Meeting Details

Councillor Çufoglu attended the meeting and addressed the Committee pursuant to the provisions of Meetings General Procedure Rules 5 (1). He wished to address the Committee in relation to the meeting of Full Council which had taken place on 26 February 2025 at which the Labour Group leader, Councillor Julie Young had submitted an amendment to the main item, asking that the Council make a one-off payment of £120,000 to two projects based in her own ward, managed by charities and organisations which were run by her fellow labour ward colleague and her husband. Prior to the Full Council meeting, he had made inquiries about whether potential conflicts of interest had been declared, and had found that that wasn’t the case. However, a Councillor for Greenstead had then declared a potential conflict of interest prior to leaving the Council Chamber chambers during discussions and voting on the proposed amendment.

Additionally, during the meeting of Full Council in February 2025, the proposer of the amendment had stretched the strict rules for making changes to amendments on the day, noting that there had been a “typo.” However, in reality the change was not a simple “typo” but a complete change in the name of the recipient organisation.

The Leader of the Labour Group had asked for an allocation of £100,000 for building improvements in one project and a further £20,000 for purchasing a vehicle for another project. £120,000 was a significant amount, which far which exceeded what other charities and community interest companies (CICs) were normally allocated after annual applications

Because the suggested donation was to be made from Council reserves and not available cash, Cllr Çufoglu considered that additional scrutiny around this decision was appropriate. It had been acknowledged that making a one-off payment of £100,000 would increase the annual revenue of the organisation in question by a approximately 50%.

Therefore, on behalf of the Green Group, he requested an explanation and justification for the spending, including the organisation in question’s outreach, and;

1. Why did these two projects catch the proposer's attention?

2. How this need was identified, and

3. How were these amounts calculated?

He did not consider that these questions had been answered satisfactorily either before or after the Full Council meeting, however, during this meeting, assurances had been offered by the Leader of the council that the proposal, which was approved by the majority of Councillors, would be scrutinised and reviewed by the Governance and Audit Committee.

Although Cllr Çufoglu was in favour of supporting vulnerable and diverse communities, however, unfortunately he did not believe that using a Full Council meeting to allocate funding in this way was appropriate, and considered that such decisions needed to be made following clear, evidence-based, objective consideration.

He therefore wished to ask the Committee to confirm;

1. The status of the funding approved in February 2025

2. When and where the allocation of this funding would be scrutinised,

3. What options and power would the Committee have over the final decision?

The Chair of the Committee advised Councillor Çufoglu that any question around the current budget which had been agreed in February 2025 was best directed to Cabinet. He confirmed that the Committee would receive reports detailing the Council’s outturn for each quarter of the financial year. All of the items which had been considered by Full Council in February 2025 had been agreed by the majority of Councillors present, who had voted to approve the revenue budget for the current financial year.

A Committee member considered that the issue which had been raised related to procurement, which was something which all Councillors had an interest in. He considered that it was right that Full Council had made the decision which it had, but as concerns had been raised, it was appropriate that work was undertaken to ensure that the Council’s procurement procedures had been correctly followed. There was a need to ensure that funding had been allocated fairly, and consideration should be given to providing a report to either this Committee or Scrutiny Panel in the future dealing with this point. He was happy to be guided by Officers as to the correct route for scrutiny.

The Chair of the Committee agreed with the comments which had been made, and considered that all Councillors and residents of Colchester needed to see that the approved expenditure was above board, and he was happy to ask that the Council’s accounts which were presented to the Committee contained a full appreciation of how the money had been spent.

The Committee considered a report which requested that it review the Growth Strategy for the newly structured Amphora, and make recommendations to Cabinet to approve the direction of growth.

Cllr Martyn Warnes, Chair of the Board of Colchester Commercial (Holdings) Limited (CCHL) attended the meeting to introduce the report, together with Councillor Moffatt who was a Director of CCHL. The Committee heard that the core businesses of the Amphora Group were identified as delivering best practice; Colchester Events was an outstanding Council owned events and venue management company that other Councils had used as a benchmark in the field, and the Colchester Fibre and Helpline Companies were also leaders in their respective areas. Colchester Amphora Homes Limited (CAHL) and Colchester Amphora Energy Limited (CAEL) were now in a state of hibernation, and the Estates Team had been transferred back into the Council. The Focus of CCHL over the preceding 12 months had been on developing Colchester Amphora Trading Limited (CATL) through consolidating the Amphora businesses into the Town Hall, achieving overhead and costs savings of over £210,000 during the financial year 2024/2025 with a target to make further savings and to generate revenue of £6.6m which would achieve an operating surplus of approximately £586,000. Helpline and CCTV had monitored 2,863 incidents and handled 717 calls from the ambulance service with an average response time of 50 minutes.

Simon Coward, Managing Director of CCHL, attended the meeting and advised the Committee that it had been provided with a growth strategy, a baseline 5 year forecast and a draft financial performance report for 2024/2025.

The Chair of the Committee wished to make it clear to members of the public that although the Committee would continue its deliberations in a private session, due to the commercial sensitivity of the information which had been presented to it, the decisions and recommendations which would be made by the Committee would be published publicly in the minutes of the meeting.

RESOLVED that:

- The proposed Growth Strategy for Colchester Amphora Trading Limited be noted.

RECOMMENDED TO CABINET that:

- It review, at the earliest opportunity and with the assistance of the Monitoring Officer, the tax liability of Colchester Commercial (Holdings) Limited for the financial year 2023/2024.

The Committee considered a report which provided it with the first annual Shareholder report of the Council’s Local Authority Trading Company (LATCo), Colchester Commercial (Holdings) Ltd (and its subsidiary companies), and its Arm’s Length Management Organisation (ALMO), Colchester Borough Homes Ltd, to enable the Committee to fulfil its role as the shareholder committee.

Andrew Weavers, Head of Governance and Monitoring Officer, attended the meeting to present the report and assist the Committee with its enquiries. The report which was before the Committee was the first shareholder report which had been produced. It was considered to be good practice to provide such a report, which looked backwards to what the Committee and Officers had achieved through working in close partnership with the Council’s companies over the preceding year. The work of the Officer Shareholder Team was highlighted to the Committee, which was a team comprised of the Council’s Chief Operating Officer, the Head of Governance and Monitoring Officer, the Corporate Governance Manager, the Council’s Interim S151 Officer, the Managing Director of Colchester Commercial (Holdings) Limited (CCHL), and the Chief Executive of Colchester Borough Homes (CBH). The team had a tight remit and considered risks, governance issues and finances, but was not a shadow shareholder committee. It had been designed to be a safe forum for representatives of the companies and the Council to discuss issues and concerns and explore opportunities before coming to Councillors.

The Committee had approved the minutes from its meeting on 31 January 2025, which had approved the CCHL action plan update, agreeing and signing off all the actions which had been contained in reports which had been provided by Ethical Consulting and CIPFA. The Committee had been satisfied that all the one-off actions which had been required under both these reports had been completed, and that re-occurring actions would be dealt with through the course of normal business reporting in the future.

A member of the Committee understood that there was a proposal to return the shareholder function to Cabinet, and expressed some concerns around this. He considered that Cabinet would not have the time or expertise available to it to interrogate and scrutinise the Council’s companies in the same way that the Committee had been able to, including the relevant accounts. The formation of an Officer team was to be applauded as long as this did not involve duplication of work.

The Head of Governance and Monitoring Officer confirmed to the Committee that the proposal to amend the shareholder committee had not been circulated to all Councillors, but Group Leaders had been consulted, and the proposal was to be discussed at the forthcoming meeting of Full Council.

In discussion, members of the Committee repeated concerns about the shareholder function being taken away from the Committee and the reduction in the level of scrutiny and control over the Council’s companies which this may lead to, which may not be in the best interests of the residents of Colchester.

Councillor King, Leader of the Council and Portfolio Holder for Strategy, attended the meeting, and, with the permission of the Chair, addressed the Committee. He believed that the best way for the Council to operate was on a cross-party basis, and he offered praise for the way in which both the Committee and the Scrutiny Panel provided necessary and helpful challenge. He accepted that auditing and considering the accounts had to include CCHL, and CCHL did not escape this. He requested that Councillors provide their input into the proposed changes once the papers had been made available to them ahead of the Full Council meeting.

The Head of Governance and Monitoring Officer confirmed that the role of the Governance and Audit Committee was to act as an advisor to Cabinet. The shareholder role had, and always would be, an executive function which remained with the Cabinet. If the Committee remained as the shareholder committee, it would only be acting in an advisory role and would not be making decisions in relation to the Council’s companies. If there was no agreement from the Political Groups on this issue then the item could be removed from the agenda for the annual meeting of Full Council.

RESOLVED that:

- The contents of the report be noted;

- If the Committee retained its role as shareholder committee, that a shareholder report be presented to it at least once per municipal year.

The Chair of the Committee explained that he had decided to alter the order of items in the published agenda so that agenda Item 7 was dealt with at the end of the meeting.

The Committee considered a report which set out the 2024/25 General Fund and Housing Revenue Account positions, for both revenue and capital, as of 31 December 2024 (Q3).

Anna D’Alessandro, Interim S151 Officer, attended the meeting to present the report and assist the Committee with its enquiries. It was important that the Committee appreciate that the report which was before it contained old data, and had been prepared by her predecessor. She did not consider that it was appropriate to bring reports to the Committee which had been delayed to this extent, and would ensure that in the future the Committee was provided with relevant, up to date information which would enable it to make decisions. It was, however, prudent to discuss the information which had been provided, as it would indicate areas which would be trending throughout the outturn report which was currently being prepared.

The Committee heard that since the Interim S151 Officer had taken up her role, improvements had been made, and would continue to be made. The Council’s external auditors had raised issues around the capacity, capability and perpetual underfunding of the Council’s finance function. The Council needed a finance team which was effective, and recent recruitment had would deliver this. Changes would be implemented in relation to the financial reporting which was presented to the Council’s Senior Leadership Board, as well as to the Committee, to ensure that timely and concise information was available.

The Committee heard that the report which had been presented to it presented the forecast position as at Q3, and at that point in time a £1.9m overspend in the General Fund had been forecast. Full details were contained in the report, however, there were some key areas to note, including an approximate £1.7m overspend in Housing, an overspend of approximately £700,000 in Place and Prosperity, an overspend of approximately £500,000 in Corporate Services, an overspend of approximately £300,000 in Modern City Services, and an approximate overspend of £200,000 in Enjoy Colchester. These overspends had been primarily offset by an approximate £1.5m underspend in corporate financing costs due to slippage in the Council’s Capital Programme. At Q3, the forecast budget position assumed that if everything materialised as forecast, then there would be no option but to use the Council’s general fund reserves to cover the overspend to maintain a balanced financial position. Against the General Fund reprofiled capital budget of approximately £36m there had been a forecast slippage of approximately £17m, details of which were contained in the report. The Housing Revenue Account (HRA) revenue was forecast to be balanced at year-end, and HRA capital was also showing slippage of approximately £23m against a capital budget of £71m, largely due to slippage in the home improvement and Council build programmes.

A Committee member offered his support for more timely reporting to the Committee, and expressed a hope that the proposed reporting to the Council’s Senior Leadership Board was replicated in reports which were presented to the Committee. He recalled past passionate exchanges in Committee discussions in relation to the Council’s reserves and the need to demonstrate reserve movements in the budget for clarity. He felt that large movements of money were taking place in the reserves, and it was necessary to reflect these in the budget earlier.

The Interim S151 Officer assured the Committee that she intended to operate with complete transparency and would show the movements into and out of the Council’s reserves (ie gross movements in reserves) The outturn position would either demonstrate the movement out of, or into, reserves which was necessary to bring the Council to a balanced position.

Referring to the meeting of Full Council which had been held in February 2025, a Committee member noted that some amendments to the proposed budget had been made by the Labour Group and approved, but that additional amendments had been promised by the Portfolio Holder verbally, with a value of approximately £6m. He assumed that these verbal amendments were not contained within the 2025/2026 budget and that only those amendments which had been written down and presented to Full Council would be included in the budget. The Chair reminded the Committee that the item before it was Q3 of the 2024/2025 financial year, and requested that comments and questions be related to the report under consideration.

A Committee member considered that there was a huge problem with the Council’s Capital Programme, as the underspend in relation to this was extremely large. The Interim S151 Officer confirmed that she was well aware of this issue, which was a perpetual problem in local government, and assured the Committee that she would take a detailed look at the Council’s Capital Programme as soon as was practical.

A Committee member had noted that when reporting on the HRA, there had been a habit of reporting all the financing costs on a single line which included capital contributions to reserves and so always showed a balanced position. He considered that it would be very useful to show what the actual surplus or deficit on the HRA operating account was which the Council was putting back into capital expenditure. He considered that a much larger surplus should be seen than had been demonstrated, and he considered that here was something wrong with how the Council treated the depreciation of major repairs in the HRA. Darren Brown, Finance Manager (Business Partners), attended the meeting remotely and advised the Committee that the issue of depreciation had been considered in the past, and he was quite comfortable with the way that this had been handled. A consistent approach had been taken, and audited successfully, for a number of years and this approach was adopted by other local authorities too. It was also not questioned as part of the work in reviewing the HRA business plan over the last few months by specialist external advisors.

In discussion, the Committee noted that the cost of homelessness to the Council was almost the entire value of the projected overspend which had been reported following offsetting, and this showed the critical impact that the requirement for housing provision was having on the General Fund. A Committee member considered that if the Council had more housing stock available and was paying out less on temporary accommodation, then it would have less of a deficit. It was considered that this position was likely to worsen, despite the mediating steps which the Council had taken to address it. The valuation of Council owned housing stock was interesting, because this stock was not for sale on the general market, but it was for rent at heavily subsidised prices, and this was the advantage of having the Council’s Arms’ Length Management Company (ALMO), Colchester Borough Homes (CBH), operating it.

Returning to the timeliness of reports presented to the Committee, a Committee member noted that when the budget had been set in February 2025, it had been based on opening and closing balances which had been estimated. Although this was always the case to a certain degree when budget setting, he was able to spot figures in the report which was before the Committee which were different to the figures which had been used in budget setting. It was suggested that taking a realistic approach would be beneficial when reviewing the Council’s Capital Programme, as it was likely to be less than 2 years before local government reorganisation (LGR) took place, and if projects could not be started and finished within this timescale then there seemed little point in going ahead with them at the risk of wasting officer time and money.

The Interim S151 Officer advised the Committee that work was underway to examine the figures which had used in setting the budget, but that any budget was only as good as the assumptions which had been made at the time it had been set, and all budgets were subject to change. It was the role of the Finance Team to show transparently why the budget had changed, particularly if there had been a large variance in certain areas. She acknowledged that the Council’s Capital Programme was a challenge, particularly in terms of LGR and its long term implications for capital financing, however, work was ongoing to set the budget for the current financial year to enable future budget setting.

The Chair considered that all Members of the Council should be embarrassed by the significant area of underspend on disabled facilities grants, and considered that some of the underspend could have been spent to improve the quality of life of the residents of Colchester who needed these facilities. Councillor Cory, Portfolio Holder for Resources, attended the meeting, and, at the invitation of the Chair, addressed the Committee. In relation to the issue which had been raised, he confirmed that the Council’s spend of disabled facilities grants was dependent on assessments which were carried out by Essex County Council (ECC), and he wished to make it clear to the Committee that the underspend had not been the fault of Council Officers who had been unable to carry out desired works. He had tried to address this issue in the past and would continue to do so, as he believed that it was important that funding was spent as efficiently as possible.

In response to questioning from the Committee, the Interim S151 Officer confirmed that an additional Officer would be joining her team who had extensive commercial experience and who was expected to carry out significant work with Amphora. The interim Finance Team would then be complete and there was then a need to move towards recruiting permanent staff for the sake of staff morale and Council finances. LGR would potentially make this recruitment difficult, but the process would begin in the near future.

A Committee member requested that in the future the large financing figures which were contained in the HRA were broken down into more detail in future reporting, and Paul Atkinson, Interim Finance Director and Deputy S151 Officer confirmed that he would consider how practical this was.

RESOLVED that:

- The General Fund revenue position at the end of Quarter 3 (31st December 2024) for 2024/25, including actions being undertaken or proposed to ameliorate the position, where significant variances have been identified, be noted; and

- The General Fund capital position at the end of Quarter 3 (31 December 2024) for 2024/25 be noted; and

- The Housing Revenue Account revenue position at the end of Quarter 3 (31 December 2024) for 2024/25, including actions proposed to ameliorate the position, where significant variances have been identified, be noted; and

- The Housing Revenue Account capital position at the end of Quarter 3 (31 December 2024) for 2024/25 be noted.

The Committee considered a report which asked it to approve the Annual Governance Statement (AGS) which had been amended as the result of recommendations made by the Council's External Auditors.

Hayley McGrath, Corporate Governance Manager, attended the meeting to present the report and assist the Committee with its enquiries. The Committee heard that it had originally signed off on the AGS in June 2024 when a report had been presented to it which had contained a review of the work which had been undertaken on the Council’s governance arrangements, together with an action plan for 2024/2025.

The Committee heard that the AGS was included in the Council’s statement of accounts, and traditionally, the Committee had been asked to review this at its first available meeting following the annual meeting which aligned with accounts processes. However, in recent years the AGS and statement of accounts processes had become separated due to issues with the Council’s external audit, and this separation would be addressed through the timing of future reporting. The Council’s new auditors, KPMG, had reviewed the AGS and had identified areas of concern which they felt should have been in the AGS for 2023/2024 and so had requested that amendments be made to this document to reflect these concerns, which covered 4 particular areas:

- Lack of effective counter fraud process;

- Timeliness of financial and operation reporting;

- Ineffective oversight of the Council’s estate, and;

- Capacity & Capability of the Council’s finance team.

The AGS for 2023/2024 had accordingly been amended, however it had not been possible to amend the accompanying action plan as the year covered by the plan had ended. An amendment had been included in the AGS which highlighted the issues which had been raised, and it had been made clear that these issues related to the Council’s previous external auditors, BDO, and not to KPMG. The issues which had been highlighted had been accepted, and the Committee had been made aware of these during the 2024/2025 financial year.

In discussion, the Committee acknowledged that it had been aware of the issues which had been raised, with the possible exception of the concerns around the Council’s counter fraud process. It was sensible to bring the AGS into line with the accounts process as part of the governance system.

A Committee member considered that the AGS still didn’t adequately reflect the seriousness of the position in relation to the Council’s statement of accounts, with disclaimed opinions having been received. There had been a significant breakdown in the Council’s finance function, and these issues should be reflected governance statements. He further considered that the Committee should be focussed on examining the Council’s Housing Revenue Account (HRA), and not just on the Council’s managing agent, Colchester Borough Homes (CBH), and he believed that this lack of forward-looking governance in respect of the Council’s largest asset should be reflected in future versions of the AGS.

The Corporate Governance Manager acknowledged the comments which had been made in respect of the HRA, and would feed those back to Officers who were concerned with this work as part of the review work which she was undertaking. She assured the Committee that the issues which had been raised by KPMG would be included in the AGS review for 2024/2025 and these concerns would be recognised in the future.

In response to a question from the Committee, the Corporate Governance Manager assured the Committee that the issues which had been raised would be the subject of continuous monitoring as part of the Council’s auditing and governance processes. The Committee would receive reports providing an update on the position, and the Council’s Senior Leadership Board would also receive internal reporting.

A Committee member noted that KPMG had realised that the Council’s initial draft accounts which had been presented for public scrutiny had contained “casting errors” throughout, and this meant that they did not add up. This could not be said to be an issue caused by the lack of external audit, and was solely the fault of the Council. It was essential to ensure that the AGS reflected these issues.

The Chair reminded the Committee that assurances had been given to it that steps had been taken to address issues in the Finance Team, and considered that these issues would have been exacerbated by the difficulty in obtaining an audit opinion for the preceding few years. He was reassured by the activity and work which was being undertaken and reported back to the Committee by KMPG.

RESOLVED that:

- The revised Annual Governance Statement for 2023/24, attached at Appendix 1, be agreed for inclusion in the Council’s accounts for 2023/24.

The Committee considered a report which requested that it approve the 2023/24 statement of accounts, noting the 2023/24 Audit Plan, Letter of Representation to be signed by the S151 Officer and two audit reports: the Year-End Report to the Governance and Audit Committee (ISA 260 report), and the Auditors’ Annual Report; and that it noted and approved the Annual Governance Statement, to be signed by the Leader of the Council and the Chief Executive; and that it noted and agreed the Audit Plan for 2024/25.

Before the item had been presented, the Chair pointed out that the documents which were before the Committee made reference to papers having been presented to the Committee in March 2025, whereas in fact these documents were being presented at the current meeting.

Emma Larcombe, Director, KPMG, attended the meeting to present the report and assist the Committee with its enquiries. A large number of documents were before the Committee, some of which were required to be included as a formality, and the attention of the Committee was drawn to a number of these.

The Audit Plan for the 2023/2024 accounts had been included, and under normal circumstances this would have been presented to the Committee during the preceding year, however, it had not been possible to do this. The Audit Plan was required to be presented to the Committee, and was therefore included in the paperwork which was before it.

The Management Representation Letter was a standard representation letter which stated the various representations which the Interim S151 Officer would confirm in terms of the preparation of those accounts. No specific representations had been made, and no adjustments had been made for the fact that the audit opinion was disclaimed.

KPMG’s Year End Summary Report was also before the Committee, and this set out the current position in terms of the backstop for the completion of the accounts, which, as the Committee had been aware, had been the end of February 2025. It had not been possible to meet this backstop date as the accounts had not been finalised by this point. A fully disclaimed audit opinion had been issued for the 2023/2024 accounts as KPMG had been unable to complete any audit work other than basic planning procedures. Additionally, a review of the accounts had been carried out which had identified significant numbers of casting errors, all of which had been addressed promptly by the Council’s Finance Team. KPMG were now comfortable with the set of accounts which would be signed off.

A number of areas had been identified as the result of the work which KPMG had carried out, including the capacity and capability within the Council’s Finance Team, which the Interim S151 Officer had already taken steps to address, and there had already been a significant change in the amount of work which KPMG had been able to accomplish towards the 2024/2025 audit. Another issue which had been identified was around local counter fraud measures, however, the Director, KPMG had every faith that this would be addressed during the forthcoming financial year due to the changes within the Finance Team.

The Committee was directed towards the section of the report which dealt with the reset and recovery phase for local authority accounting, which provided a useful guide on what the Council should expect for the preparation of its accounts in the forthcoming years culminating in an unmodified audit opinion.

The report confirmed KPMG’s independence as the Council’s auditors, and the fee which was payable by the Council would be confirmed through the Public Sector Audit Appointments (PSAA)’s process.

Anna D’Alessandro, Interim S151 Officer, attended the meeting and assured the Committee that she had taken the auditors recommendations seriously and had taken immediate steps to strengthen the Council’s Finance Team. KPMG had been supportive and enjoyed a good relationship with the Council which was of critical importance.

A Committee member considered that the information which had been provided in relation to the local authority audit reset was very comprehensive and clear, and he considered that the Council would be in a strong position with a robust financial basis going into local government reorganisation (LGR). He understood that attaining confidence in the opening balance would take a number of years. He noted that KPMG had issued a disclaimer, and the Committee was being asked to approve and publish the accounts. In dealing with the preceding 3 years of accounts, the Committee had agreed to modify its recommended decision to provide some protection to Committee members who were agreeing a disclaimed set of accounts and who worked in the finance industry. A suggested modified recommendation had been circulated to the Committee ahead of the meeting, and the wording of this was read to the Committee;

“The Committee is Recommended to:

2.1 The Committee approves the publication of the 2023/24 statement of accounts, noting the 2023/24 Audit Plan, Letter of Representation to be signed by the S151 Officer and the two audit reports: the Year-End Report to the Governance and Audit Committee (ISA 260 report), and the Auditors’ Annual Report (similar content but designed for a wider audience including the public) but the Governance and Audit Committee acknowledges that the external auditors have issued a disclaimer of opinion on the Council’s Statement of Accounts for the year ended 31 March 2024. This was because they were unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.

The Committee has considered the circumstances that led to the disclaimer and notes the shortcomings identified by the auditors. While recognising the potential for material misstatement, the Committee has approved the accounts for publication in accordance with statutory requirements.

The Committee supports the ongoing programme of improvements to address the issues raised by the auditors, and is committed to ensuring timely and accurate financial reporting in future years.

2.2 Note and approve the Annual Governance Statement, to be signed by the Leader of the Council and the Chief Executive;

2.3 Note and agree the Audit Plan for 2024/25”

This suggested revised recommended decision should also be noted in the accounts themselves to provide a record of what the Committee had resolved.

A Committee member proposed an amendment to the suggested revised recommendation which was the insertion of the words “historic situation and” before the word “shortcomings” in the second paragraph. This suggestion was accepted.

The Chair made reference to the stance which the Committee had previously taken when it had agreed to the publication of the preceding 3 years of accounts which had included a disclaimer from the Committee. The Council’s previous auditors, BDO, had indicated that they would not consent to an additional statement being added to the statement of accounts, were KPMG happy with the addition of such a statement to this set of accounts? The minutes of the meeting in December 2024 had placed on record the concerns of the Committee, so that members of the public could understand and appreciate these.

The Director, KPMG indicated that she was relatively comfortable that the proposed form of words was reasonable. On balance, she would prefer that the form of words was published as the recommendation from the Committee, however, what was of greater importance was the Annual Governance Statement (AGS), which acknowledged the issues which had been identified which had led to the current situation with the Council’s accounts.

A Committee member stated that he was passionately determined that the resolution of the Committee should be added in to the statement of accounts as part of the statement of the Council’s responsibilities. In his opinion, the Committee had to say very clearly that it was not approving the accounts, due to the errors which had been identified in them, without proper qualification and explanation. The accounts were those of the Council, and not the auditors, and in the light of the disclaimed audit report it was important that the accounts were modified to clearly show the reservations of the Committee.

The Committee discussed the points which had been made, and was pleased to note that there had been a noticeable improvement in the Council’s engagement with KPMG. Although it understood the stance of the Director, KPMG, it was suggested that if it could be accepted, albeit reluctantly, that the proposed wording be entered into the accounts, then the Committee would support this. A Committee member indicated that he would not support the inclusion of the statement into the accounts as he felt that this may jeopardise the good relationship which was being built with the auditors.

Following a brief adjournment, the Committee was advised that it had been agreed with KPMG that the words from its recommendation would be inserted into the accounts on a page of their own at page 28. This compromise was acceptable to both the Council’s auditors and to the Interim S151 Officer.

A Committee member did not approve of this suggestion, and proposed that the Committee treat this set of accounts in the same way it had treated the preceding 3 years of accounts by recording the Committee’s decision in the minutes of the meeting, and he wished to amend the suggested wording to this effect. The Committee voted on the proposed amendment which was lost.

The Director, KPMG, reiterated to the Committee that casting errors which had been identified in the accounts had been corrected, and the set of accounts which would be approved did not contain any further errors.

Turning to the Value For Money (VFM) element of the auditor’s report, it was confirmed to the Committee that KPMG had carried out the full suite of VFM work, and the Committee received an overview of what this work entailed. Areas of risk had been identified as being;

- Risk management procedures were considered to be a risk in the VFM arrangements, but were not indicative of an overall weakness. Management had accepted the recommendation in this area.

- Fraud Risk Management had already been mentioned during the meeting, and management had accepted the recommendation which had been made.

- Governance in relation to financial reporting, which was being addressed by the Interim S151 Officer.

- Oversight of Council assets had been identified as a weakness in arrangements due to the lack of implementation of recommendations which had been made to the Council as part of a CIPFA review.

- The capability and capacity of the Council’s Finance Team had been accepted as a weakness, and steps had been taken to address this.

- Procurement and contract management had been identified as a risk following internal audit reviews. No significant weakness had been raised in this area due to the processes which had been undertaken to track, report and monitor this risk.

- Challenges associated with the Northern Gateway development had been identified, and although no significant weakness had been identified in this area, progress did need to be made.

All the recommendations which had been made had been accepted by the Council’s management and were also reflected in the AGS for 2023/2024.

In terms of the Northern Gateway project, as this was a large, ongoing project, it would be considered during the forthcoming financial year to ensure that any issues which arose were reported, and risks identified.

A Committee member hoped that a project risk register would be developed, which would feature the Northern Gateway development. He believed that this development would eventually need to be recognised on the Council’s balance sheet, had a note on this subject been included in the 2023/2024 accounts? The Interim S151 Officer confirmed that full disclosure around the Northern Gateway development would be dealt with in the 2024/2025 accounts, and a contingent liability in relation to the development had been included in the 2023/2024 accounts.

A Committee member raised a number of questions in respect of the fees of KPMG which had been set out in the report. Why had 2 different fee schedules been provided, and why were the fees of KPMG so much higher than those of the Council’s previous auditors, BDO? Additionally, risks had been identified which may affect the fees which were charged in the future, however, these risks were historic in nature and could no longer be addressed. What, therefore, would be the penalty to the Council if historic risks materialised and impacted on the work which was required and the fees charged?

The Director, KPMG, confirmed that the fees of £160,000 listed in the first table would be charged for the current year. The scale rate fee which KPMG were entitled to charge for a full audit was £189,000 for a full audit, however, this had been reduced as a full audit had not been completed, before fee variations relating to areas of work which had taken longer to complete, including the issuing of a disclaimer, had been added, bringing the total fee back up to £160,000. The fees which were charged by auditors were the new scales fees set by the PSAA, following a tender process, and auditors had no influence over these. All fee variations had to be approved by the PSAA. In terms of the risks which had been identified which were associated with the 2023/2024 accounts, further work would be carried out in relation to these as they had been identified as areas of weakness, however, KPMG now had a good understanding of the authority and although additional fees would be payable for the further VFM work which was required, it was not expected that this additional work would cause the fees to be significantly higher.

Hannah Lincoln, Senior Manager, KPMG, attended the meeting and addressed the Committee with respect to the 2024/2025 Audit Plan. Key risks had been identified in the Plan, and related to valuation of land and buildings and the valuation of investment properties, which was an area which would be checked by a specialist valuations team. Additionally standard risks such as management override of controls would also be reviewed. There had been 2 risks identified in relation pensions, the valuation of the obligations and the recognition of surplus on the net pension asset, and a specialist pensions team would be involved in this work as KPMG would not solely rely on the work which had been carried out by ECC but would test the specific work which was done for the Colchester notes. The final risk which had been identified was expenditure recognition.

There was a backstop date for the completion of the 2024/2025 accounts which was the end of February 2026, and it was hoped that the necessary field work would be concluded prior to the end of 2025, allowing additional work to be carried out prior to the backstop date to rebuild assurance from previous years.

A Committee member noted a figure that that the Council had utilised 22% of its usable reserves to support a balanced budget, and found this figure concerning. Was it possible to provide some context around this figure, and was any benchmarking from other local authorities available in this area?

The Senior Manager, KPMG, confirmed that over the preceding 4 years there had been a significant increase in the use of reserves, but this was now coming back to a more normal level following the disruption which had been caused by the covid-19 pandemic. This area would be subject to audit, but was not considered to be a key area of concern. Very little benchmarking data was available at the present time, however, the provision of such data would be considered in the future as it became available.

Noting the impact that variations in interest rates had on the Council’s pension surplus or liability, the Committee sought to understand how this would be reflected in the accounts. The Director, KPMG, confirmed that the recognition of a surplus asset was subject to a large number of criteria, and KMPG had a specialist team which had extensive experience in auditing local government pension schemes.

RESOLVED that:

- The publication of the 2023/24 statement of accounts be approved, and the 2023/24 Audit Plan, Letter of Representation be signed by the S151 Officer and the two audit reports: the Year-End Report to the Governance and Audit Committee (ISA 260 report), and the Auditors’ Annual Report (similar content but designed for a wider audience including the public) be noted, but the Governance and Audit Committee acknowledged that the external auditors had issued a disclaimer of opinion on the Council’s Statement of Accounts for the year ended 31 March 2024. This was because they were unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.

- The Governance and Audit Committee considered the circumstances that led to the disclaimer and noted the historic situation and shortcomings identified by the auditors. While recognising the potential for material misstatement, the Committee approved the accounts for publication in accordance with statutory requirements. The Committee supported the ongoing programme of improvements to address the issues raised by the auditors, and was committed to ensuring timely and accurate financial reporting in future years.

- The Annual Governance Statement, to be signed by the Leader of the Council and the Chief Executive, be noted and approved;

- The Audit Plan for 2024/25 be noted and agreed.

- The wording of this decision be inserted into the 2023/24 statement of accounts at page 28.

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.

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