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Audit Committee
Thursday, 24th September 2026 at 6:30pm

 

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An agenda has not been published for this meeting.

Okay, welcome everyone. My name is Barry Quirk and I'm the independent chair of the Audit
Committee. I'd like everyone to introduce themselves for the benefit both of each other
but mostly for the benefit of anyone looking on the webcast now or in future. So let's
Thank you.
I am also the chair of the Overwind Sputnik Committee.
Thank you.
Thank you, Chair.
My name is Ahmadul Khan and I am a substitute for Amin Rahman.
Thank you, Chair.
Councillor
Good evening, I'm sitting the just director of compliance
I'm Chris Leslie director of finance
Hello, I'm a sunk on corporate head of financial and technical accounting
Paul I would do interim head of pensions and Treasury
Steven read partner at UI and the council's appointed external auditor
David and council of Limehouse Ward
Councillor Cameron Hussain, Whitechap Award.
Fahan Azir, Democratic Services Officer, supporting Audit Committee this evening.
Jill Bailey from Legal.
I wonder if Councillor Rupert George can introduce himself, please.
Hello, my name is Councillor Rupert George. I'm the Councillor for Bow West. Thank you.
Colleagues from EY. Elizabeth Thirst.
Good evening, Chair. My name is Elizabeth Jackson. I'm the support partner to Stephen
on the council audit.
Hello, Chair. My name is Hassan Rohiman, partner at EY, responsible for the audit of the pension
fund.
Well, thank you very much indeed. We can now, I think, start the meeting. Thank you for
the councillors here and the officers to advise us. Are there any apologies for absence?
Yes, Chair, we've had apologies for absence from Councillor Amin Rahman and Councillor
Amador Khan is substituting for him and we've had apologies from Tina Stankley.
She messaged me to say she was in traffic confusion but I'm glad that Tina's here.
Tina is the Interim Corporate Director of Resources.
And that may be an avatar or she may be there.
Oh, hello everybody. Many apologies. I've got my train time confused, so I wouldn't...
Which is very poor of me. Yeah, so I couldn't make it for the staff for me to...
Thank you very much indeed.
And you're sitting on the very place where I was born and brought up in Bervensie, so thank you for that.
Is there any declaration of interest from anybody in advance of this meeting?
No? Well, at the beginning of the meeting, it's not in advance, but thank you very much indeed.
For those of you who need the declaration of interest, it's all set out in papers.
You'll be very familiar with it, but it's very important that we do that at the beginning of the each meeting
Item two is minutes of the previous meeting. Are there any questions on minutes of the previous meeting was held in July
This is beyond your memory
Okay, thank you very much indeed
Now we have some auditors the items for consideration my external auditor
And I'd like to start with the pension fund if we don't mind which is I think is item four
On there are three there are four reports from a boy and the fourth one. I'd like us to consider first
So if I can ask
Hassan Rahim for to introduce this item and to pull out the most significant salient points for the committee
Thank you very much
Thank you chair, will do. So what you have on your agenda is our audit plan for the 25 -26
audit. It sets out our strategy, our assessment of risks. I'll take you to on the executive
summary to your page 88 where we set out the risks and areas of focus. So there are two
there which are unchanged from our prior year 24 -25 audit relating to the presumptive risk of
management override of controls and evaluation of complex investments and unquoted investments.
In relation to the IS26 disclosures there is a change in focus and that's because in the
prior year the audits have been qualified or disclaimed as a result of this particular
area and that's because the IS26 disclosures are primarily derived from the reports from
the actuary and there were issues raised in prior years regarding the accuracy of data
submitted to the actuary for the purposes of their triennial
valuation for the 2019 and 2022 triennial valuations.
The management, the council did engage consultants
to assess whether the information submitted
to the actuaries were correct and whether they required
amendment for the purposes of the 2020 -25 actuarial evaluation.
And we outlined there that we're planning on reviewing the
assess, the kind of exercise undertaken in respect of the,
in respect of that,
the respect of that assessment and to assess whether or not it
has any impact on the IS 26 disclosure. So setting out there the planned procedures in
relation to that. Section 2 of the report provides further details of the risks and
the procedures which we're planning to undertake in response to those risks. Section 3 of the
report sets out the materiality levels that we're going to be using for the purposes of
our audit and section four of the report sets out the scope of the audit. Happy to take
any questions which members may have. Thank you very much. Are there questions from
councillors? Councillor Edgar. So one question about page 88 in our page 16 report, which
is the changing focus for the present value of promised retirement benefits and there
talk about needing to engage your internal actuarial specialist and I just wondered how
long you thought that exercise was going to take and when you and we might be clear about whether
or not there are errors in the data or corrections that are needed. Thank you for the
I was just going to say thank you for the question. We have engaged our actuarial specialist
to support the engagement team in assessing the work of the consultants. That work is
currently in progress. Our internal specialists are due to be reporting back to us soon and
and we're planning on having our work completed in time for reporting the results of our work
to the next meeting of the Audit Committee.
Any other questions?
I wonder if I might ask a question.
I think it's very clear about the overall scope and so on and the materiality section.
It says that the overall net assets are 2 .2 billion, I'm rounding, but 2 .2 billion.
But it says that the level three investments are 355 million.
I have no idea whether this is high, low, a matter of concern.
I know it's it's it's a factually reported there, but I is there any sense in which we we can interpret
someone either on the
The council side or on your side can interpret for the committee
What that actually means?
So
level three
investments are
Hard to value
Investments what we mean by that is that there's no
observable market data in order to assess the valuation at the balance sheet date.
So they typically are private equity investments. It's not unusual for a local government pension fund to be investing in such assets
and within the pensions funds investment strategy it will set out there the assessment in terms of
the investments which the pension fund is looking to make in the different types of
investments. So they will be level one investments, so equities, some level two investments and level
three investments and that that will be set out within the pension funds
investment strategy. But it's not a matter of concern that one pound in six
is in level three investments. Thank you chair. Just to clarify further, it is part of the
approved investment strategy of the pension fund and it is well within the
acceptable range for exposure to level three assets.
Thank you.
Thank you.
Can we then if there's no other questions,
can we note that report?
Thank you very much, Hasan.
Thank you.
Thank you, Chair.
Now if I might, just we go back to the 3 .1,
which is the interim value for money report, Stephen.
Thank you, Chair.
So this report sets out our findings to date in respect of the Council's value
for money arrangements as part of our work in undertaking the 2025 -26
external audit. We will bring a final report, our audit results report and
annual audit report to the future meeting of the committee which will
reflect these findings but I'm conscious that there's a lot of information in
here and wanted to make sure that given as the audit progresses and given our progress
with the value for money considerations which are part of our responsibilities, we reported
this to the committee on a timely basis.
So I'm hoping that members will recall in relation to the past two years, this is now
the third year of our external audit, over the past two years culminating in the total
last year we identified ten significant value for money weaknesses and we made
four statutory recommendations. What we're reporting in here is an effect
that all but one of those significant value for money weaknesses remain
notwithstanding the progress that Council is making and the progress that
is being reported. As external auditor I need to see the new arrangements and the
impact of those arrangements embedded for the majority of the financial year before
I can consider whether or not the significant weakness has been addressed or the statutory
recommendations indeed have been addressed.
We have however identified some good news in that there was one significant weakness
around the development of the annual governance statement both in terms of the process previously
the council employed and the content of the annual governance statement.
I'm pleased to say that as a result of the audit work to date we have identified that
that significant weakness has been resolved and management has taken action to address
those matters.
Also as part of our 25 -26 audit we identified an additional significant risk of value for
money weakness so we're not concluding that there is a significant weakness, we're saying
there's a risk that there may be and that's around the financial sustainability of the
council. Our work is ongoing in that area but nonetheless I've identified in this report
our findings to date and very much we have concerns around the financial sustainability
of the council and the arrangements to ensure financial sustainability. Those concerns very
much linked to the setting of the budget for 25 -26 and very quickly the overspends
that were identified. In addition to that the out -term position for 25 -26 and the
draw on reserves so the utilisation of reserves and indeed for 26 -27 again
we've seen a budget being set and very quickly as at I think period two a
significant overspend being identified by officers. We're undertaking additional
work we're keen to see the Q2 out term report which is due in a matter of weeks
early mid -october and we'll be looking at that to inform the final conclusions
and also we want to do some additional work around the process that the council has in
place in relation to managing and tracking the savings programme. But nonetheless we
are identifying in here the deteriorating financial position in the council, the utilisation
of reserves and concerns around the budgeting and the very quickly reported deficits in
your deficits against that budget and so chair I think with those comments I'm
very happy to pause there and take any questions thank you very much before
that if we got any response to the officers on this yes thank you chair I
think one of the areas is is important to know actually the progress that has
been made I think we've had a very positive work in relationship with our
and we thank them for their assistance with this
and recognised some of the issues they're flagging up.
I think definitely in terms of financial sustainability,
we're involving the Auditing and Scrutiny Committee
much heavily this year as well.
We'll see the task and finish group for the finance
involved so we're making sure the scrutiny's
at a high level and also in terms of our processes
and robustness in terms of setting the budget.
You can see that actually from the out -turn report
that was talked about there had been some movement some of that is demand -led
services particularly in children's social care where we have high number of
high complexity cases coming in at year -end and you will see the result of
that that's fed through into this year so where we've been had those cases
appear later towards the end of the year we've had them feed through to the next
year hence the overspend so it's important that as part of our processes
we're looking at our current level of demand and forecasting the trend analysis
going forward so we can produce a robust budget for the future years as well
around that side of it. And after this, Tinda may just add something as well.
Thank you chair. So the only other things to add are the report itself we thought
was is very balanced and we appreciate for the 25 -26 years so there's a there's
a contextual view of that and that's absolutely fine. A lot of the work that
has been done is moving towards 26 27 and EY have noted in their report that
they will be looking to assess and review the progress we've made against
those statute recommendations in that thank you about Christians it's ended on
that other questions Councillor say thank you chair thank you mr. read for
your report and the work you do to help the council I just understand to
understand a little bit more in terms of governance is we have raised concern
about capacity and stability of senior leadership. I understand we have all the
permanent corporate directors, apart from section 151 officer, so council has
recruited a permanent section 151 officer and for interim we have Tina who
joined online, she's covering until we have the permanent corporate director joining the
council. So I just want to understand a little bit more what did you mean by that. Also,
just trying to get my... Okay. Also, in terms of housing, you've raised concerns regarding
our C3 grading. So my understanding is Council proactively admitted there is some problem
within our housing stock and then we bought our stock in -house and also I believe Council
looking at to in -house the maintenance and Council proactively submitted our stock to
housing regulator and they awarded C3 but it's not degraded, this is the first time
we've got a grade, so it hasn't been degraded. So I think maybe you know better but I think
council was in the right direction, council identified the problem and trying to solve
this issue, so how do you define this is a significant weakness rather than council going
to the right direction. Thank you. So let me deal with each of those questions in
turn. Thank You councillor. So in relation to the senior leadership team and in the
report and historically I've referred to the golden triangle which is
traditionally known as head of paid service, the chief executive, the
monitoring officer and the section 151 officer so the three statutory officers.
In terms of governance within a local authority they play a vital role and
and having a stable senior team or golden triangle is critical to both setting the tone at the top
but also importantly providing balance between each of those officers.
Since our appointment two years ago, this is now the third year of our responsibilities,
there has only been stability in the chief executive's role.
there has been multiple individuals holding both the monitoring officer role
and the section 151 role. I am conscious that the council has taken action and
made progress and there are appointments being made in the process of being made.
So again this is in reflection of the 25 -26 financial year which we're
reporting on now in terms of 26, 27.
We are currently in September of the 26, 27 financial year.
And until a permanent appointment comes in,
permanent appointments come in place, become embedded,
I wouldn't be confident this significant weakness
will indeed be lifted next year.
But given the direction of travel,
I think it would be possible to review
the significant weakness in the following year
because of the progress that the council is making.
So that's very much what that point was in relation to.
In terms of the housing, the comments and the matters
that were reported in relation to housing
was indeed in relation to C3, the C3 rating.
And it was one of governance and one of the timely reporting
and taking action to address the matters.
So I recognise now that progress is being taken
And indeed that the council was proactive and reporting the matter to the regulator itself, but at the time we reported this matter
Then we did have concerns around the governance and the timeliness of some of the matters associated with the housing position
Okay, Councillor
Yeah, I've some questions so
on page
24 there's a list of the value of money risk
And I know that later on in the papers there's a report from officers describing a whole series of things and actions in response to
Recommendations from the water system red for that. I can see the lot of work is being done but in looking at the
status on page 24
The the phrase improvements were not sufficient embedded during 25 26 to demonstrate the defective arrangements operated process
sufficient proportion of the year is repeated and I just wonder what the weight in was to what extent are they not sufficiently embedded or
were they done, but in the last quarter,
so it wasn't long enough.
So should we feel OK, it would be nice
if they'd been done earlier, but they have been done well.
So what I wanted to do was understand
the balance between those two.
Is it worth me asking all the questions?
Yeah, please.
And then on, let me just move to page.
So on page 39 in where it's talking about the findings to do with the effectiveness
inter -lord functional, somewhere down the page there's a paragraph which begins in July
26 where there is a report on self -assessment but then it also talks about assessing and
in commissioning an external quality assessment and I was then not sure quite
what was meant in the final sentence where it says that we do not consider the
self assessment in isolation to provide sufficient evidence that the
significant weakness has been addressed. Is it that the external quantity
assessment just hasn't taken place yet, it's been commissioned but not complete
and so I was just wondering what impact that might have or whether there are
that came out of that which would give you greater assurance.
Moving on.
On page 44, this is the effectiveness of the council's process for conducting internal
investigations.
It says, as at the date of this report, neither Project Winter slash Autumn or Operation Next
Wage being reported to members.
and I you know it's quite possible I missed something somewhere and I'm happy
to be pointing the direction of that but I'd be I was just interested in finding
out a bit more about what those might be about from officers or yourselves and
have I missed the reporting to members at some point because I'm not a lot so
committed so it might well have since gone and to one of those committees and
I would obviously be keen to know a bit more about that and then the final thing
I suppose was more of an observation which is that in your report you do talk about the sort of processes have been performed in
Producing a budget for 26 27 but the way in which
The sort of pattern of early overspends has appeared again
In a way, which you would hope wouldn't have happened and I think some of what was just said by Chris
Let's see a little bit on touches on the reason why that might have happened
I would carry over of serious cases in particular area into this year in a way which might not have been expected
but I'm happy for you to elaborate on that
or for officers to respond to that
because that is obviously pretty worrying
and it's not great news.
Yeah, please do.
Okay, if I, and then Steve, if there's anything else
you want to add to it.
So I'll take it one at a time.
So your first question, I guess the key thing
is timing here.
So when EY have come and looked at the work that was done,
they are focused on 2526.
I mean the slight caveat to that is financial sustainability
which is a longer term view in the future.
So we'll park that one just until the end.
They assess in 2526 were they comfortable,
not that the action was just complete,
but also was the, in essence, the culture,
what everything around that, has that been,
is it a pervasive issue?
Is it something that's continuingly or might occur again?
So we need to make sure we demonstrate
that we are changing the processes to give enough assurance to EY that we've
achieved what they're looking for. So a lot of, as they put in their report, a lot
of what they're saying is in 2576 we were not there, which as a management
function we recognise there was improvement made but we want to make
sure that improvement is embedded across the organisation and hence why we are
looking for 2627 when the assessment is complete and it's done. There's further
the progress shown in our embedding of those actions that we have implemented from the
first point.
So to go to the next one, which was your question on internal audit.
And I believe you mentioned specifically on internal audit, it was about, and correct
me if I'm wrong, it was about are they happy that we really embedded the audit recommendations,
Have we made enough progress overall in the whole process?
Once again, it's a 2526 assessment.
It's not an assessment going forward.
We are focused on embedding everything into that,
but we recognise that their assessment is only for 2526.
And then finally, for your, not finally, but for your investigations one,
the two reports that EY have correctly mentioned,
currently they are active investigations.
So we are conscious about the sensitivity of those
and they will be provided to members for discussion.
However, as they're active investigations right now,
we are currently looking at the way
we can present a lessons learned paper
which links to our external reviews
and how we can provide those
without releasing any sensitive information
at this point in time.
I'm just going to quickly circle back to one other point and that's about the assessment
that EY made about our internal assessment of our internal audit function.
That assessment was, is required by the new PSIAS standards.
Although we are required to do that, we also recognise as part of our improvement plan,
we need to make sure that we do an external assessment every five years, I believe.
We are at a position in transition, we recognise that.
So we will be doing an external assessment,
but that is likely to be into the next year.
And that is what we will then provide to EY
to demonstrate we have an external assessment
of all the improvements and the embedding
of those improvements we made.
We feel at this point, if we did that assessment,
it would recognise the same weaknesses
that EY have identified and that we internally know
as part of all of our improvement plan.
So we need to make sure they're embedded before we do that.
Hopefully that answers the general questions.
And there's one more on financial sustainability.
Just a couple of separate entries.
On that last point, it says in the report, these included the commissioning and external quality assessment.
Is it something that's been commissioned but is happening in the future?
And then this is more a question for
Stephen maybe you mentioned these two projects project winter autumn operation next
wage and
So you say that they've not been exposed to members and you're suggesting they're not being disowned because they're at a particular stage
I mean was your view that you would expect them to have been disclosed in some way to members
By now, you know regardless of the caveats that you put in about the stage they're at
So the external assessment hasn't been planned yet.
However, let me rephrase that, actually.
It has been planned, but it's planned for the next financial year, because we are focused
on bringing in a new head of service, a permanent head of service, as we had an interim one.
So that's on that one.
In terms of next wage and the other item that you noted, it is coming for more than a year.
members it will come to the next Audit Committee for management however I'll let Steve provide
his view on that.
Thank you, thank you. I thought I had another member of the audit team in the room for a
moment there, that was great, thank you. So let me deal with the investigations piece
because that's, and then I'm conscious that's not the order you asked your questions. So
So yeah, in terms of the investigations, over our terms as external auditor, the council has identified a number of matters which warranted an investigation where there may have been an alleged or actual non -compliance with a law or regulation which may or may not have led to financial loss, fraud or another irregularity within the council.
My view very clearly is that those matters should be brought to the
attention of this committee on a timely basis when they are identified and set
out management setting out what the proposed course of action is and then
the Audit Committee kept up to date with the results and the outcomes because
naturally some of the findings on those matters might have wider implications
for the governance and control arrangements across the council and
therefore this council needs to have this committee needs to be aware of that.
That has not happened with a very specific exception right at the beginning of her appointment
term in relation to one particular matter.
But even that, the reporting on that matter drifted.
So I recognise what officers were saying but there is a fundamental process matter there
that needs to be addressed going forward. In relation to the embedding and sufficient
progress, I guess it's both which might not be a very helpful answer but if you recall,
if you look back, we reported the results of the 24 -25 audit in February 26 because
because of the timetable of the financial statement preparation and audit process.
So therefore by default those weaknesses existed for most of the 25 -26 financial year because
there was only one month left to run.
It links to my comment earlier in relation to the 26 -27 financial year, so when we start
that audit we will have reported our findings for this audit coming back to the November
Audit Committee. So that means that from April to November of the 26 -27 year we
had in you know there are a number of matters which officers have not yet had
time to completely take action against and or embed new arrangements or
controls such that the outputs are demonstrably better. So hence my point is
for 26 -27 notwithstanding that progress is being made there will continue to be
a number of significant weaknesses that are being reported today being reported
next year but I would like to think that there is more concrete progress that is
also being reported and a clearer route to resolving a number of those matters.
As Chris said earlier the relationship between external audit and officers is
very positive we are working very well together. The external audit process for
this year, I don't want to steal my thunder for the next meeting, is going
well. There are, you know, and progress in terms of building back assurance has
been made that are, you know, that is further work for officers to do but
nonetheless it is progress on the prior year and so I'll be able to give that
assurance but more to be done for 26 -27 will be my message broadly.
I think Sir Tinder's dealt with the internal audit piece but I'm happy if
Wanted to have a follow -up on on that
Thank You councillor
Thank You chair, I think most of it has been covered and so my mind was around the four statutory
recommendations and
Weaknesses, I guess if you could just elaborate a little bit more on the three most important milestones that the
the council must achieve over those 12 months.
So if you can just kind of close those issues,
what are your recommendations?
Thank you.
And again, how can we prevent that from happening?
So I continue to say, Councillor,
as I have at previous meetings,
that for me to be satisfied that the matters
that have been being reported and been previously reported
have been addressed. I need to see evidence that the specifics of controls have been put
in place to address the specifics and importantly that the outcomes or the outputs reflect the
fact of an improved control environment to demonstrate that the matters have been addressed
but on an embedded basis. One of the things I've been very conscious of talking to management
about and indeed at this committee is this isn't a tick box exercise this goes to the
very fundamental heart of the control framework and arrangements in the authority so tone
from the top is very important, tone from the senior team, tone from elected members
and how they conduct themselves and conduct business is very important as well. So when
we come back to do an assessment next year those are the things that we're going to be
looking for. There are some very specific, you know, in terms of how many internal audit
recommendations are outstanding. You know, those are very quantitative basis. But there's
quite a lot of what we've recommended will need more of a qualitative evaluation as part
of that process.
I'm really pleased in the focus on internal control.
I think that's really important and I think we should have subsequent reports on that.
But also on the role of the intervention and the view of the envoys and so on.
I think that's really good.
My question is really, I don't know if it's I'm taking you into the weeds or above a cloud somewhere, I'm not really sure which it is.
But VFM as a concept was introduced by the Audit Commission, well, no it wasn't introduced, but they introduced it into local government in 1983.
This was then updated in 2010. It was then abolished, the NIO took over, it provided a framework.
and the audit profession, I think in 2022, did the big thing on VFM.
Now, my question is, actually there's a very big difference between VFM thinking and prudential thinking.
Prudential thinking is about the longer term. It's about not laying debt on future generations, future taxpayers.
And you can have an ethic about VFM but not be prudential.
And my concern really is not just this council but the whole of local government really with subsequent reports.
There's a, I think, a third of all London powers are in severe financial problems.
And the only way this has been dealt with is by the focus on financial sustainability or medium -term financial strategy.
But they're written documents that senior people have.
I'm interested in the ethic of prudential thinking for all the managers in the authority,
not just VFM.
Is this fanciful thinking or am I pointing at an important thing here?
No, thank you, Chair.
I think you're pointing at an important feature.
I mean in terms of the value for money and the value for money considerations
that auditors are required to make, a number of years ago and you'll recall
the auditors had to give an overall opinion on value for money and that's
quite a blunt, that was in my personal opinion quite a blunt tool because value
for money and arrangements and a local authority is much broader than being
able to narrow it down to a single opinion and the focus then moved to
arrangements and so we're not commenting on policy because that's not appropriate
elected members are responsible for policy, officers are responsible for
implementation of that and that might be a good policy or a not so good
policy but that's a matter for the politicians and officers and so
we're looking at the broad arrangements. I am also conscious that as part of the
ongoing reset and recovery of the local audit system that this is an area of
which MHCLG and others are quite interested in and paying close attention to, you know,
does the current value for money approach meet the current requirements, you know, of
local government today. So it may be an area where we see developments in the not too distant
future. But I think, you know, the audit, the external audit is one source of assurance.
You have internal audit and if you think of the three lines of defence within any organisation,
the external audit process sits out with the three lines of defence.
Your internal audit is the third line of defence and your processes and procedures and your officers
and their control and review are your first and second lines of defence.
It needs to be from those four points where information is gathered to support elected members
and committees such as this with some of the really difficult value judgments, I guess,
which you're referring to.
Thank you very much. Thank you. I'm just sort of concerned that the ethic approach by politicians
in achieving what they want to achieve, also officers in advising them, the value for money is too narrow.
I see they've got to be thinking about is this sense by the longer term given all the resources that we have given the needs
that we've gone
But thank you very much for that
Can we now move to does that noted?
Yes, can we now move to excuse me item 3 .2 reset to recovery or reset to recovery?
Which is
Page 47 it starts
So again thank you chair. So as a result of the 24 -25 audits across our local
government portfolio in England which amounts to some 125 local government
bodies we published a national report Reset to Recovery. That report is not
before members tonight but there is a link in the papers for that report. That
very much assimilated findings from our audit to support the recovery of the local government
sector in England. The report before you tonight is an analysis of where Tower Hamlets sits
on that spectrum because I thought that might be quite helpful for the committee to see
and officers to see. So let me just move very quickly through the report chair with your
permission. So page 49 of the pack provides some contextual information for new members
to this committee regarding the challenges facing the financial reporting and audit system
across local government in England. On page 50 of the report we summarise there
what our findings were in terms of the nature of the opinions that were issued
to different types of local government bodies. So as you can see other than
pension funds where we completed the majority of those, there were a number of
disclaimed opinions issued and that wasn't specific to us, that was a pretty common position.
In relation to the position of Tower Hamlets, we also considered across our portfolio on
page 52 the nature of the assurances that could be provided and again you'll see there
the analysis which shows that for a number of bodies there was lower levels
of assurance or only partial levels levels of assurance. The following page
which will be page 54, 53 rather I think is an important one for members to help
you and support you understanding the difference between usable reserves and
unusable reserves and that distinction in local government is very very
important and hence having assurance as a result of the audit process about what's sitting in usable reserves and what's sitting in unusable reserves is important.
Page 54 summarises the readiness, our assessment of the readiness across all of our audited bodies.
And you'll see there that at the very bottom of the page, the timeliness of draught financial statements,
the majority of local government bodies could publish financial statements by the deadline.
And we noted that in the green grading that we gave them.
But if you look at the top of that chart you'll see that the volume of misstatements and disclosures
and the volume of identified misstatements show that well under half could publish financial
statements that were true and fair by the deadline and I think that's significant because
your Director of Finance is responsible for certifying that draught financial statements
are true and fair. They should be true and fair before the audit process commences, not
as a result of the audit process back to the audit process as your fourth line of defence.
Page 55 summarises all of our audited bodies into each quartile and shows where arrangements,
which are all the green ones, were satisfactory, all the way down to where the arrangements
were unsatisfactory. And you will see Tower Hamlets is in the bottom quartile and pretty
much in the bottom of the bottom quartile so comparatively you're in a
poor position notwithstanding the progress and the hard work the officers
are putting in and again on page 56 we demonstrate something very similar in
terms of how you compare to other London boroughs you're very much in the bottom
core bottom area. Page 57 looks at to what degree is progress being made so you
may be receiving a disclaimed opinion but as the level of assurance over
different accounts within your financial statements building and improving so
it's a sign that progress is being made you'll see that in relation to 23 24 and
25 there wasn't much progress made despite the hard work of officers and I
I would like to think that we'll see an improvement in that this year based on the early findings
from the audit process. So I think the positive trajectory has commenced.
And the last slide, Chair, with your indulgences on page 58. The Audit Committee has a key
role to play in ensuring the robust financial reporting within the authority. And I've set
out there some challenges for the Audit Committee to think about in terms of
discharging your responsibilities and areas you may want to think about in
holding officers to account going forward. Very happy to take any questions.
Very helpful.
Councillor Islan.
Sorry.
Thank you, Chair. So my question to yourself is based on your experience of other London
boroughs, because obviously you've got a chart there, that have made faster progress, what
are they doing differently that townhandlers can learn from?
It's a good question and I'm always very conscious of when you do some comparative analysis,
you're never comparing entirely like with like, right, there's the odd pair or orange
in amongst all those apples, so you know the caveat is that. I think Tower Hamlets, there
was a, there was a, in my view, there was a number of matters. Tower Hamlets hasn't
had an unqualified opinion for a large number of years as a result of some systemic issues,
so way before our appointment, and I think that that has contributed to the position.
I think as we've also previously reported we felt that there was a need to invest in
the capacity and the capability within the finance team which again progress has been
made in that respect as well and I also think that there's a degree of complexity in local
government financial reporting which is unhelpful here in Tower Hamlets but also in other boroughs
and other local government bodies across England.
Castle and Ahmed.
Thank you, thank you, Chair.
Just a quick question.
So you're saying that the Council,
what you're saying the Council is improving,
but do you think they're improving at a pace
that you would expect, or do you think further acceleration
is needed to make that improvement?
It's a good question. I mean I'm rather impatient as a person so I would like to
be in a position where we were you know exactly where we needed to be. I think
the reality is that this was always going to be a journey and you know the
council has commenced that journey. They have made and they are making progress
as I said I believe there is more to do and I think officers recognise that. One
of the areas which officers did identify this year and I think Chris alluded to
earlier was I think right early on decided correctly in my view that let's
focus their efforts and the audit effort on the balance sheet and try and get as
much of the balance sheet done as possible. I think that was a very mature
approach by officers and you know one that was focused on trying to maximise
the benefit of the audit process because if you audit the balance sheet then you
start the rebuild process you know you do that twice and then you go back and
do your reserves and you roll out PP &E and then suddenly you get to an
unqualified opinion so I think that was the right approach and you know has
everything gone to plan this year no everything hasn't gone to plan but again
that's part of the complexity of the estate which is linked to PP &E and the
valuation process within local government which is very very complex
so a combination of factors hopefully that's helpful
that's right yeah so pages I think 54 to 57 present slightly less than
encouraging picture of local government across London actually but it's also
particularly discrepancy quite where in the core tiles Tower Hamlets is we're just not
absolutely not in the right place even if the wider picture is maybe less good to use
but I found slide on page 58 about the Royal Reord committee good and interesting and helpful
and you know I will print off that page and carry it around with me but I wondered what
you thought if you wanted to already thoughts about how we're doing against those different
components you may not want to.
You know I'm very happy to offer a view I mean I suppose it goes back to my
previous report where I see significant weaknesses you know one of the areas is
the operation of the Audit Committee where I've reported previously and again
I think there is progress being made there but you know I think there's you
know an opportunity shall we say perhaps to have some more focus on these
elements of your responsibilities.
I guess my question is to the officers. So what evidence demonstrates that improvements
are embedded in the day -to -day practise rather than just simply recorded as completed action?
and perhaps if we have KPIs.
So if you can just explain a bit on that, thank you.
Thank you, Councillor.
So, it's probably quite an open question there.
So we have some good changes that we have,
more reports that come to the Audit Committee earlier.
We haven't quite got everything right,
But we are focused on making sure we have regular reporting, so risk, fraud, internal
audit recommendations.
So a good example actually is that we, in March, the only recommendation that came to
the Audit Committee were overdue recommendations from limited assurance reports, and that was
it in March.
Audit Committee, in July, we shifted that to actually demonstrate, as part of the statutory
recommendation reporting, and you'll see it in the report that I'll be presenting later,
that we are actually presenting all of recommendations
and where we are with all of them.
That shift is more than just we are trying to close
an action of open your recommendations.
It's a shift of how do we solve the problem
of giving the audit committee more oversight
and addressing the audit committee awareness
and your challenge that you should likely be able to do
as part of EY's weaknesses that they've identified,
but also how we as a management function
demonstrating the changes to be more open,
be more accountable from the beginning.
I mean, I could go into quite a lot of detail
over a number of them, but hopefully that addresses
some of the key points.
Chris has a little bit of time.
Oh, sorry.
Thank you, chair.
I mean, one aspect that Stephen's touched on
is the financial accounts.
And one thing we're keen to do is, we did commission.
I mean, one of the key things we looked at
was enhancing our capacity and expertise in the team
to deliver on the audit and I think it was a very useful action that we took in commissioning
Grant Thornton, who is an external consultancy firm.
So what we're looking to do is also bring a council report, if we're a council report,
but we'd like to commission Grant Thornton to give some assurances from a third party
point of view in terms of some of the actions we've taken, some of the improvements we've
taken around balance sheet reconciliation that Stephen mentioned, because that was a
a key step for us to ensure that we've got that sound ground in terms of that reassurance,
in terms of rebuilding our balances and coming out of a displayed opinion.
So we intend to bring that report from an external consultant point of view in terms
of a bit more detail, some of the work that we've done and the actions we've taken in
terms of that improvement journey.
Thank you very much and I'm sort of reminded of the Lewis Carroll thing about the Red Queen
effect, it takes all the running you can do to stay in the same place. You have to run
twice as fast as you think to actually go somewhere else. I think in this instance,
it's not about running fast, about pace, it's about having smarter capabilities, smarter
on them, if you can't work out ways of doing it,
it's often quicker to copy.
You know, sometimes it's quicker to just copy what others do.
They may not have the same circumstances, but it may be
that we can learn from others as well.
And I'd like to thank you for these charts,
which I found very difficult in black and white,
I'd say, to look at.
We're now looking at them on the page.
It's very illuminating.
So thank you very much. That's been a very interesting and important report and especially to focus on on our committee and what we're doing
Thank you very much. Is that noted? Yes. Thank you
In which case let's quickly go to the final a wire report then we can be willing out holding our officers to account
Thank you very much on planning report addendum. Yes. Thank you very much chair
and so the context of this report for the committee is that
MHCLG requested all auditors to prepare a risk assessment and submit that by the end
of July to MHCLG to provide them with data on the position and the timeline for the recovery
of the local audit system in England.
As part of that process we completed a risk assessment of the council looking at their reserves.
This report very much summarises that position and importantly sets out for you our current view of the timelines associated with the build back of assurance.
So how long will it take subject to the satisfactory completion of in -year procedures for the council
to move back to an unqualified opinion?
And currently that's showing as 2829.
I actually think that's 2930 because that was assuming that all of the balance sheet
would be able to be audited this year and that's not going to be the case. So somewhere
20, 29, 29, 30 before the council moves back. Now during that process the form of opinion
will change, you know, which will show progress and in our reporting we also have an assurance
matrix which identifies year on year which areas are turning green. So a bit like some
the analysis that officers also demonstrate in their reports. So I wasn't
intending to say any more about this report it is an addendum to a plan just
to be transparent in terms of our assessment at this point in date. We'll
reassess next year so we're going to assess on an annual basis and we may be
required to return provider return to MHCLG in subsequent periods I'm not
So we are now in September, that's 37 months until we get it, until we are in a position.
I know this but thinking about that in those terms it seems to me that we
My comment earlier about smarter and capability and smartness. We've got additional capacity
We've got to make sure that it's capable and it's working in a way
that actually we can accelerate this because
There's lots of things could happen between now and October 29
I can say, and I'm not going to mention AI.
Are there any questions on this report?
Sorry to introduce that sobering.
Thank you very much.
Thank you, Stephen, for all the work that you and your colleagues and Elizabeth is there on that.
Thank you very much indeed.
Can we now move to the next item, which is to Hamlet's.
It's the 4 .1, progress on action plan.
So let's go to that quickly.
Sir Tinder.
Thank you, Chair.
So I will take the paper as read.
So one of the things that Steve has mentioned that what we're trying to do is to make sure
that the Audit Committee is aware of all the progress we've made.
You will see, and I won't go through the whole paper,
but you will see from the paper,
and especially the appendix,
that what we've tried to do is make it a little bit clearer
with the trajectory of the movement
of the specific actions that we are taking
to address both the significant recommendations,
sorry, statutory recommendations,
and also the significant weaknesses.
The key thing to point out here
is we've had continuing challenges.
These are specific to resourcing
and making sure we have the right permanent people in post to demonstrate consistent and
clear routes to moving away from the weaknesses. However, that has not affected it to date
from when we presented to you in July and we are focused on ensuring that while we address
these challenges that we continue to be positive in the way that our trajectories are for every
action. One caveat to add, we have completed the investigations report
which is an external report that was conducted by an LGA partner. Those are
not included in this paper, however we will include them for the
November one so you will see a slight increase in the number of actions in the
investigation section and that's an open way to demonstrate that we
are considering both EY's recommendations and also the weaknesses we know internally
that may still exist. I will pause there because I appreciate a lot of it was seen in the July
meeting and take any questions.
But you have, it has been reorganised hasn't it, the report, and actually I think it's
much clearer. So the table starts on page 119 which sets out, I think, particularly
where it then talks back in each area and giving up detailed assessment and an overall assessment
I think that's very useful to the committee. I have to say are there any
questions on this report
Counsellor
Thank you
So which outstanding recommendation presents the greatest risk
to the council if it is not implemented this year?
And is there any kind of,
like what is preventing that completion?
Is there anything that you can tell us that?
In terms of greatest risk, I guess that's very subjective.
So we are not expecting all of the statutory
recommendations to be cleared this year,
this calendar year or this financial year.
And the reason I say that is because we,
it's not just, and as we mentioned before,
it's not just about clearing the action,
it's about demonstrating that there's a continual embedding
of that action.
In terms of the largest risk,
I guess it depends on which way you want to look at it.
So financial reporting as our external orders
have already noted,
they are looking for improvements continuously
and we are demonstrating that.
However, to move away from the disclaimer opinion
into the unqualified opinion, hopefully,
it might be up to 2930.
So that could be your longest period.
In terms of which ones I believe
that we could probably demonstrate
clearest embedding the soonest
will probably be your internal audit
and your investigations area.
Those are ones that we are focused on
which we believe we could turn around quicker.
Procurement is a slightly longer process and exercise
because we are focused on building the internal team.
and then you have those significant weaknesses which link back to a lot of those statutory recommendations.
It's a comment rather than a question. I found the report as a whole really helpful to me.
I thought as you did, the structural report worked pretty well going through the appendix with the various colours in the September update.
I was clearly plenty to do, but I suppose I found quite a lot of the progress or the
position presented in the September update quite encouraging.
So we've discussed some of the sort of broader themes around this, I think, earlier in the
meeting, but I thought that this as a way of reporting to us was something that I thought
was good and useful and I found very helpful.
Anything else?
No.
Okay.
That's no note of that report.
Great.
Okay.
The Treasury Management Out -Turn Report.
This is you, Paul, I think.
Thank you, Chair.
This report is on page 185 of the pack.
The report presents the Council's treasury management
out term for the financial year ended 31st of March, 2026.
If I can turn to page 194, Chair.
The key assurance here is that all treasury activity
during 2025 -26 complied fully with the Council's
approved strategy limits and prudential indicators.
And over on page 189 ,190, that's paragraph 3 .9,
table three, external borrowing remained unchanged
at 68 .7 million pounds at an average rate of just over 3%.
No new borrowing was undertaken,
thus avoiding higher market rates, although the Council's internal borrowing position
creates a future refinancing risk.
Table 4, that's paragraph 3 .17 on page 191.
Investments stood at £73 million at year end.
Investment income was 6 .58 million against a 4 .88 million budget, which represents an
overachievement of 1 .7 million.
So, Chair, the main issue going forward
is managing the timing and the cost
of the Council's anticipated new borrowing
as reserves reduce and the capital programme progresses.
I'm happy to take any questions, Chair,
but the Committee is asked to note the Out -End Report.
Thank you.
So I guess it's around managing the future refinancing risk if interest rates increase
before the council needs to borrow. So if you can kind of tell us a little bit more
around that as to how we could manage that. Thank you.
continue to benefit from comparatively low -cost internal borrowing, and managing the refinancing
and interest rate risks, which you quite rightly pointed to, created by the Council's Future
continue to monitor cash flows, the capital programme, market rates and the liability benchmark
which is on page 195 of the report, taking advice from, I'll include the advisors where
appropriate. Thank you, Chair.
Yes, Councillor O 'Connor.
I suppose looking at page 194, we're clearly a long way,
the debt at 31st of March 26 was a long way
below the authorised limit, which is,
as I see it, good news.
But on 188, the decrease in investments of 103 million
in the year to 31 March 26.
So clearly we are eating into the investments.
Cash went down very considerably.
So I'm just wondering if you have any comments about that
Feature in the report
You okay on this ball, yeah
Thank You Jay, I think the
The issue is that the
Internal borrowing is very closely
you know, monitored and the underlying CFR, which was 577 .8 million at year end,
compared to, or compared with external borrowing of 68 million, the resulting
internal borrowing position was approximately 509 .1 million.
The council had originally forecast that it might need to borrow up to 53 .7 million during
25 -26, but no new borrowing was ultimately required, largely because of the re -profiling
of the capital programme and the continued use of internal borrowing.
So this approach obviously avoided taking out any long -term loans at the comparatively
high rates available during the year and generated substantial short -term savings.
However, it means that the council remains significantly underborrowed.
And the, if I can just expand that into the liability benchmark, which is on page 195.
Sorry, I think, let's have a look.
The liability benchmark is on 195.
And I think what it demonstrates
is that the council is operating well within
you know, its approved limits.
And the graph on page 195 compares the council's
existing borrowing with the amount it is forecast to need
to borrow over time.
So if I can just clarify the graph,
the turquoise line, the top line,
You see that's the loan CFR city councils on the line need to borrow
Arising from past and planned capital expenditure. You'll see that the line initially
Rises as the capital programme
progresses then reduces gradually as debt is repaid
Through MRP and other financing and then the dashed line the brown line
that's the net loans requirement.
So the loan CFR, unless the council's available reserves
and working capital resources,
it shows the borrowing required
if the council used all available internal resources.
And then the red line is the liability benchmark,
which is the net loans requirement
plus a 60 million pound liquidity buffer.
And so this is estimated minimum level of external borrowing the council should hold
while sufficient, while maintaining sufficient cash and investments for day -to -day liquidity.
And then finally, the grey area at the bottom of the graph is the fixed rate loans.
And as the council's existing external borrowing of approximately 68 .7 million and its total
So all in all, the graph is saying that as at 31st of March 26, the liability benchmark
was approximately 55 .7 million and the external, the actual external borrowing was 68 .7 million
and therefore the council was therefore not immediately under borrowed against the benchmark
at that date.
However, the position is forecast to change quickly.
For example, by 31st of March, 2027,
the table shows that a liability benchmark of 195 .4 million
against existing borrowing of 68 .7 million.
So all in all, this indicates a potential
additional borrowing requirement of around 126 .7 million.
So the report describes that and clearly say, thank you.
Just very briefly, just to provide the assurance that actually the reduction is what we're
expecting. We're expecting a reduction in our cash. We budgeted for that. It's actually a lower
reduction than we originally planned and it relates to the planned approved and budgeted
investment in our capital programme.
We live in interesting times.
The last year was absolutely staggering in America.
Forty percent of all the American growth was from AI.
Forty percent.
Eighty percent of the increase in equities in America was from
AI.
Forty -eight, just remember those numbers.
The exposure and the concerns about a disorderly end of consolidation amongst these companies
means that there could be a reverberative effect around the globe.
And it's not just about our management of our strategy and policy.
It's really it's I'm concerned about degrees of exposure to exogenous effects like that.
It's almost like the, I'm not suggesting it's like the Icelandic banking crisis, but it's much much bigger than that actually.
So, you know, I think that this macroeconomic back cloth is really, really worrying, I think, at the moment.
and which means really caution, which is why I was going on about prudential thinking about an hour ago.
It's really important that we think about that because of the pressures that it's likely to be on local authorities.
We seem to be in a better position than others because at the moment we seem to be in a much better position.
But of course you're discussing about going into more borrowing in future years, in the next year.
And I'm just presenting that back off to consider at some stage.
Is there any...
Councillor George.
Councillor George.
Over to you, sir.
Thank you, Chair.
In the last table we looked at, there is a jump in the level of usable reserves in 2029.
by quite a large amount and I just wonder why that was because we can see the reserves
going down and down and down and suddenly there's a big jump in the usable level of
reserves.
The table, I'm sure you know the table I prefer to, sorry I've moved off it now.
So that's table nine on page 195 of the report.
That's the table above the graph you were just speaking about
You
Say
What effectively we do have resilience in the MTFS? Well, we're building up reserves
So the impact is showing there. So this includes both revenue and capital reserves
So we do have forecasts
Significant capital reserves as well in there. So this is section 106 and seal receipts. So we always forecast the
The reserves expected on both levels say that is showing that trend where effectively those reserves coming in
Obviously every year we refresh the capital programme and the commitments will come in. So as part of the budget setting process
When we review the capital budgets commitments will be going in so we're expecting some sort of offset to take place
But right now it's based on the existing capital programme, but we're fully forecasting those
receipts coming in
Thank you
I'm just sort of I'm just curious that so in a sense you're saying that that's
that stuff that we know is coming in,
and that's planned development that's already got planning permission in order to get still money,
or that's just a projection on stuff that's up in the ether and being discussed.
So that's our best projection, Councillor George. So it's our best estimate.
So it's not exactly known, so the team do a lot of intelligence and work around forecasting
of both revenue reserve and capital reserve. So this is all reserves for the Council.
I'm expecting when we reset on a repeat when we reset the capital programme if there's commitments there
Then they will offset and that will be part of the budget -setting process again, and this repeats itself every year
Okay, thank you very much are there any
If not, let's note the report agreed, thank you very much
That's the Treasury management out turn report and now the Audit Committee work plan
Members are asked to note the work plan the only comments
Comments on the work plan. Nope
Accept it all that's good. I would like to
Speak with officers about that internal control issue to see if we can make sure that's on the work plan
I didn't look at it earlier.
Okay.
Anything else?
The chief executive, the section four officer in the council wishes to speak.
Thank you, Chair.
I just wanted to apologise.
I intended to come this evening and I've had correspondence with Stephen and all the officers.
I've been held up in an appointment subcommittee that overran by two hours, but I will be at
future meetings.
That's my intention.
Thank you very much.
And so we we the committee work plan thing but move on from that
In which case is there any other business?
No
Well, I wish you good evening and have a good night and have the rest of a good weekend. Thank you very much
Thank you.