Meeting Details

At the invitation of the Chair, Andrew Weavers, Head of Governance and Monitoring Officer, addressed the Committee. He wished to introduce an urgent item to the attention of the Committee which was that government had published details of 2 consultation papers on 18 December 2024. These consultations were entitled local audit reform: a strategy for overhauling the local audit system in England, and strengthening the standards and conduct framework for local authorities in England. The closing date for responses to the consultation relating to the local audit system in England was 29 January 2025, and the date for responses to the consultation in relation to the code of conduct framework was 26 February 2025. Head of Governance and Monitoring Officer wished to suggest that both of these consultations should receive a response from the Committee on behalf of the Council, however, because the time remaining to respond was so short, it was suggested that the Committee agree that Chair and Group Spokespersons would formulate a response on its behalf which would then be shared with the whole Committee.

The Chair reminded the Committee that its individual members were able to submit responses to these consultations on their own behalf, and he was aware that the regional audit group of which he was a member would also submit a response at a regional level. Given the short timescale for responses to be submitted, he suggested that the proposal which had been made by the Head of Governance and Monitoring Officer was a sensible one.

A Committee member had drafted a response to the local audit reform consultation which he had shared with the Committee, would the suggested response from the Committee take his views into account? He felt strongly that the Council should be making constructive suggestions, and that the government’s current suggestions would not be sufficient to address the issues. There was a need to change the way in which local authority accounts were prepared to simplify them, and it was essential that any consultation response sought to provide a solution to the current issues as opposed to simply criticism.

RESOLVED that:

- The Chair and Group Spokespersons of the Committee liaise with the Head of Governance and Monitoring Officer to draft a response on behalf of the Committee to the consultations:

- Local audit reform: a strategy for overhauling the local audit system in England; and

- Strengthening the standards and conduct framework for local authorities in England.

The Committee considered a report which provided it, in its capacity as shareholder committee for Colchester Commercial (Holdings) Limited (CCHL), with an update on progress made on the implementation of the CCHL Action Plan which had previously been reported to the Committee at its meeting on 28 March 2023.

Andrew Weavers, Head of Governance and Monitoring Officer, attended the meeting to present the report and assist the Committee with its enquiries. The Committee was advised that the report which was before it was, in effect, a shareholder report to the Committee which it needed to consider in its capacity as the shareholder for CCHL.

The report pointed out substantial and substantive progress which had been made on the Action Plan which presented to the Committee in March 2023. The updated Action Plan as at January 2025 was appended to the report as an exempt from publication appendix in Part B of the agenda due to the commercial confidentiality or the information which it contained. An update was provided on progress which had been made jointly between the Council and CCHL to work towards the completion of all the 30 recommendations which had been contained in the Action Plan, and the actions which had been completed were highlighted in the report.

Ongoing actions were set out in the report, and included the composition and competencies of the CCHL Board, which was the subject of current joint working between the Council and CCHL. In the light of the substantial progress which had been made, the Committee was asked to confirm that any outstanding actions should be progressed within CCHL and the Council, and should be the subject of regular reporting to the Committee to provide it with appropriate assurance in its role as shareholder committee. It was further asked to agree that the Action Plan was now complete, subject to the actions which were ongoing and the subject of regular reporting to the Committee.

A Committee member wished to note that he did not consider that there was anything of particular commercial sensitivity contained within the Action Plan, which was primarily concerned with addressing governance issues in the Council’s subsidiary company.

RESOLVED that:

1. The substantial progress made on the Colchester Commercial (Holdings) Limited (CCHL) Action Plan be noted, and that the actions marked as on-going in the Action Plan be treated as part of the normal governance processes of CCHL which would form part of regular reporting to the Committee.

2. The CCHL Action Plan was complete, subject to resolution 1 above.

The Committee considered a report which discharged Colchester Commercial Holdings Ltd (CCHL)’s requirement to present its final audited accounts for the group for 2023-24, together with its final Annual Report 2023-2024.

Simon Coward, Managing Director of CCHL, attended the meeting to present the report and assist the Committee with its enquiries. He offered the Committee his apologies that it had not been possible to provide final end of year accounts at the previous meeting of the Committee, but these were now provided for all 4 of the Council’s wholly owned companies. Also before the Committee was the Annual Report of CCHL, and it was intended that the production of this document would be brought forward in the next municipal year in order that the Annual Report and the audited accounts of CCHL would be presented to the Committee earlier on in the year.

In terms of the overall position for CCHL, Colchester Amphora Trading (CATL) had remained successful and had generated a profit. Work continued to hibernate Colchester Amphora Homes (CAHL) and Colchester Amphora Energy (CAEL), and this work meant that it was not easy to summarise the position of CCHL, however, trading continued to be successful. Summaries were contained within the Annual Report, and the Committee was invited to pose any questions which it wished.

A Committee member noted that the report which before the Committee stated that the accounts of CCHL had been presented to the Committee in draft form at its meeting in October 2024, but this was not accurate as the accounts had not in fact been presented to the Committee prior to being filed with Companies House. A brief, six-month, half-yearly consolidated financial report had been presented to the Committee in October 2024, however, it was important to be clear that this document did not constitute a set of accounts as the report had stated, as otherwise there was an inference that the Committee had approved something which it had not.

It was noted that a profit had been declared, the majority of which came from the decision of the Council to write-off a loan which it had made to CAEL. This loan write -off carried tax implications which had resulted in a corporation tax bill of £375,000. In the document which had been agreed by the Committee when the hibernation of CAEL had been approved, it had stated that full tax advice would be taken. Could the Committee now see this advice, as it had approved the hibernation of CAEL on the basis that suitable advice would taken, and it was considered reasonable for the Committee to see this in the light of the large tax bill which had been incurred.

A Committee member sought to understand the sequence of events which had led to the write-off of the outstanding loan; CAEL had been holding a borehole asset which had been valued at £1.05m, with a loan outstanding to Colchester City Council of £1.5m which had been written off. It appeared that a cash purchase had then been made by the Council to CAEL for the asset, could the value of the cash injection into CAEL which had enabled it to pay the £375,000 tax bill be confirmed, and was this against the borehole asset? Assuming that the asset had now been purchased by the Council, what was its value on the Council’s balance sheet?

Graham Oliver, Financial Consultant – Moore Insight, attended the meeting remotely, and at the invitation of the Chair, addressed the Committee. With regard to the question of the taxi advice which the Council had received, he was unable to provide any further information, as he had not been involved in this advice. He would, however, seek to clarify the position after the meeting. With regard to the purchase of the borehole asset, this purchase did not happen during 2023/2024 which was why it was listed as an asset held for sale in the CAEL accounts. The purchase by the Council would take place during the year 2024/2025, and when the 2024/2025 accounts were closed it would be shown as an asset of the Council with a carrying value on the Council’s balance sheet as at the purchase price initially.

Councillor King, Leader of the Council and Portfolio Holder for Strategy, attended the meeting, and, at the invitation of the Chair, addressed the Committee. He confirmed to the Committee that he had not been aware of the tax advice which the Council had received in relation to the issue under discussion, and assured the Committee that he shared the desires of Committee Members that the most measured decisions possible were taken around tax treatments, and if it was possible to legally minimise tax liabilities then this was something which the Council should do. Councillor King supported the sharing of relevant documents with the Committee, and although he had not seen the specific advice which was under discussion, he had seen a related document which had been very complex and had not made reference to the issues which had been raised at the meeting.

In response to questioning form a member of the Committee, The Managing Director of CCHL confirmed that the cash transaction of £1.05m from the Council to CAEL had been made during the current financial year 2024/2025, and was the equivalent of the build cost of the borehole. When considering the operational surplus that CCHL was looking to generate, in addition to this cash receipt, then this would result in further tax implications for the financial year 2024/2025, and CCHL would consider how to mitigate this.

A Committee member sought to understand why, within a structure of a group of companies which existed under a holding company, a loan write-off to one company within the group would not result in an equivalent loss to another company within the group leading to a position of equality for tax purposes. The Chair of the Committee explained that the position was slightly different from a private commercial company group in that CCHL was wholly owned by Colchester City Council, and an asset which had been owned by CCHL had been sold to the Council which had generated an income which was now liable to taxation.

Richard Block, Chief Operating Officer, attended the meeting and confirmed that technical advice had been received from the Council’s treasury management advisors, Link, who were experts in this field. It was important for the Committee to understand that the hibernation of the companies CAHL and CAEL was not as straightforward as hibernating a company from a private finance perspective. There was a web of links between the companies, and the Council’s financing of the company through previous investment and as such it was not possible to take any action in respect of the company without understanding the complexities of public sector finance and the impact that this had. Advice had been taken from experts in the field to make the best proposal overall for the Council, and it was advice in relation to this that had been sought from Link, who had recommended this course of action.

A Committee member emphasised the need to see the advice which had been received from Link, and which in his opinion was very wrong. He did not consider that there was any complexity about the position, and although it was now too late to address the tax bill, there was a need to ask who had made the decision, was this in line with the appropriate Council rules, where these rules correct, and how had a loan of £1.5m been written off without recourse to Cabinet? It would then be necessary to address the transfer of the boreholes to the Council with an understanding of the capital allowances claimed on these. Finally, consideration should be given to the corporate structure of the companies, and the fact that every time a profit was made tax was payable on it, and it was also necessary to pay highly qualified finance staff to carry out corporate engineering. In his view an independent Chair of the CCHL Board was needed to handle the interface between the companies and the Council this – was the complicated company structure and attendant expenses really necessary to run what amounted to 2 successful businesses, or could the events and helpline businesses be taken under the direct control of the Council?

Following further discussion, and in response to questioning from the Committee, Councillor King confirmed that he had listened carefully to the observations and requests which the Committee had made, and agreed that there was a need for clarity around the process which had been followed in respect of the financial treatment of the Council’s loan to CAEL. It was sensible that the Council had taken tax advice, and it was expected that this was done routinely when required, from Link, which was a reputable organisation. The Committee was asked to bear in mind that there were complexities in the way in which public sector finances operated, however, the process which had been followed should be expressed as clearly as possible, and this would have involved the correct Officers considering the advice which had been received. Councillor King considered that it was important to note the context of the operation of the Council’s wholly owned companies, and that successive governments had encouraged local councils, via their companies, to take a commercial attitude towards service delivery for profit. The Committee had to ensure that its collective commentary and review acknowledged that context, and the fact that the Council’s companies, which were monitored by the Committee, had been performing very well. The Council was obtaining significant direct and non-direct commercial advantage from its companies, which had been set up because the Council, cross-party, had seen the advantage in doing so, and this advantage was still evident.

A Committee member pointed out that the companies had generated a profit of approximately £250,000 and had then lost approximately £375,000 to tax in one corporate manoeuvre, and when considering the benefits of the companies, were these really independent businesses? This was an important point which should be considered.

In response, Councillor King considered the comment made had been a fair challenge, and explained that he had asked similar questions in relation to the Council’s wholly owned companies. It had been the relationship cost and the treatment of cost through the companies which had provided the Council with some significant advantages, including service level agreements which provided the Council with income for support it provided, and non-dividend cash savings generated for the Council which were approximately £1m, in addition to the social value which was delivered which was not directly related to profit.

The Committee sought to explore further the interaction between the Council and its companies. It noted that the related party notes in the accounts which were before it showed a flow of money from the Council to the companies, which was then returned in the form of dividends, which had to come from taxable profits. When dividends were paid to the Council again, these should be treated in a tax efficient manner. It was suggested that assets attributed to the companies such as the fibre network and heat network were, in fact, sitting on the balance sheet of the Council, when would these issues be considered? Councillor King confirmed that he was happy for the issues which had been raised to be considered in more detail, and that all steps should be taken to minimise tax liability and maximise the profit of the companies.

The Chair noted that both the Committee, together with a smaller working party, had considered the operation of CCHL in considerable detail in the recent past, and all of this work had been brought before the Committee to ensure that CCHL had been working in a way which delivered the most benefit to the Council. It was, however, right that ongoing auditing took place.

It was suggested by the Committee that the Council had struggled in the past to define what had been expected from its commercial companies, were they expected to prioritise the delivery of profit, social value, or both? The vast majority of the accounting practices of the companies were not public sector, but private sector practices and it was to be expected that a commercial company would have successful and unsuccessful ventures. What was concerning the Committee was a commercial venture which had not been successful and which had lost, initially, £1.5m in cash, which could rise into a greater loss in the likely event that the value of the boreholes was reassessed. These issues could have been avoided had the Committee received the draft accounts of the companies before the tax had been paid, which it had been entitled to in its role as shareholder committee.

The Managing Director of CCHL accepted the points which had been made. In terms of the heat network, it was important to note that the Council had received a grant of £3.3m at the start of the project which had been secured by CAEL. In terms of future tax liability, there was now a need to move towards not making an operating surplus through measures such as reducing the management fee, but there also a need to show a focus not just on cash which the companies gave back to the Council but also on the value the companies provided in all respects. The Committee was assured that the end of year accounts would not be presented to it late again, and these would be brought forward by 3 or 4 months in the following municipal year.

A Committee member suggested that there was a need for greater clarity around the movement of the money between the Council and its wholly owned companies, considering that there was a risk that transactions were being lost in the Council’s reserves.

In discussion, the Committee noted that the cost of the 5 boreholes which had been associated with the Northern Gateway heat network project was significantly less than the £3m grant funding which had been delivered, what had become of the additional funding? Members of the Committee had been present in discussions at the time that the grant funding had been received, and believed that although the funding had been awarded, this was drawn down as it was needed, and had not been provided to the Council in a lump sum payment.

Councillor King confirmed that he had listened carefully to the discussion, and the points which had been made by the Committee, and considered that it was appropriate that further clarifying information was provided in the future in relation to the transactions which had taken place between the Council and CAEL.

RESOLVED that:

- That the Colchester Commercial (Holdings) Limited Group Final Accounts for 2023-24 had been reviewed and noted.

- That the Colchester Commercial (Holdings) Limited Annual Report 2023-24 be noted.

- It be noted that The Committee had not had sight of the draft accounts for Colchester Commercial (Holdings) Limited Group as had been indicated in the Officer’s report which had been presented to it, and it requested that these draft accounts were presented to it in a timely fashion in the future.

- The Committee requested to see a copy of the tax advice which had been provided to the Council by its treasury management advisor, Link, in relation to the loan to Colchester Amphora Energy Limited, which had been written off.

The Committee considered a report which sought to provide it with an overview of the of the Council’s business continuity activity for the period from 01 January 2024 to 31 December 2024.

Hayley McGrath, Corporate Governance Manager, attended the meeting to present the report and assist the Committee with its enquiries, advising the Committee that the work undertaken in respect of business continuity was often closely aligned to emergency planning carried out by the Council.

Lauren Warsap, Resilience Officer, attended the meeting remotely and provided a brief summary of the work which had been undertaken during the previous year, explain that significant progress had been made in respect of the Council’s business continuity provisions following a restructure of the Council’s services. This restructure had necessitated a thorough review of existing plans with Heads of Service for each department.

A training and exercise event had taken place in June and July 2024, during which all Heads of Service, senior managers and some members of the Senior Leadership board were given Business Continuity training. In addition to this training, all service plans had been tested, based on a theoretical cyber-attack scenario. The event was well attended, positive feedback had been received, and it was hoped that this event would now be run on a yearly basis.

During the year there had been several emergency planning and business continuity issues which the Council had been required to respond to, including:

- A potential cyber threat around the elections in May 2024, which had been dealt with efficiently by the Council’s ICT Team.

- Two vehicles that had collided with buildings, together with other possible dangerous structure calls.

- A building collapse at the Natural History Museum which was overseen by the Council’s First Call Officer (FCO)s and Health and Safety Officer, and which had then escalated into a business continuity issue for this service.

- Several Essex wide teleconferences which had related to weather impacts including flooding, heat and wind.

All these issues had had significant impacts on Council service delivery, from Officers not being able to perform their normal role as they were required to provide emergency support, including services not being delivered due to the impacts of the event, such as closing parks due to severe weather issues.

The Business Continuity function had been audited in September, and had achieved a reasonable assurance rating. Two recommendations had been made, the completion of the remaining Business Continuity Plans following the reorganisation, and that the Resilience Officer would follow up on the four areas where testing of plans had been due to take place. Both of these recommendations had been accepted and were now completed.

The Committee requested additional detail in respect of the simulated cyber-attack; what was nature of this attack, and within what timescale did the Council become operational again? It also sought clarification on how the Council would respond should, for example, it were to suffer a catastrophic loss such as its revenue and benefit database.

The Resilience Officer confirmed that the simulated cyber-attack had been based on an attack which had impacted the entire Council ICT infrastructure, leading to a loss of access to Microsoft systems entirely, and the exercise had focussed on how communication in these circumstances would be successfully managed. In terms of timeframes, the simulation had lasted for 24 hours, and its purpose had been to enable services to carefully consider their plans to ensure that they were effective.

The Corporate Governance Manager advised the Committee that the speed at which the Council recovered services which had been lost to a cyber-attack would depend on the issues which were faced at the time. However, as part of the exercise which had been carried out, the authority had established critical services whose recovery would be prioritised in order. It was considered that the revenue and benefits system was critical, and a plan was in place to ensure that this essential system was made operational again as quickly as possible. The individual plans which would support service provision were not available to the public, however, the Committee was assured that the Council had a structure of critical services whose restoration would be prioritised, together with a fall-back position if this was required. In addition to this, The Council’s ICT team had disaster recovery plans, and these were tested regularly. A business continuity training session for Councillors would be scheduled for the coming months which would look at different elements of business continuity in more detail.

RESOLVED that:

- The business continuity work which had been undertaken during the period 01 January 2024 to 31 December 2024 be noted;

- The Business Continuity Strategy for 2025 be endorsed. 

The Committee considered a report which provided it with an overview of the Council’s Health and Safety activity during the period 01 October 2023 to 31 December 2024 and requesting that it approve the Health and Safety Policy for 2025.

Hayley McGrath, Corporate Governance Manager, attended the meeting to present the report and assist the Committee with its enquiries. The Committee was asked to note that the time period covered by the Officer’s report spanned more than a year due to the timing of Committee meetings.

Lee Holden, Health and Safety Manager, attended the meeting and advised the Committee that during the period covered by the report work had continued to implement the Council’s Health and Safety Management System, with a focus on high-risk sites such as Leisure World. A large project had been undertaken focussing on the ‘Big 6’ building compliance obligations – asbestos, fire safety, legionella, gas, electrics and lifting equipment. This had consisted of obtaining reports and certificates for all relevant areas, and carrying out any remedial works which had been identified as a result of this.

A health and safety audit had been commissioned, and this would be carried out by an experienced independent consultant who would review the adequacy of the Council’s health and safety programme. This audit was welcomed, and it was hoped that it would identify any additional work which was required as part of the Council’s commitment to continuous improvement.

Training continued to be provided for staff, and this had included four 1-day Ofqual Fire marshal courses, four 3-day First Aid at Work courses including additional defibrillator training, one 1-day Emergency First Aid course, and two standalone defibrillator courses. A specialised First Aid at Work agriculture course had also been delivered for the Parks department which was more related to the tasks and possible injuries that they might come across in their work. Eleven officers had also undertaken the formal 3-day certified health and safety IOSH course. This course was aimed at managers to ensure a health and safety culture was maintained in their teams, and to support the Council’s overall health and safety environment.

Only 1 legal claim had been received during the reporting period, and this was in relation to a fractured wrist which had been sustained by a customer entering Leisure World in wet conditions. The claim was being defended, as it was considered that the Council had taken all necessary steps to prevent an accident, including positioning warning signage and matting in the area.

The Committee heard that 2 members of staff in the Council’s Neighbourhoods Team had sustained injuries when exiting a caged vehicle, and in response to these incidents, warning signage had been placed on the inside of all vehicles doors, and no further injuries had been suffered. It was considered that the health and safety culture of the Council was improving.

In response to questioning from the Committee in respect of the level of staff training, the Health and Safety Manager confirmed that health and safety training for staff began as part of the Council’s induction process, which was tailored to the requirements of each individual Council service. Staff at sites which were considered to be higher risk were not able to start work until this training had been completed, which included training around incident reporting. In respect of first aid training, duty managers at Leisure World and the Museum would be required to be qualified in first aid, and for the Council site at Rowan House a first aid and fire marshal rota was in place.

RESOLVED that:

- The Committee had reviewed the Health and Safety work which had been undertaken between October 2023 and December 2024.

- The Health and Safety Policy for 2025 be approved. 

The Committee considered a report which requested that it note that the work which had been undertaken in respect of adopting The Chartered Institute of Public Finance and Accountancy (CIPFA)'s published revised guidance for the operation of local authority audit committees in 2022, and that it approve an updated Action Plan in respect of this work.

Hayley McGrath, Corporate Governance Manager, attended the meeting to present the report and assist the Committee with its enquiries. The Committee had received an initial report setting out the revised CIPFA guidance in July 2024, and an Action Plan had been provided as part of this report, detailing areas of work to be undertaken to ensure that the Committee was effective and operating within guidelines. The Officer’s report set out key progress which had been made since the Committee had last received an updated on this work in September 2024, and included the submission of an annual report to Full Council in December 2024, which had been well received. Additionally, private meetings between the Committee and the Council’s external and internal auditors had been arranged, and the Committee had completed a skills gap analysis questionnaire which had demonstrated that overall the Committee was in a strong position of experience and knowledge with an average score of 3.6 out of 5 being attained. Suitable training would be arranged to address areas of identified weakness.

The Chair of the Committee noted that he had recently attended a regional meeting of local authority Audit Committee Chairs where a discussion around independent members of audit committees had taken place. Only a single audit committee at present had an independent Chair, however, there were several independent members of committees, and other authorities had found such members easier to recruit that had been feared. It may be that the Committee therefore wished to explore the possibility of independent members further in the next municipal year, and it was noted that the work which was being carried out in respect of the CIPFA guidance was part of an evolving process.

A Committee member had responded to the skills gap analysis questionnaire and had considered that the questions had been overly focussed on processes, and not on practical knowledge which related to the Committee’s functions. He agreed that consideration should be given to strengthening the Committee with the addition of an independent member, although not in the role of Chair.

RESOLVED that:

- The work undertaken so far had been considered and noted

- The updated action plan be approved, and Officers be authorised to continue developing the actions.

- The results of the Skills Gap Analysis and the further work to be undertaken had been considered. 

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

Matthew Evans, Democratic Services Officer, attended the meeting to present the report and assist the Committee with its enquiries.

The Committee requested that a standing item be added to its work programme for all future meetings providing an update on the progress being made with the Council’s external audit.

RESOLVED that:

- The contents of the report be noted

- Verbal updates be provided to all future meetings of the Committee in respect of the progress of the Council’s external audit.