Meeting Details

RESOLVED that: the minutes of the meetings held on 5 March 2024, 9 April 2024 and 22 May 2024 be confirmed as a correct record. 

The Committee considered a report which sought to provide it with assurance on adherence to the new Regulator of Social Housing regulatory regime.

Philip Sullivan, Chief Executive of Colchester Borough Homes (CBH) attended the meeting to introduce the report and assist the Committee with its enquiries. The Committee had determined to receive quarterly updates from CBH on the quality of the Council’s homes, service performance and engagement with tenants to enable to the Committee to gain assurance of compliance with the new regulatory framework which had commenced in April 2024. The report which was before the Committee contained a regulation update and information in respect of the new inspection regime and the steps which CBH had taken to prepare for the new regulatory environment. Also included was a performance summary for 2023/2024 and detailed information in relation to the new Safety and Quality Consumer Standard, together with a Housing Ombudsman Service update which contained details of all cases from 2023/2024. CBH had completed a self-assessment against the Complaints Handling Code which would be submitted to the Ombudsman as required by the 30 June 2024. Relevant internal audit outcomes were reported to the Committee, and these covered, among other things, adherence to the technical requirements for collecting the regulator’s Tenant Satisfaction Measures. The Committee noted that 12 disrepair cases had been settled in 2023/24 at a total cost to the Council of over £130,000 with just over £20,000 of this sum being paid to tenants and the remainder, which was the vast majority, going towards legal fees. Was CBH choosing the right cases to contest, and would such large legal costs have been avoided if CBH had settled more cases? Additionally, the difference in the perception satisfaction with repairs survey and the internal satisfaction surveys was noted, what was the reason for this difference?

The Chief Executive of CBH confirmed that the disrepair cases which had resulted in the payments which had been queried had been presented to CBH via solicitors, and often solicitors from outside the area who had been canvassing for these cases. CBH was therefore already operating in the legal arena when the case had been received. Wherever possible, CBH sought to settle any substantiated claims through compensation, and legal advice was obtained from the Council’s legal team as to whether a case should be pursued or whether early settlement was the most appropriate action. It was a source of frustration that the primary financial beneficiary of such cases were the litigating solicitors and not the tenants they represented. In terms of the difference between the 2 surveys, the reason for this was the internal survey was a transactional survey completed after the works have taken place, whereas the Tenant Satisfaction Measure survey was a perception survey that was sent to a sample of tenants who may have not received a service from CBH.

In discussion, the Committee sought clarification on the Council’s role in managing its housing portfolio, and the governance arrangements for CBH. If CBH was the managing agent for this portfolio, was the Committee acting in its role as the shareholder committee considering an overview of the service received, or was it considering the work of CBH as a customer evaluating the value of the service provided? A Committee member considered that the Housing Revenue Account (HRA) was the largest item on the Council’s balance sheet which was largely unscrutinised. The Chair advised the Committee that it was acting in its role as the shareholder committee when considering how CBH fulfilled its function of managing the Council’s housing portfolio. Ultimately it was for Cabinet or the Portfolio Holder to ensure that CBH was carrying out this function well, and it was for the Council’s Scrutiny Panel to scrutinise the HRA. The Committee’s role was to scrutinise the reports presented to it to make suggestions and recommendations as the shareholder committee to Cabinet. Detailed analysis of the HRA was not within the remit of this Committee but would be considered by other Committees of the Council. The accounts of CBH would be reported to the Committee later in the municipal year, as part of the scheduled annual report.

The Chief Executive of CBH clarified to the Committee that it was the Council’s sole responsibility as Landlord to comply with the new regulatory regime, and the Council dispensed with this responsibility through CBH. This was why the reports which were being presented to the Committee had a regulatory, as opposed to financial, emphasis, which was intended to provide assurance to the Committee and the Council.

The Committee noted the average days to re-let properties which had been reported on. How could the performance targets which had been met be maintained, and what more could be done to further improve re-let times? The Chief Executive of CBH confirmed that good performance was sustained and was improving in some areas. Increasingly the condition of properties which were returned to CBH was very poor, either through acts of vandalism, lack of maintenance, or properties being left with items which needed to be cleared, and this impacted on the re-let times. Although some properties were returned in a very good condition, the numbers of poor and very poor condition properties seemed to be increasing. In response to questioning from the Committee, Karen Loweman, Director of Operations for CBH, confirmed to the Committee that tenancy inspections were carried out with every tenant over a period of 3 years, and it was recognised that very often when properties were in a poor condition this was not malicious but could be as the result of someone elderly moving into residential care or the result of tenants who did not have the means or ability to maintain a property adequately.

A Committee member considered that a survey once every 3 years was not sufficient to identify properties which were at risk, and also that there was potential to introduce coaching for tenants in how to maintain their properties – was a list maintained of properties where it had been identified that additional help was needed? The Director of Operations for CBH confirmed that a database of properties which it was considered required more frequent inspections was maintained, and in addition to this CBH worked with a local community interest company who helped with tenancy training to assist people to obtain the skills necessary to look after their home. It was, however, considered that in general terms there were a greater number of tenants who experienced difficulty in managing their home, for a wide variety of reasons.

The Committee noted that there appeared to be a higher volume of complaints being reported to the Housing Ombudsman, what was the reason for this, and what could be done to mitigate against this? The Chief Executive of CBH explained to the Committee that CBH was expected to promote the Ombudsman’s service and duly made sure that tenants were aware of this. Wherever there had been a negative outcome from a complaint, CBH took care to learn from this to improve its future service.

The Committee considered that the management performance summary in the report was very useful, although it requested that the summaries reported the exceptions to the Committee, so that it knew what to focus its attention on.

A Committee member wondered whether it would be advisable to require tenants to sign a non-disclosure agreement at the conclusion of a claim, in order to discourage further claims being made. Additionally, it was suggested that CBH should identify claims which it considered could be won and contest these strongly to discourage future speculative claims being made. The Chief Executive of CBH advised the Committee that CBH did not require tenants to sign non-disclosure agreements, and such a practice would be heavily criticised by the Ombudsman. Where claims had been made for disrepair, if CBH felt it had a strong case then it would defend its position, however, it was always necessary to make a commercial, business led decision on when it was most appropriate to settle.

RESOLVED that:

- The performance update contained in the report and Appendix 1 be noted;

- The regulatory update, information provided on recent internal audits, the Housing Ombudsman Service cases contained in the report and Appendix 2 and the Tenant Scrutiny updates be noted;

- The performance and assurance information on compliance and safety be noted;

- The Committee would receive a “deep dive” into the stock quality element of the new Safety and Quality Standard as part of the quarterly report being considered at its September meeting.

The Committee received a verbal update from the Council's S151 Officer on the progress of the external audit process.

Andrew Small, S151 Officer, attended the meeting to present the update and assist the Committee with its enquiries. The Committee heard that the external audits for the financial years 2021/2022 and 2022/2023 were still incomplete. The organisation Public Sector Audit Appointments (PSAA) had reported that as at May 2024 there were 634 local authority audits which were outstanding across the country. An update had been received from the Council’s external auditors, BDO, who were close to completing the outstanding 2020/2021 audit, but who had no ability or intention to complete the audits which were outstanding for the financial years 2021/2022 or 2022/2023. Accordingly, it was expected that a disclaimed opinion would be provided in respect of these audits later in the year. The back stop date which had been proposed for the completion of outstanding audits of 30 September 2024 was now uncertain as the calling of a general election had meant that the necessary legislation to introduce this date had not been enacted.

Emma Larkin attended the meeting and at the invitation of the Chair addressed the Committee. She was the Director of KPMG who had been appointed as the Council’s new external auditors, and the Committee was assured that appropriate resources would be available to deliver completed audits. Initial discussions had taken place between KPMG and the Council and planning work was anticipated to commence in July 2024, with the expectation that the 2023/2024 audit would hopefully be completed in early December 2024. It was, however, important for the Committee to note that KPMG would be in the position of commencing work on the Council’s audit when an audit opinion would not have been provided for the preceding 2 years, although significant consideration had already been given as to how best to address and approach this position. The audit for 2023/2024 would be based on an un-audited opening position and there would be a period of time during which assurance would be rebuilt before a clean audit opinion would be possible.

In response to questions posed by the Committee, the Director, KPMG, explained that the current understanding of the position was the Council would have a disclaimed opening balance set of accounts at the start of the 2023/2024 audit, and KPMG would not carry out a full opening balance audit. The opening balance in the 2023/2024 accounts would therefore not have been audited, meaning that the audit opinion for 2023/2024 would not be disclaimed, but would be a modified opinion which identified the fact that the opening balance had been disclaimed. It would take a number of years for the opening balance disclaimer to fall away, and for the issue of a clean audit opinion to be possible, and this was true of all local authorities and private sector companies who had been in receipt of a disclaimed audit. Although guidance was awaited, it was suggested that KPMG would adopt a process of risk assessment to enable a judgement on whether the opening balance was materially wrong to be taken. By way of clarification, the Committee heard it was hoped that an audit plan could be presented to it by September 2024 with the vast majority of the 2023/2024 in-year audit work completed by December 2024.

In response to a question from the Committee, the S151 Officer confirmed that he believed that there would be a process to reconcile the fees which would be payable to the Council’s current auditor BDO, in the light of the fact that it appeared that they may not fulfil the terms of their contract, and based on the amount of work which had been undertaken.

In discussion, the Committee recalled that at its meeting of 9 April 2024 it had made a recommendation to Cabinet that the consequences of disclaimed accounts be investigated and prepared for, when might an advisory report be available to update the Committee on the progress of this work? The S151 Officer advised the Committee that the fact that necessary legislation had been delayed made the position with regard to disclaimed accounts much less clear, and at the current time further clarification and guidance was awaited. Although the Committee accepted this, it was suggested that some work was able to be carried out now as some of the consequences of disclaimed accounts were already known, such as the lack of an opening balance for the audit of the accounts for 2023/2024. It was clarified to the Committee by the S151 Officer that the terms of any disclaimer issued would ultimately be up to BDO to determine as it would be their disclaimer to issue, however, it was expected that government would issue guidance to provide some commonality to the disclaimers which would be issued across the country.

A Committee member had raised concerns in the past that the Council was not trying to do all within its power gain some value from the audit work which had been undertaken to date, and suggested that a written report should be sought from BDO setting out the work they had undertaken, which areas of the Council’s accounts were satisfactory, and which had caused any concerns.

Councillor Cory, Portfolio Holder for Resources, attended the meeting remotely, and, at the invitation of the Chair, addressed the Committee. He confirmed that the Council’s Officers were doing everything within their power to advance the outstanding audits and agreed that the Council should attempt to wring as much value as possible from the limited work which had been carried out by BDO to date. He was happy to do what he could personally in this regard. He was pleased to note the work which had been undertaken internally to prepare for the audit of the Council’s accounts for 2023/2024.

RESOLVED that: the verbal update be noted.

RECOMMENDED to Cabinet that: in the light of the recommendation which had been made to Cabinet by the Governance and Audit Committee at its meeting of 9 April 2024, and which had been accepted by Cabinet at its meeting of 5 June 2024, an update report on the work which had been carried out to investigate and plan for the consequences of disclaimed accounts be provided to the Governance and Committee at its meeting on 10 September 2024.

The Committee considered a report requesting that it consider and recommend for approval by Full Council, the Council's draft Treasury Management Strategy (TMS) for 2024/25, and that it note the current position regarding the draft Investment Strategy 2024/25.

Andrew Small, S151 Officer, attended the meeting to present the report and assist the Committee with its enquiries. He advised the Committee that the preparation of an annual TMS had been a requirement of the Chartered Institute of Public Finance and Accountancy (CIPFA)’s Treasury Management Code for a number of years. Due to resourcing issues, it had not been possible to produce a full draft Strategy for the financial year 2024/2025 before the year had started, although an abridged version had been presented to Full Council with the 2024/2025 budget. The Strategy which was before the Committee updated the abridged document which had previously been agreed, and more formally established a TMS for 2024/2025. In future years, it was expected to present subsequent Strategies to the Committee in February of each year. Although the Council’s Investment Strategy would normally be appended to the TMS, there had been a short delay in the preparation of this document. The Committee heard that although interest rates had been significantly higher over the past year, there had been indications that the interest rates had now peaked and would reduce shortly.

The Chair noted that a Committee member had posed a number of detailed questions to the Council’s Finance Team before the meeting, and the questions and answers to them had been circulated to all the members of the Committee, including those attending as substitute members.

A Committee member considered that the TMS which was before the Committee was significantly better than Strategies which had been presented to it in the past, but remained concerned that the Strategy did not adequately address the Council’s debt. The Council’s current net debt was £131m, which was composed of its gross debt less short-term investments, and he believed that this figure would rise to £300m in 5 year’s time, how could this be afforded? Most of the borrowing was associated with the Council’s Housing Revenue Account (HRA), and in his opinion it was clear that the Council would not be able to afford this level of borrowing, was it appropriate for the Council’s significant Capital Programme to continue? In response to these queries, the S151 Officer confirmed to the Committee that the proposed TMS did not commit the Council to any borrowing, and the borrowing assumed within the Strategy was a reflection of the Council’s plans, which had already been agreed. A review of the HRA business plan was currently being undertaken, and it was important that the Capital Programme was subject to a review every year to update its affordability within the revenue budgets depending on current circumstances. This constant review of affordability was reflected in the Council’s budget planning process which enabled the Council to change its plans and decisions based on accurate information at any given moment in time.

Councillor Cory, Portfolio Holder for Resources, attended the meeting remotely, and, at the invitation of the Chair, addressed the Committee. He confirmed to the Committee that a review of HRA spending was currently being undertaken, and further information would be provided to all Councillors as the review progressed. He fully appreciated the concerns which had been raised by the Committee, and offered his assurance that the administration would act with caution, and reporting back to Councillors on the HRA review would take place as soon as possible.

The Committee noted that the Officer’s report made reference to the CIPFA Financial Resilience Index (FRI), and that according to 3 indicators in this Index, the Council was placed in the highest risk of financial stress. The S151 Officer assured the Committee that the FRI contained data taken from the Council’s accounts, and as there had been delays in providing this data it was now out of date. The last financial year in which data had been provided had been 2021/2022, which had been  an exceptional and unusual year due to the global Coronavirus pandemic. It was important to recognise that the majority of local Councils had disposed of their housing stock through housing stock transfers, meaning that those Councils who still had a HRA had either bought their way out of the housing subsidy system or were borrowing to fund new housing development. Therefore, Councils which still maintained a HRA were almost automatically in the top tier of the FRI in terms of debt and financing costs. He considered that greater account should be taken of this aspect of the figures when this information was presented in the FRI.

The Committee acknowledged the point which had been made concerning the Council’s HRA debt, but remained concerned at the change of reserves indicator in the FRI, which also placed the Council at high risk. It was suggested that this was a genuine cause for concern which should be taken very seriously. The S151 Officer explained to the Committee that there had been a reclassification of reserves in 2021/2022, which went some way to explain the high risk present in the indicator, however, it was very important that these statistics were published and could be examined to ascertain the robustness of the Council’s reserve position.

The Committee suggested that the TMS should be concerned with the controls which existed on the Council’s borrowing and expenditure, and believed that its reserves were the main constraint on the Council’s activity. The £20m limit on borrowing contained within the TMS was noted, however, a Committee member considered that this limit should be much lower, and that the Council should not to seek to act as a professional investor, but instead look to simplify its finances as much as possible.

The S151 Officer advised the Committee that approval of the proposed TMS would include approval of the limits it contained, however, it was important to recognise the improvements which had been made to the TMS in recent years which reflected the significantly greater levels of regulation and control which were now in place. There had been significant changes in legislation in recent years following disastrous local authority investment in Icelandic banks, and of great significance was the amount of advice the Council received from its treasury management advisor, LINK. All of the limits contained in the draft TMS had been reduced, the Council’s investments were now spread more thinly, and credit ratings that the Council sought were much higher than they had used to be, and this desire to reduce the risk to which the Council was exposed was embodied in the draft TMS. It was considered that adopting a retail, as opposed to a professional, status as an investor would not provide the Council with any significantly higher levels of protection. In terms of investments, the Council was provided with real time information from its treasury management advisors, and lending risks were modified on the basis of this information. The risks to which the Council was exposed had been hugely diminished in recent years, and the proposed TMS was greatly improved and mush more risk-averse than had been the case in the past. It was important that the Committee provided challenge to the TMS, but the document was considered to be robust and safe, and provided appropriate protection to the Council’s investments.

RESOLVED that: the current position regarding the draft Investment Strategy 2024/2025 be noted.

RECOMMENDED to Council that: the draft Treasury Management Strategy 2024/2025 be approved.

The following members of the Committee requested that the manner in which they voted in respect of the preceding recommendation to Full Council be recorded:

Councillor Paul Dundas – Abstain
Councillor Sara Naylor – Abstain
Councillor William Sunnucks – Abstain 

The Committee considered a report which summarised the findings of the Internal Audit function for the financial year 2023/24.

Hayley McGrath, Corporate Governance Manager, attended the meeting to introduce the report and assist the Committee with its enquiries. The Committee heard that it received 2 reports each municipal year detailing the internal audit process, both the year-end report and a mid-year report. Additionally, a further report setting out the intended internal audit plan for the next municipal year would be presented to the Committee, and this would provide an opportunity for the Committee to highlight any areas where it felt that audit resource should be deployed.

The report which was before the Committee set out all the audits which had been carried out during the financial year 2023/2024 by the Council’s external internal audit provider, TIAA. These audits had been carried out in accordance with the plan which had been laid out by the Council, however, additional audits were also added to this plan through the year as necessary and these additional items were identified in the Officer’s report.

The Committee heard that there had been 26 audits completed during the financial year, and 42% of these had received a substantial assurance rating, which was the highest rating available. Some limited assurance ratings had also been received, however, a limited assurance rating did not mean that a service was failing or that there were substantial concerns, merely that some areas for improvement had been identified.

It was noted that the Council’s procurement processes had received a limited assurance audit rating, what progress had been made to improve this rating? The Corporate Governance Manager confirmed to the Committee work was ongoing to address the issues and an update on the Council’s procurement strategy would be presented to the Committee at its next meeting to provide assurance on this point.

The Committee noted that in the Officer’s report 3 areas of limited assurance had been reported, however, the table within the report only detailed 2 of these, what was the third area of limited assurance? The Corporate Governance Manager explained to the Committee that one of the limited assurance ratings which had been received was at present in a draft state, and work would be undertaken with the internal auditors to agree a set of recommendations to be taken forward, which was a normal part of the process. Until the audit was finalised in this manner, it would remain as a limited assurance in draft status.

RESOLVED that: The Committee had reviewed and commented on Colchester City Council’s internal audit activity for the period 1 April 2023 to 31 March 2024.

The Committee considered a report relating to the Council’s duty to produce an Annual Governance Statement, and that reviewed the effectiveness of the Council’s internal control systems for the 2023/2024 financial year, and which was required for the 2023/2024 Statement of Accounts.

Hayley McGrath, Corporate Governance Manager, attended the meeting to introduce the report and assist the Committee with its enquiries. The Committee heard that the Council was required to produce an Annual Governance Statement (AGS), which looked back at the preceding year and which reviewed the Council’s governance. The AGS did form part of the Council’s statement of accounts and was checked by the Council’s external auditors. The AGS considered the Nolan Principles, which were the 7 principles of corporate governance detailed in the Officer’s report, and considered how the Council had conformed to those principles. In ensuring that the 7 Principles had bene complied with, a wide variety of the Council’s functions and procedures had been considered, including its Constitution. The Corporate Governance Manager had interviewed ever member of the Councl’s Senior Management Team as part of the preparation of the AGS to discuss issues which the Council had faced in the preceding year, and identify areas for improvement. Internal audit reports were considered as part of the process of preparing the AGS, as were any external audit recommendations which had been made. Complaints and compliments which the Council had received were also considered, together with any human resource issues that had arisen. In this way, it was hoped that the AGS represented a complete overview of the Council’s governance activities for the year in question, with any areas of concern being identified.

The AGS followed a set format in line with the Chartered Institute of Public Finance and Accountancy (CIPFA)’s best practice, and further information on the Council’s wholly owned commercial companies and working partnerships such as the North Essex Parking Partnership (NEPP) was also included. Although the preparation of an AGS for these organisations was not necessary according to the regulations, it was good practice to provide one, and the Corporate Governance Manager accordingly prepared an AGS for these organisations.

Part of the process of preparing the AGS was to identify any areas in which it was felt that controls could have been improved and these had been set out in the draft Statement which was before the Committee, together with an action plan which would be monitored throughout the year. If the Committee was content with the proposed AGS then it would be signed off by the Leader and Chief Executive Officer of the Council prior to its inclusion in the Council’s statement of accounts.

Turning to the action plan which supported the AGS, the Committee heard that of the 5 items which were on the action plan for the preceding year, several had been signed off, however, 2 had been carried forward to this year’s action plan due to their significance. One of these 2 items had been the implications for the Council of the current delays in the external audit process, and the other was the need to carry out a self-assessment against the CIPFA Financial Management Code. Two other items had been identified and added to the action plan, and the first of these was concerned disrepair claims and ombudsman issues in relation to Colchester Borough Homes (CBH). The Monitoring Officer had taken the unusual step of writing to CBH to request details of how it intended to deal with the increased number of Ombudsman findings against the Council as the number of claims and findings of maladministration had increased significantly in 2023/2024 compared to the preceding 2 years. In 2023/2024, the Housing Ombudsman found that here had been 3 service failures, 5 instances of maladministration and 2 instances of severe maladministration compared to findings of 2 service failings in 2021/2022 and a single finding of maladministration in 2022/2023. As a result of the letter which had been written by the Monitoring Officer, CBH had provided assurances to the Council that its processes had been changed to address the issues which had been raised, however, it was important to continue to monitor this situation throughout the year.

The second item which had been added to the action plan concerned the Council’s procurement processes, and the Committee heard that 2 internal audit reports had provided a limited assurance rating for the Council’s procurement processes, and this was an item which had been in the AGS previously. Although the Committee was due to receive a report on the Council’s procurement policy at it’s next meeting, the AGS action plan would ensure that this area was monitored closely throughout the year.

A Committee member praised the report and the information that it contained, which he felt offered an excellent explanation of the position. There was, however, one area in which he felt that the Council’s governance was poor, which was that in his opinion, there were no real constraints on the Council’s activities, which could lead to the Council finding itself in difficulties in the future. It was suggested that there was a very generalised lack of financial control which could lead to excessive borrowing or poor investments. How was it possible to reflect these concerns in the AGS? The Corporate Governance Manager explained to the Committee that it was difficult to incorporate this concern specifically into the AGS, but noted that the Council had external audit processes and adhered to the CIPFA Financial Management Code, against which a self-assessment was to be carried out. When the Committee considered this self-assessment then any concerns about the results could potentially be incorporated into the AGS and the internal audit programme in the future.

Andrew Small, S151 Officer, attended the meeting and advised the Committee that he believed that local governments were one of the most heavily regulated organisations, with a myriad of processes containing checks and balances which were designed to provide governance reassurance. Because of these controls, he believed that there were far fewer risks in the public sector than existed in the private sector.

In response to a question from the Committee around the item on the action plan which concerned procurement and Colchester Commercial (Holdings) Limited (CCHL), the Corporate Governance Manager clarified that at the time the internal audit had been carried out, it appeared that the Council’s procurement procedures had not been clear to CCHL. A lot of work had been carried out as a result of the finding to correct this position, and the Committee was assured that CCHL had resolved its issues in relation to this.

RESOLVED that:

-        The review of the Council’s compliance with the seven principles of good governance (CIPFA International Framework: Good Governance in the Public Sector 2016) including the review of effectiveness of the internal control arrangements be noted.

-        The Annual Governance Statement for 2023/24 be approved.

The Committee considered a report setting out its work programme for the current municipal year.

The Committee noted that it had considered the interaction of Councillors with the Council’s information and communication technology systems (ICT), and the difficulties which had arisen in the past. Could the Committee receive an update report on action taken to resolve these difficulties at a future meeting if this was appropriate?

The Chair of the Committee noted that in previous years a briefing session around the Council’s finances had been arranged for the Committee, with all Councillors invited to attend, and he resolved to investigate with Officers when such a session could be provided in the near future.

RESOLVED that: the contents of the work programme be noted.