes a claim, they're required to provide evidence to support their

and the assessment of a complaint, oh sorry, of a claim will be based on the

evidence that's provided. If they can't provide evidence then it can't go

forward essentially, but also we consider our responsibility for the potentially

for the accident that's happened.

Accidents often happen when people slip and trip

in the road.

And one example that comes to mind

is that a member of the public fell over something

that was attached to a market stall on Whitechapel High

Street.

And the insurance team was able to work with colleagues

in surface areas and say our inspection regime of the market and our maintenance of the pavements

was sufficient and we weren't negligent in any way, that the item that had caused the

person to have the accident was actually the property of the stall holder and our responsibility

for the market does not include such a level of review and scrutiny of the

market store. We can't be there all day every day watching every single market

store. We have to say that the market store holder is responsible for the

health and safety of the people that use it. So we were able to say we have done

what was our responsibility and it was down to them.

So it's that sort of balance.

We say, is it our responsibility?

Is there evidence?

And yeah, there are certain things that will always be paid

but there are other things where

they're subject of significant scrutiny.

King Bromley, Derek first.

Thanks, Chen.

Now obviously if you're self -insuring,

which is obviously quite common in organisations like authorities, is the risk associated with

self -insurance in the risk register? Because inevitably some claims could be quite large

or low, you have reserves, inevitably some of those claims could be obviously, so I just

wondered whether it's matched in the risk register, that self -insurance risk.

We have insurance in place for the untoward events, the significant claim.

So our self -insurance is essentially capped. If there was a significant claim,

the insurance take over an amount that is agreed with us. So I

don't think that the cumulative potential impact of all of our insurance

excesses being required at once is in the risk register, but I am comfortable that our

reserves are sufficient for the majority of eventualities. But I will explore that with

the team and report back.

Yeah, the provision is 13 million, isn't it, 12 .8 or something. So really the issue is

whether there's untoward events over the 13.

It would exceed the million pound cap on our responsibilities.

See if I can…

Well it may be a low risk, but I just wondered if it was in risk register, that was all.

I can stereotype. Out of London it's mainly tree root damage. Lots of other parts of London

It's it's car potholes and pay that but also increasingly its housing

poor housing management of social housing stock resulting in claims and

it's useful to have a

Risk assessment which isn't overall but is actually segmented in

Councillor Hussein

Sure, similar to Kim's question. Thank you for the question. Okay. So basically I understand

we have a reserve of around 12 .5 million.

So our housing claim is the largest driver.

So the amount of claim I can see is increasing day by day.

So how confident are you this is still sufficient money

reserve we have if this claim increased significantly?

The number of claims or the potential financial value,

or both essentially.

We work with, well we do the claims handling ourselves,

but we use specific insurance experts to give an opinion.

People who know the market in detail

and will assess our risk profile.

So we are in line with expert opinion

on what we need to have for our ever -evolving risk profile.

We are not taking any untoward risks at all.

We are quite cautious in our approach to risk.

The idea is that we don't expose the council

to unplanned shocks.

And whilst we have that big self -insured,

excess amount

It is

essentially

We believe funded from our

Reserves and the money that's available this year

provides value for money

Yes, thank you just to add to that as part of the accounts we have the specialist the marsh that

was mentioned just then and every year we carry out an annual review of the provision

and the reserves informed by the report and insurance specialist so that adequacy of the

provision and the reserves is reviewed every year and adjusted in accordance with that

advice from the experts.

Please come back to the end.

Thank you, Chris, for that.

You mentioned MOSH.

So, MOSH actual, okay, we estimate, so they say it's 75 % of confidence level.

So, what do you say on that?

So they use the industry standards and then the experts around that side of it.

So they use those benchmarking assessments and within that they also allow for a couple

of, they allow for the claims that are in the system, which we do provisions for.

And then they also can collect potential claims that aren't in the system that come through and hence we have a reserve balance

So we look actually the benchmarking and we've got claims in the system claims history and they do the provisions around that and we also provide

For claims that potentially could come through as well. So we're happy with the adequacy

Around that we cover both areas and we're also using their recommendations and advice and based on past claims history. Okay

Okay, Councillor

Okay

Yeah, I mean just to say so a 75 % confidence level means that they assess that our reserves are adequate

in in that space just

I just wanted to ask a simple question before we've got into all the detail of the self -insurance

was is this covering all the risks or is it specific risks that are covered under self -insurance?

There will be legislation that requires us to have certain insurance policies in place.

I think about public liability as one that comes to mind. But the insurance policies

that we have in place reflect the risk profile of the organisation and the real risks to

us. There will be certain things that we haven't ensured and I think the report refers to things

like computers and certain lower value items but it's all weighed up to ensure we get

this value for money. Yeah, risk profile of the organisation is a bit of a woolly concept.

I still don't really understand the, I know about self -insurance, but I don't really understand

impact the basis of which Tom Hamlets is actually doing the self -insurance.

Just to say if I could give a bit of a context about the profile as you mentioned and to

Kim's point. So how it would normally work across a council, you would have years of

data of course and the insurance team would talk to every department and you would know

what payouts have been, what the recent issues you've had

in terms of property damages and also emerging issues

from the local market and the local area.

Every year, insurance will have to make an assessment

with specialists to decide whether they self -insure

to a certain level or they go out

and have an insurer provide.

The logic of that is always based on best value for money.

What can the council reasonably afford?

What do they have in their reserves?

And what do they not want to risk?

Generally, local government councils, especially in London, are low risk and prudent, and that's

the way that they go.

You do find the odd occasion when that changes.

However, that's how the assessment is made.

Now, in terms of the risk point that you mentioned, particularly around that, insurance would

have what they classify as a risk register for their own department.

However, in reality, for it to function correctly, every department must have their own risk

So in housing, you would have something around property,

specifically, obviously, this does escalate up

to a corporate risk register where

you have significant issues such as what happened with Grenfell

and whether actually your insurance covers

specific areas.

And that is escalated up.

But in terms of overall and the risk assessments,

that's a continual process that insurance team will do.

And they will flag where there's a high number of claims

that might have come in for say personal injury for argument's sake on street markets and

then they will discuss with transport or regeneration or whichever department it links to and they

will say we have a high level of injury claims we are paying out for and we will need to

reassess whether we need to increase our insurance premiums or whether we want to self -insure

more because there is an impact.

The more you pay out, the more your insurance premiums go up once they are up for renewal.

So that is a continual assessment that happens

Before policies are due and that feeds into the contract manager and the procurement that we are working on to make sure

We get best value for money across the council

Thank you

When I met with officers earlier not earlier today, but some time ago I

Actually asked me if they'd read the National Audit Office report on severe space weather

because that's one of the biggest risks in London actually, it's one of the top five risks for London

and Sir Tindra assured me he was an astrophysicist by training and therefore he had it previously

so he had this all under wraps, so I was pleased about that.

Do we agree with this report on insurance? Yes, thank you.

Very good report by the way by the NAO.

We've, through you, Chair, we've, you know, this is probably the main item of the night

for the committee to go through.

We've got a, you know, as I say earlier, we've thrown a huge amount of resource.

We were very pleased to be able to publish by the deadline of the 30th of June.

I have to say not all London boroughs managed to achieve that deadline of the 30th of June.

So we were pleased to do so.

It enables our audit partners to have at least a full time scale,

but we've got to keep on making sure that we achieve

the supply of information throughout that process.

We also, I think, put the AGS together,

I think in a much more appropriate way,

more thorough as well, and I think John will talk to that

in a bit.

In terms of approach, really, I thought it'd be useful

if the committee feel appropriate for us

and to perhaps spend some time.

there is an appendix drawing out some of the key messages, but perhaps walking through

the report to draw out some of those. The pension accounts are also very important to

us as well, so Paul will perhaps draw out some of the key messages in that respect.

John Lloyd has led the AGS process and I think it would be useful perhaps if he sets out

some of the ways we've strengthened the AGS.

And then I think it's incredibly important for Kate

to talk through her independent opinion

to the committee as well.

But if that's okay in structure, if we could,

perhaps, Hassan and then Paul, John, and Kate,

perhaps be in the order to take the committee

through the key documents in front of them.

It's an incredibly long set of papers.

We do appreciate that.

We would hence reason we provide the appendix to try and draw up some of the some of the key matters

But if that's okay chair we could do it and that all over appropriate. That's felt programme

So I'll take the first section of it Thank You Richard so focusing on the council's account

So in terms of the paper, it's contained in appendix one

It's quite a comprehensive document. There's a lot of information in there

What we've done is prepared a supplementary document contained in appendix 2, which is page 535 of the PAC.

And it really highlights some of the key points in relation to the messaging of the accounts.

So the accounts is formed of the narrative report, so it gives the organisational context for the year.

Performance data against our KPIs and how we've performed during the year.

as well as mentioning some of our key aspects in terms of corporate risks that Satin just touched on

and also touches on the financial position for the council including the reserves position,

HRA, DSG and some of our key ring fenced accounts.

So just focusing on the briefing note, I kind of wanted to touch on the CIS

which is the comprehensive income and expenditure statement.

So effectively this in your I &E statement for the year and really kind of touches on some of the key movements

This is an analytical review

Year on year in terms of movements from 24 to 25

24 25 to 25 26 I should say

So the net cost of services really gives you a indication in terms of the cost of the service from a direct level

Explanation of key movements are detailed in the briefing paper

I'll touch on some of those in terms of why there's been a significant shift in the cost of service

A lot of this has been reported through the year through cabinet in terms of demand -led pressures

The council is facing and that naturally comes through in your income and expenditure statements key areas include homelessness

adult social care

children social care and send pressures

The one thing I will say is this technical?

I'll deed them technical entries that also go through your INE.

So there's been a significant exercise done this year in terms of revaluation of our assets.

That's our property, plant and equipment.

Stephen touched on this earlier.

It's a key area that we wanted to accelerate in terms of rebuilding assurance.

So what we did this year was effectively revalue all of our assets.

So up until now we've taken a five -year rolling programme.

So that's had an impact on our INE and there's been significant shifts.

And the key one I will draw out is around local authority housing stock and the valuations

around those.

The other key driver around sort of movements in valuation is we've had a change in valuer.

So we think we've moved to a more reliable and accurate valuer in terms of some of the

assumptions they adopt.

So previously we were with a different valuer.

So I think in terms of those changes in assumptions when it comes to evaluation they are really coming through in the irony

The other key movement I will indicate is in relation to is 19 which is defined pension liabilities

That sits below your cost of service on page

538

So our is 19 actuary report indicates, you know, there's been a key swing in terms of the net define

Yes.

So the briefing paper is on page 535 of the pack.

Thank you, Chair.

So I've just kind of talked through the irony on page 537 moving on to the deficit on the provision of services and just kind of

indicating some of the key movements that's

happened in the irony during the year

The other key statement that I did want to give a bit of a briefing on is around our balance sheet

And again, that's something that we're really focusing on this year in terms of rebuilding assurance

And that's where the priority will be as part of the audit in terms of gaining assurances on those balances

I've already touched on it in terms of long -term assets.

Again, this is on page 539 where the analysis starts.

You can see a significant movement in PPE valuations in terms of the reasons that I

mentioned previously.

Current assets, I think the one worth flagging is cash and cash equivalents.

So that's reduced.

So we reported as part of our treasury management strategy in January to the audit committee that was approved by full council in

February we are moving to a net borrowing position where we are going to eventually need to borrow I think

Soon in terms of our projection as per the treasury management strategy

So we've been in a very positive position in terms of the borrowing position. So our borrowing levels have roughly

remained stable about 68 million for a number of years.

So as our cash balances come down, that's something that Paul and his team are looking very closely at

and monitoring cash flows in terms of our treasury management strategy to ensure we can manage the cash flows.

The document also talks about some key observations and key ratios.

I mean the one I'll mention is the debts to assets, 2 .4 % and 2 % year on year.

very healthy in terms of any kind of benchmarking you do

across any other local authority.

We don't do anything very exotic when it comes to borrowing.

We don't have any companies.

It's 968 million, so I think it's relatively low

compared to other local authorities of a similar nature

and a similar size.

So that's somewhat of a briefing in terms of the accounts.

Happy to take questions on any of the individual parts

of the accounts, which is contained in appendix one.

The other key parts of the accounts that Richard mentions are the pension fund and the AGS.

So for the pension funds I'll hand over to Paul who will provide you a strategic view in terms of the position.

I wonder if we could stop with yourself and then ask questions about the things you've just introduced before we go to the pensions issues.

Have Councillors any questions on the accounts themselves?

The I and E, I get lost with these numbers, I thought PPE was politics, philosophy and economics,

but apparently it's plants and property and something.

So, but has anyone got questions on this I and E, the income and expenditure or other aspects in relation to this?

I've got a couple, but I'd like others first.

So, Councillor O 'Connor, and then you.

I've got one comment and one question, and the question may be the sort of unhelpful

one for tonight, but the comment is that I found the year -on -year variance analysis really

helpful in terms of presentation and content, and it answers lots of the questions I would

otherwise have, and I know it takes quite a bit of work to actually get that pulled

together, so I appreciated that and I found it useful and avoided some questions.

The other question, the question though is how does the actual result for these draught accounts compare with what we were seeing in the management accounts?

So I haven't gone back to cabinet papers and looked at what the reports were and I appreciate things are in a different format.

But I have got an interest in just how well the council is doing at predicting and forecasting as it goes through the year its likely result, how they marry up with what is actually found by the time you get to the annual accounts.

So in terms of the comparison to how we monitor it during the year, so the last cabinet report

around the financial position would have been Q3 reported to cabinet in March.

So in terms of the movements, I think broadly it was in line with that Q3 projection in

in terms of what we needed to draw down from the risk reserve

to balance the general fund position.

So that's brought 18 .6 million for 25 -26.

HRA was deteriorated from the position from the Q3 forecast.

There's a cabinet report that's been published on the website

and it will be going to cabinet next week to give further details around that.

Similarly the DSG position slightly deteriorated as well,

given the pressures from the high needs block.

Again, as cabinet report going to cabinet next week that fully details its information around key movements on q3

Of course the accounts pick up the final position and then the narrative report in details at that year -end position as well in terms

of the performance against budget and actuals I

Need to read the cabinet papers for next week

Thank you

May I ask just one one question? I've got several but anyone else is one now

The reserves have reduced by 92 million in two years, it seems to me,

which is about 46 million a year.

And if we carry on like that, there's only two and a half years left, 30 months.

So it seems to me that this reliance on reserves is feasible

because of the large unused reserves that have been built up over the years.

But there needs to be in as a statement here about replenishing somewhere. It's a word of replenishing. Well, I don't know what the aim is

but this level of

Reliance on reserves is is extremely high

When there's not another line which says savings or efficiencies or economies and I just wanted to

Ask maybe a question about

Maybe it's not for you, maybe it's for Richard in relation to the comfort that there is that

there's this much reliance on reserves.

Yeah, so, I mean, again, there are areas of reserves which we've been drawing down.

So we've had particular reliance on local CILT, local community infrastructure, levy

malleys that we've received and we have drawn down quite substantially.

You'll see them called substitutions in some of the budget reports that we have.

But there are underlying pressures, particularly in our adult service, particularly in our

children's services, particularly in temporary accommodation.

I have to say the team in the temporary accommodation area are doing some incredible work to deal

with the pressures that there are both within Tower Hamlets and nationally around homelessness

and all of those and the adults and children services areas.

You'll see in the reports to cabinet next week we do flag both the out turn and that

there are some areas that we have to deal with those fundamental areas that have been

given us pressures and overspending and therefore we need to make the corrections in that respect

really. In the budget we have built in an in year budget reserve and we've also built

in a contribution to the risk reserve as well. We've got 25 million of only marked reserves

which are really held for some, which are there really and untouchable in many ways

for us and therefore financial pressures that come our way. I think as part of the medium

term financial strategy over the coming months we have to come forward with ways that we

are going to change that pressure that we're experiencing, change the spend levels, particularly

in the adults and children's areas, as well as do some further work in communities and

also in the temporary accommodation space, such that we remove this reliance upon or

risk around some of the reserves.

In respect of the SIL number, the Community Infrastructure and Library number, we have

put 25 million into the budget this year

as a requirement for us to use.

It's 100 % deliverable because we've got over 24,

we had over 25 million in the reserve

that we brought forward,

but we've taken that into the base budget.

What that does is it means that we no longer have

a SEL budget sitting alone to deal with any

of those pressures, hence the importance of

dealing with those overspending areas in the right way.

When you look at the report next week,

you will see that after further mitigations and after using some of the risk reserve but

maintaining the India risk reserve, maintaining some 16 million of that, we have a 19 .2 million

pressure. We need to deal with that 19 .2 million pressure so that it does not keep rolling

forward into our future budget. So I think the medium term financial strategy this year

is going to be incredibly important. You will also see recommendations in the report, in

to make some, what I believe are appropriate decisions to deal with some of those mitigations

which require those decisions to be made in order to improve the financial position. But

we need to remove that reliance. CEL is not certain, you'll be aware we're also taking

legal action against the GLA along with two other London boroughs. The latest reports,

That was because the amount of affordable housing and social housing was being taken

down by the London Mayor to 20%.

That has a substantial impact on the amount of sill that we as an authority would benefit

from.

But the latest reports are that the London Mayor is likely to move that back to, or consulting

on moving that back to 35%.

That's still not as high as as he started at so we're just reworking the numbers in that respect

So the bit about we will replenish our sill

But the amount is been impacted by by decisions made by others. So we've got to rework in our

next financial update what we think that still number will start to look like because

And I don't want us to be an authority that gets ill and just keeps it all in the bank because every time we do

keep those sorts of sums in the bank then you know that's money that the

residents don't get benefit from but we need to assess an appropriate risk and

that would be done again as part of the budget as to what we think that

Union Mark Reserve ought to ought to be but you know we need to keep a close and

watchful eye on it might not be an immediate problem as you say chair but I

think this is the year where we start to strengthen the and support the policy

Decisions but also support the financial position of the council by dealing with some of those sister systematic and

ingrained

overspending areas that many councils face including ours

Yeah in relation to the overall pattern of the budget

Children's went up by 10 % spending that is one year on another

adults by 12

housing by 78 %

Nothing increases by 78 %

There's got to be both policy, needs and other reasons about that.

But despite about adults and children going up, the percentage of the budget, which is children and adults, is 50... sorry, 45%, which is probably the lowest in London, I would guess.

So I would urge that people look at the you know, all other areas of

Expenditure as well because it's not the two -thirds of one expects in London authorities. It's 45 %

Kim

Yeah, mine was on a similar point. I looked at pay. I was on page four three eight and

and which has got the financial stability ratios which talk about reserves net revenue spend going from

57 percent 33 percent and the commentary is declining resilience

Then general fund as a percentage of net cost

commentary stable

But low buffer and efficiency in cost ratios net cost of services growth 32 percent

Plus 32 percent which is significant cost escalation

employee cost growth 4 percent, which is probably average I guess

And then sustainability indicators, we've got general fund out turn has gone from balance to 18 .6 million overspend.

We've got reserve movement which has gone from 216 .7 to 165, so it's quite a downgrade of reserves.

And then cash movement 145 down to 79.

And then the commentary is obviously financial pressures remain severe, especially in demand -led services,

Which speaks to your point that you were just talking about but I guess in terms of the Audit Committee

They ought to see the actions that are being taken

To deal with that because so therefore I know there's a transformation project

I know there's you know, there's there's a whole range of activities that are

aimed at mitigating either spend or

Improving the position so I think you a good balance would be able to talk about all of those actions

Alongside this because obviously if you extrapolate that position forward any length of time

That's that puts it the counselling quite a difficult position

I guess so so it was really around perhaps all the committee all the committee ought to receive something that talks about

You know within services, what are the transformation activities that are going to deal with that activity?

I understand a lot of those pressures are common across a lot of authorities

so I'm not necessarily suggesting that's peculiar to Tower Hamlets and if you

let's level draw down a reserves for that if it's the next two years anything

like it was in the last two years you're bust before you go to the election yeah

And I think, you know, I mean, John will know this from the conversations, as will Kim when

we've talked about the position of council.

And I put financial sustainability, you know, right at the top of the list of priorities,

you know, I do so for this and I do so for probably many other councils across the country.

You know, the council hasn't had to go and ask for exceptional financial support, unlike

many councils in the country and it's in control of its own destiny, but it needs to take some

tough decisions in order to make sure that it maintains control of its own destiny.

We have a number of, again, these are detailed in the cabinet report that we're taking to

next Wednesday's meeting, so we set out the various, we've got two fundamental reports,

one which sets out the out -turned figure on the movements.

I mean, I think, yes, they are broadly in the space we thought they'd be, but we did

see a movement in the children's services space, particularly around some high -cost

placement areas, and you'll see that drawn out in the report quite clearly next week

and very transparently next week.

And in the forecast report, you'll see where those pressures sit.

You know, the departments have done well and, you know, we've had the, you know, political

support in the spaces where we've come up with the mitigations to drive that number

down.

And you'll see where we have allocated out some of the risk reserve but not all of it.

And it's incredibly important to me that we keep, you know, a reasonable amount of that

back.

And you'll see in the report, and that sits at something like Chris will correct me if

16 about 16 million we've kept back with a 19 .2 million overspent it is early enough in the year for

departments to

You live within the budgets that were signed off by

You know by the council as it at full council in February because we still have a significant number of months to deal with that

19 .2 million but you complacency cannot be

and isn't something that we're in that space of,

we need to make sure we deal with the overspends

that departments live within their areas as best they can.

I do accept that a number of organisations,

councils do overspend, but we need to deal

with the pressures and that means making

some of the hard decisions.

We also gotta get the culture right.

You know, I see a number of departments

doing the right thing and spending within budget,

But I'm still seeing some where they are coming forward and putting proposals on that spend more than the budget

They've got that is not an acceptable position

For us to to be and we need to make sure that people come forward with proposals that spend to the budget

They've got or less

It's not about

Increasing the amount we've got to do. We've got a you know, there are some

Really good things that this borough does

For its residents. There are some trend of things it does, you know, it's got some really good services and children's outstanding

and adults good, but we have to live within our financial means

as well.

But you'll see there are two really good reports,

in my view, going to cabinet next week that set that out.

There is strong, I'd say, strong political leadership

from the mayor into the corporate directors

and into the cabinet members to get their expenditure

within the budget.

That leadership is there, and it's there

from the Chief Executive and myself as well.

That's very good.

Thank you very much.

Questions?

Councillor Hussain.

Thank you, Chair.

Thank you, Regent, for your explanation.

I just trying to understand,

our cash position has been reduced a substantial amount

from 145 to 79, around million.

I just want to understand what is the reason,

what is the driver for this,

and also is there any risk associated with this reduction?

I'm going to say some of it's capex and just use it.

Yeah, I mean that's the key driver here.

So we've been internally borrowed heavily.

So we've, in terms of up until now, we've been able to use our internal cash as a capital

programme largely ramps up.

The approved programme, particularly in the HRA around delivering affordable homes, acquisitions,

That cash is now coming into play in terms of expenditure.

So our cash balances are reducing as largely as Richard mentions our capital expenditures

ramping up.

And that's why we're closely watching the Treasury management strategy.

This forecast is we will need to borrow soon and that's what we need to watch quite closely

to ensure that we manage that cash position from a risk -free point of view for the Council.

So there are two different, you know, in sort of schizophrenic moment for me really, because

I'm pushing the departments to make sure they deliver their capital programmes because of

the benefits we get to the residents.

Equally so, there is a, for every cloud there is a silver line.

If they don't just deliver it, then we've got some more cash and we earn a bit more

interest on it.

So, you know, there is a, there are two different views on it.

But, you know, it's important we deliver the capital programme as best we can.

it says total reserves but I don't really understand what is meant by that because in

the conversation just now referring to seal and that should be reserves that we're not using to

So I'm not quite sure how what those total reserves are and and

What the seal money is in the section 106 money is

Again so I'll talk through them really quickly then

and

You know again, and we've provided a sort of full list of them in

You know different places in the accounts for those and the reports go out next week going to cabinet as well really

You know section 106 are

Negotiations that take place as part of planning. So one of the ones which we are

The most of the prominent example is one coming a bit further down the road at the moment

So you'll note we've signed a memorandum of understanding

with JP Morgan at the moment to build the tallest

building in Canary Wharf, all being well.

That will go ahead in a few years.

Hence, we'll be having discussions with them

around Section 106 around how much we will negotiate

as contributions towards doing, particularly

around capital projects within the borough as a whole.

And we've done a series of those over all of the developments that have been going on. So sometimes they will come

um with restrictions on what we can use them for and

Uh, you know, there'll be various, you know, some of those are slightly looser in the in the wording that comes on as well

um in respect of the

Sil side the community infrastructure levy and particularly local sil or n -cils it gets uh gets known

um, you know that is certainly more less restrictive in its use for

what we do and will often be used for revenue spaces as well,

which is why we've been substituting it in to deal with some of these pressures we've had in adults and children.

And we publish our local calculation on how much how CIL is calculated for us as well.

The un -earmarked reserve we hold at 25 million is an earmarked reserve that is there for

things we have not foreseen as an organisation.

There are then a series of other reserves that we set aside, the insurance one we talked

about earlier on.

There might be specific issues we're worried about that are particular to us as an organisation,

So there might be legal claims and so on that we might want to set aside

Money for and where it sits in the accounts depends on how much certainty we have around it as to

which which

you know which

Part of the balance sheet we put it in as well really so there are a whole range of different

Reserves we also have a huge number of unusual

reserves so which we sort of

In some ways we don't mention so it could be around

revaluations on things which we will never sell, the assets that the council owns that

we would deem unusable reserves so that people don't think if they see a huge number that

it gives some great protection for the organisation really. So you have to look down to the ones

that are usable, not usable and we split them into those categories and in the usable space

again you've got a lot of earmarked reserves and you've got the unearmarked which is the

The Section 151 officer every year will assess and give a binary conclusion as part of the

Section 25 statement when the budget is set in February, which is a personal statement

that all members of the Council, when they vote for their budget, have to take into account.

And the binary conclusions they have to draw are around the adequacy of reserves and the

robustness of the budget.

The Section 25 statement again is where that statement around the adequacy reserves is

formally made as a personal statement unfettered by the opinions of anyone, in other words,

because they are personally accountable for the statement they make on the position of

the reserves.

So the Section 25, when you get that, you have one last February and you'll get another

one this February, and that's a really important document to refer to before people vote at

full council.

That's thank you for the full explanation I was actually sort of really trying to determine how much was actually

How much section 106 money we currently have and also how much sale money? Okay, that's my apologies

We'll give you the figures trail and they're in their report next week again only

Yeah, there will be I just wanted to draw attention

For the council in terms of where that's containing the document

There's a lot of information in the draught statement accounts as Richard just detailed out. He's gone through pretty much most of the reserves

on page 500

And then page 272, we have a movement and reserve statement.

That details that usable reserves and unusable reserves.

You have your general fund balance at 25 million.

E -mark general fund reserves at 116 million.

That includes our school balances as well.

The housing revenue account balance is 21 million.

Capital Receipts Reserve, 131 million.

Capital Grants Unapplied, that's going to be largely sealed without conditions.

And Section 106 without conditions as well as grants.

Any capital grants we've got without conditions, that's 236 million.

So your total usable reserves at 31st of March, 2026 is 530 million.

The page also details your unusable reserves.

At these more technical adjustments as Richard detailed out your valuation reserve your capital adjustment account

And they total 2 .5 billion

So it's more granular level of detail and then supplementary notes within the accounts that go into further detail in terms of those individual reserves

Thank you

The other questions, Tom?

You said that we don't have problems with group accounts because we don't have many

big things that we own.

Could you just highlight that element of group accounts?

Because one of the things we're asked as a committee is to ensure that we are not exposed

Exposed as a council because the because of the interaction with

Yeah, so every year we do an assessment around the group boundary

in terms of the council so

And this is something you I will audit as part of their audit procedures and report back to the committee

So is a significant judgement in terms of the council in terms of preparation of the 25 26 draught accounts

So our assessment around the group boundary is that the only significant entity that the council controls is King George's Fields Trust,

which is predominantly asset rich, so he has net assets of circa 15 million off the top of my head.

So in terms of the group accounts position, we don't have a raft of subsidiaries or housing companies that some local authorities do.

in terms of material entities that we consolidate as part of the group accounts

will be the council's accounts and King George's Fields Trust which is

predominantly asset rich it doesn't have any borrowing itself so I think that's a

key point just to sound King George's we do give an assurance to their ex -town

It is that should they get into trouble that the council would would stand behind behind them on that space

Now I prevented a discussion on the pension business

Waiting

Tutorfully, I wonder if you could introduce that aspect of the accounts

Thank You chair

on page

three three five

soft copy and on page 425 of the hard copy you will see the basic pension fund accounts which is

outlined and basically summarises the transactions for the period 1st of April to 31st of March

and sets out clearly what came in by way of contributions, employer and employee contributions,

what went out by way of benefit payments and then added to that the investment income that

that was achieved over the period,

which then sums up to the net increase for the year,

which is then added on to the opening net assets

at the start of the year to arrive at the closing

net assets of the fund at the end of the year,

which is also referred to as the total market value,

which is in the order of 2 .4 billion pounds at the end of March. Now at a very

high level you'll see that that is a somewhat significant increase on the

values that we saw in a previous year of just over 2 billion, approximately 2 .2

billion. And the fund is part of the local government pension scheme

nationally and say the entire Hamlet scheme is administered by the local

council and the LGPS as a national fund is governed by the Public Service

Expenses Act of 2013 and in terms of membership at the end of March the total

membership was just over 25 ,000 members compared to 24 ,000 in a prior year and

And in terms of funding, broadly, employees contribute between 5 .5 to 12 .5 % of pensionable pay.

And employers contribution is determined every three years by the fund actuary.

and the scheme benefits broadly based on what is called career average so which

means that members will accrue benefits in their annual account every year and

then over the period of working life that would be averaged out to compute

benefit.

And the statement of accounts broadly summarises the transactions, as I said, for the 25 -26

financial year.

And it is prepared on a going concern basis.

and the council you know considers you know qualitative and you know

quantitative aspects of the accounts and the statutory valuation of the

of the fund is done every three years.

At the last valuation, which was the 2025 valuation,

the fund was,

was valued at 125%, i .e. the funding level

was determined to be 129%,

which on the face of fate is a demonstration of further improvement of

where it was back in 2022 when it was done previously because back then the

funding level was 123 percent and the I think other thing that is worth

mentioning chair is that last year was a pretty significant year in terms of the

evolution of the fund, not least because of the changes that

were made around the governance, investment,

and the administration of the fund

under the sort of umbrella term of Feed for the Future review,

which started in the autumn of 2024, whereby the funds in the UK were required to transfer assets.

Send out pension fund money up north. Sorry, that was an aside, it was unnecessary.

Paul, I think that the issue that I looked at when I looked at these papers was that

when we were at 129%, as you say, the council rightly made the decision to reduce the employer

contribution, but it front -loaded the benefit, it seems to me, such that it went from whatever

It was 27 percent down to 19 or 17

But then goes up again to 27 percent in the third year

That that's a matter that's not

Your considerations it you know, it's a combination of advice. That's a is that a

budget consideration Richard from the

yourselves, I

Mean obviously the mayor would have made that decision on advice, but that that's not a pension fund advice. Is it that's

That's revenue advice from

Yeah, so I'm just just

On the numbers so effectively the 25 26 employers

Contribution into the pension scheme was 26 percent in 26 27

So this year we're currently in it's eleven point five percent

Twenty seven twenty eight it goes to seventeen point two percent and in twenty eight twenty nine it goes to twenty two point nine percent

all of those numbers are set out in the

in the budget report that you would have received as

cabinet in

February and then on to the full council as as well. So the chair is quite correct. There will be a lot of there

So the fund was doing very well, and a report went to the pensions committee and was with

advice from the actuaries from Hymans as to whether or not the pensions committee would

receive advice from Hymans as to whether that was an appropriate thing to do and they would

have set out all the risks and the certainty levels around those particular sums.

but you are right to say that we took a lot of the cash out early in the first year, and

then it builds back in the latter years. Those numbers have been built into the medium -term

financial strategy. We will be refreshing the medium -term financial strategy, doing

significant work over the next four months, over the autumn period, to again test and

come back to those overspending areas that we've got

and what are the savings that would need to be made

to offset those in order to maintain

our financial sustainability position.

But you're right, the cash was taken out early.

Often there are choices that you could take that out

on a straight line basis as well, really,

but it was taken out early.

The A .G .S. is John Chair and then

Kate's going to do the independent opinion.

Thank you, Chair.

I've been lurking in the shadows over here.

So just to bring to life the process

and how it's been different, it's

it's involved director

director assurance statements,

head of internal audit opinion,

external audit findings,

and of course, inspection outcomes,

understanding and exploration

of the EY findings and views and feedback from the Minister of Limboise.

How we've done it differently, we're obviously very conscious of the history and obviously

the breadth of significant weaknesses that we've had over the past few years and still

have.

But one thing in particular is obviously the finding and recommendations around the quality

in Canada of previous AGS reporting.

So a very deliberate and longer process

of which involved much more in -depth guidance

and facilitated conversations with directorate teams,

exploring what's working and what's not working

and some of the history of those issues and upcoming ones.

Overall, the conclusion is that progress is being made,

but of course, significant governance challenges

remain. I think the AGS reflects the findings of all those contributions that I've outlined.

We believe it's a realistic and sober assessment of where we are today, recognising progress,

but ultimately lots of further work to be done, of which we're embedding the actions

within our programmes of work and will update on progress in future meetings. But that's

the framing of the process and the AGS and how we wanted to improve the process from

previous years.

Thank you.

Apologies for forgetting the Chinese wars that exist and the fact that this is your

thing, which Kate comments upon.

My only comment on this is that the heading, our assessment of effectiveness, I think it

should be affecting its efficiency and economy, because otherwise it's commenting on effectiveness.

It's easy to be effective if you just throw money at it. The issue is whether you can

do so productively with value for money. But other than that, I think this is a significant

improvement on what the committee saw in the last iteration. None of the committee here

would have probably seen this before.

So if anyone's got comments on that.

And I also think the point about the governance

isn't just an internal issue.

It's an issue in relation to citizens.

That connexion between the mayor and citizens,

the political executive and citizens, each council,

ward councillor and citizens, that

is about the essence of governance,

not just the internals.

You all get the internals right, but you get them right

in order to get a better connexion with the public.

And I think that's reflected in here.

So thank you very much for that.

Do any councillors have any additional comments on this?

Thank you.

And Kate, we've got your commentary following that.

There's no need, I don't think, for you to introduce that.

I think it's really good.

I'm pleased with the responses there,

Particularly in those areas that were focused on as weaknesses and that's you've been addressed

Okay, so let's move on let's note that agree with that and the next item

I hope you're all keeping track of this place because I'm not

page

545

Christopher

Details the MRP policy

Thank you, but I think I will try and explain this in

Easily accessible terms because I think although we're late in the evening. This is actually quite an important point. It has gone to the

audit committee in the past in January and it's also gone to council in

February for approval but this is a new committee and I think it's very

important for transparency that we actually articulate the risks around

this policy as well for all members so MRP minimum revenue provision is the

repayment of the borrowing the council has undertaken to fund its capital

programme and is repaid over the life of the asset so this is all about the the

Costs that we we pay the repayment and the report is intended to make sure this transparency around our methodology that we've adopted

And the risks around that as well and the ink fact the external orders did mention MRP earlier from their side

Page 26

Exactly so highlights how important is and the council has adopted recently the annuity method

where previously used a straight line method.

So what that really means,

as set out in the Executive summary of the report,

is that the annuity method effectively moves costs into future years

as the repayments start lower in the early years,

and year on year it increases,

while in the straight line method they stay the same year on year.

Therefore, as costs are higher in future years,

this places more pressure on sustainability

in the future, paying less now but more in future.

So I think it's very important to note that as a consequence of this policy,

there's greater costs in the future, so that impacts sustainability,

although taking, if you like, a benefit in the early years around that.

Chris, could you just explain to people, how much MRP would you want to have to put

if you were spending 10 million or 100 million?

I think that really depends on the life of the assets around that side of it.

So you know, let's say that we had something that's 10 million, for example, over a 10 -year

period, sort of a million a year would be the repayment around that side of it.

So that's what we're doing, repaying the debt over the life of the asset around that.

I think we mentioned on paragraph 3 .11 of the report as well. Although we've there's

Resources so there's what we're doing with those resources as well is important and what the council does for those additional resources and there we talk

about

Best value improvements we talk about transformation as in the council is putting five million a year into transformation

around that but

The council has not reduced its budget result the changes the mythology currently

And if you go to appendix one of the report, you'd see that actually it's not until

2059 60 that the budget becomes insufficient in its current form

And will need to increase

To actually meet those increased demands. So I think with this one

It's very important that the committee understand the consequences of the current policy is it is shifting costs

This method shifts cost into future years and therefore has to has an iron sustainability

and actually what it's doing around the additional funds it's generating.

I'll leave it there.

Councillor O 'Connor.

This is a very nicely technical report.

I don't expect to be a Councillor in 2059, I've been a Councillor a long time, but I don't think I will be then.

But in the Executive Summary it does say that under spends in earlier years allow for greater flexibility to invest in activities

And then is that the reason why this method is proposed?

What's the basis for choosing this method over others?

And it may be within the report and I've not quite got it, but it would be useful to

be clear about the rationale for this.

Yeah, sure.

So, you're absolutely right.

If there's more resources in future years, then it frees up those to be used in other

ways for that.

It could be used, like we said, in transformation projects, which actually generate savings

and become more beneficial in future, and that of course will be a very sensible use

of those reserves to actually make savings going forward around that.

So it's about flexibility around how we use the future funds as well around that side.

So is the reason we're choosing this then to give greater flexibility in the more immediate

future?

Yeah, effectively that is a rationale for that, it adds extra flexibility to the resources

that are not ring vents for MRP payments in that sense, so it does provide greater efficiencies

and flexibilities for the use, and I think that's why it's actually key this comes here,

and we understand that if that is the case, the consequences of future years, and actually

what's happening to that money if we're not using it, and we're using it effectively.

Is it also not reducing our own moral hazard because we're not making decisions to push

costs on to future generations?

Yeah, I think that's a very good point.

Thank you, Chair. You mentioned this has been an annuity method and I'm familiar with annuities

from a pension point of view and annuities in that case depend on interest rates in the

marketplace. So if the interest rate was to change then that can have quite a dramatic

effect on the annuity that you would be able to buy. So is this method working in a similar

the market is not linked to the market interest rates in that sense because we're not actually

Going out to an external party a bank on someone and borrowing from them

It's a sort of calculated method of how we repay it around that. So they're not linked to that risk

Probably give you a more detailed explanation of the calculation. But if the point is is it a risk from that?

Yeah, the only thing I would add to that it does take into account a spot rate at the start of the year

Which is detailed in the policy

So that's effectively it part of the calculation, but it's more based on the PW lb

I've turned it off

It's probably a good thing

So do people note and agree that report?

Yes?

Now the only other report we have is our own work plan, which officers have set out.

This is the 23rd of July, and then they've set out for what they're proposing in September

and January.

And what I suggest is that we just keep that and have discussions.

If you want other items on them, by all means, Farhana can collate them.

But have a look at those and see whether you think there are things that are missing that

you feel that the committee ought to examine that's not there, because this is the officer's

suggestion.

We need to be a bit more proactive.

Kate, you've got it.

I wanted to respond to that actually.

I wanted to say that it really is important when you're asking for potential extra items

to go on the committee that you're mindful of your terms of reference and the responsibilities

that have been delegated to you.

Sorry to mention it, but we might need to revise the terms of reference if there are

Things that are importance to the committee and specific to the wider role but aren't currently

specified in all terms of reference

We're not going on fishing expeditions

We're focusing on governance risk management fraud

So just be mindful of that thank you very much

Well, thank you for your time.

And I'd like to thank Ezra because I said who is this and he appeared.

So thank you very much, Ezra, for being part of the meeting.

We've really welcomed you and enjoyed your presence with us.

Thank you, everyone, for your time and for your curiosity in examining these papers.

Thank you very much.

And thanks to you all.

Thank you, Chair.

Thank you very much indeed.

Thank you.

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Audit CommitteeThursday, 23rd July 2026 at 6:30pm

Audit Committee
Thursday, 23rd July 2026 at 6:30pm