Apologies for absence were received from Councillors Kimmance and Titchener (Parish Representative).

Councillor Conyard was present as Substitute Member for Councillor Kimmance.

The Chairman stated that he had agreed to take the Minutes of the meeting held on 23 May 2023 as an urgent item as they were inadvertently omitted from the agenda.

There were no Visiting Members although Councillor Perry, the Cabinet Member for Corporate Services, was in attendance for the following agenda items:

Item 12 - Internal Audit Report and Annual Audit Opinion 2022/23

Item 13 - Annual Governance Statement 2022/23

Item 14 - External Audit 2021/22

Item 15 - Draft Annual Accounts 2022/23

Item 16 - Treasury Management Annual Review 2022/23

Item 17 - Independent Member

Item 18 - Budget Strategy - Risk Assessment Update

There were no disclosures by Members or Officers.

There were no disclosures of lobbying.

RESOLVED:  That the items on the agenda be taken in public as proposed.

RESOLVED:  That the Minutes of the meeting held on 13 March 2023 be approved as a correct record and signed.

RESOLVED:  That the Minutes of the meeting held on 23 May 2023 be approved as a correct record and signed.

There were no questions from Local Residents.

There were no questions from Members to the Chairman.

RESOLVED: That the Committee Work Programme 2023/24 be noted.

The Head of Audit Partnership introduced the Annual Internal Audit Report and Opinion 2022/23. In accordance with the Public Sector Internal Audit Standards (the Standards), the report included:

The annual opinion of the Head of Audit Partnership on the overall adequacy and effectiveness of the Council’s risk management, control and governance processes;

A summary of the work completed by Mid-Kent Audit that supported the opinion; and

A statement on conformance with the Standards.

It was noted that the programme of work delivered by Internal Audit was constrained by significant staffing vacancies and changes within the Team. The results of the reduced level of Internal Audit work concluded during the year required the Head of Audit Partnership to seek additional assurances to form her opinion. Utilising all these forms of assurance, the Head of Audit Partnership had been able to draw a positive conclusion as to the adequacy and effectiveness of the Council’s risk management, control and governance processes.

In response to questions:

The Head of Audit Partnership advised the Committee that:

·  Although Mid-Kent Audit had experienced a significant turnover of staff throughout the financial year, she had been able to provide the opinion statement drawing on the results of the internal audit work undertaken and other sources of assurance. Two new public sector qualified auditors would be joining the Partnership the following week and she was hoping to fill the two vacant Audit Manager posts very soon. Every effort was being made to ensure delivery of the 2023/24 Audit Plan.

·  The recruitment process was delayed while an assessment of the staff structure and skill set across the partner authorities and a restructure were undertaken. In September 2022, following a procurement process, Veritau, a local authority-owned internal audit provider, was appointed to carry out some audit reviews for which Mid-Kent Audit did not have the available resources in-house. Veritau would be used again this year to carry out eighteen audits across the Partnership whilst the recruitment process was being undertaken. One post was being held vacant pending consideration of efficiencies within the Internal Audit function.

·  Changes in ways of working such as remote working and greater use of digital forms of operation and communication were considered in the audit planning process as part of the risk assessment of services.

·  In terms of staff turnover, she did not think that proximity to London was an underlying reason. The problems being experienced in recruitment to the audit profession were sector-wide and not localised to Kent.

·  Although the audit review of Business Continuity had found the Council’s Overarching Business Continuity Plan and some Business Continuity Plans to be out of date, the service had been given a sound assurance rating because during the pandemic the processes were in place to enable the Council to maintain services to the public. She hoped that when the progress report was brought to the Committee, all the recommendations would have been dealt with.

The Director of Finance, Resources and Business Improvement advised the Committee that the way  ...  view the full minutes text for item 18.

The Director of Strategy, Insight and Governance introduced her report setting out the Annual Governance Statement for 2022/23. It was noted that:

·  The Annual Governance Statement was a review of the Council’s governance arrangements for the last financial year. The purpose of the Annual Governance Statement was to provide assurance that the Council’s governance arrangements were adequate and operating effectively and to identify actions which were planned to ensure effective governance in the future.

·  Overall, the Officers could confirm that the Council had the appropriate systems and processes in place. However, the review had identified additional actions to ensure that good standards of governance are maintained. These covered engagement, the Council’s workforce strategy, the Constitution and training for Officers and Councillors as well as the top corporate risks from the risk register.

·  The Head of Audit Partnership’s Annual Audit Opinion and a signature page would be added to the Statement before it was signed by the Leader of the Council.

In response to comments/questions, the Director of Strategy, Insight and Governance:

·  Undertook to add commentary to clarify that the Annual Governance Statement is a document which looks back over the past year and that terminology in relation to the Council’s Governance Model has now changed.

·  Undertook to review and amend the section of the document relating to a new draft local Code of Conduct to reflect the actual position.

·  Provided an update on the review of the governance arrangements and Constitution which would be needed in 2023/24 and the training to be arranged for Councillors and Officers to prepare for all-out elections and for Councillors on the Nolan Principles and carbon literacy, and undertook to submit an update on progress to the November meeting of the Committee.

·  Undertook to include the subject of ethics and standards in public life in an annual training programme for Members now that the Council was moving to four-yearly elections.

RESOLVED: That subject to the points raised in the discussion, the Annual Governance Statement for 2022/23, attached at Appendix A to the report of the Director of Strategy, Insight and Governance, be approved and submitted to the Leader of the Council for signature.

The Director of Finance, Resources and Business Improvement introduced his report providing an update on progress with the audit of the 2021/22 financial statements. It was noted that:

·  At the March meeting of the Committee Grant Thornton stated that they were aiming to conclude the audit in April 2023 ahead of starting work on NHS accounts and to report their findings to this meeting. However, there were still a couple of key issues outstanding in relation to the audit for the year to 31 March 2022. The first one was providing the Auditors with information that they requested from the Council’s external valuer and the second was a requirement from Grant Thornton that the Council provide an updated valuation of its pension assets and liabilities (IAS 19 report). The Council was taking issue with this considering that it would lead to additional cost and delay in completing the audit when it was unlikely that there would be any significant change to the figures arising from the updated valuation. It was worth noting that the requirement would not have arisen at all if Grant Thornton had completed their work for 2021/22 in a timely way and that Grant Thornton’s position on this matter was contrary to advice given by the National Audit Office.

·  Although it was stated in the report that there were no significant practical implications from continuing to delay publication of the audited accounts in terms of penalties, the situation had changed as the Government had now announced its intention to set a series of statutory deadlines for accounts preparers and auditors to clear the backlog of delayed audits for the financial years 2015/16 to the present.

Ms Sophia Brown of Grant Thornton presented the External Auditor’s audit findings report for the audit of the 2021/22 financial statements explaining that work was still in progress around the asset valuations and the pensions liability.

In response to questions from Members:

Ms Brown provided a further explanation for the delay in completing the audit and highlighted the need for the External Auditor to carry out work to the quality expected by their regulator. If the Council chose to not obtain an updated IAS 19 report from its actuary, this could potentially result in a qualified opinion particularly as there would be statutory deadlines by which the External Auditor would need to complete the work. If an area of accounts was qualified it meant that the External Auditor did not have assurance over the closing balances for that financial year which would cause problems for the following financial year.

Ms Brown also advised the Committee that:

·  The External Auditor had been working with the Finance Team to agree a practical way forward regarding the valuation of heritage assets as there were heritage assets on the system used to document these assets which had a value but were not reflected on the balance sheet.

·  In terms of the timeline for signing off the accounts, the External Auditor needed all the responses back from  ...  view the full minutes text for item 20.

The Senior Finance Manager (Client) introduced his report setting out the unaudited draft Statement of Accounts for 2022/23 explaining that the Statement would be subject to external audit prior to it being brought back to the Committee for formal approval. It was noted that:

·  Due to the impact of the Covid-19 pandemic on local authorities, the Government had amended the deadlines for the publication and approval of the accounts for the financial years 2019/20, 2020/21 and 2021/22. However, for 2022/23, the Government had reverted to the original deadlines which were 31 May for the accounts to be signed-off and 30 September for the accounts to be audited and approved.

·  There had been delays in auditing the Statements for 2020/21 and 2021/22 which reflected local issues and the wider problems with the external audit process nationally. These delays had impacted on the production of the Statement for 2022/23 which meant that it was not possible to meet the 31 May deadline for signing the accounts. Since the External Auditor was not in a position to confirm a date for the audit of the 2022/23 Statement until the 2021/22 audit was completed, it was highly unlikely that the 30 September deadline for the approval of the accounts by the Committee would be met. Other Councils were in a similar position.

·  Some outstanding issues with the 2022/23 draft Statement were linked to this delay. For example, the Council had yet to receive the property valuation figures from its valuer; the cashflow statement was still being worked on; and the Earmarked Reserves table on page 144 of the agenda was updated before the agenda was published so the split between the unallocated and earmarked balances was not reflected properly in some of the earlier tables in the Statement. However, none of the outstanding issues would have an impact on the cash resources available to the Council. When the revaluation figures were processed, the impact would be focused on the balances for Property, Plant and Equipment, Investment Properties and Unusable Reserves.

·  Headline messages from the draft Statement of Accounts as presented included a reduction of £73m in the pensions liability reflecting a change in the discount rate used by the actuaries. This was linked to short-term interest rates which had risen significantly over the last few months.

In response to comments/questions by Members:

·  The Officers undertook to ensure that the heading at the top of each page of the Statement reads ‘Statement of Accounts 2022/23’.

·  The Senior Finance Manager advised the Committee that the accounts of Maidstone Property Holdings Limited were subject to a separate audit process by a different external audit provider and it was noted that, at the request of the Chairman, the audited accounts would be reported to the Committee for review.

·  Ms Sophia Brown of Grant Thornton advised the Committee that:

The External Auditor had written to the Kent Chief Accountants in early August regarding a revised timeline for the 2022/23 audits taking into account the need to close older year  ...  view the full minutes text for item 21.

The Head of Finance introduced the report setting out details of the activities of the Treasury Management function for the 2022/23 financial year. It was noted that:

·  The Council’s Treasury Management Strategy Statement for 2022/23 was approved by the Council in February 2022. The key elements of the Strategy were to:

Increase counterparty investment limits with highly rated institutions due to additional COVID-19 related payments received from the Government in 2022/23;

Utilise cash balances as far as possible rather than loan debt to finance the capital programme in the short-term due to the low investment returns and the high counterparty risk in the current economic climate; and

Further diversify the portfolio as far as operationally feasible ensuring that consideration is given to a combination of secured and unsecured investments with greater use of local authority investments where the borrowers offer a high level of security.

·  In terms of investment and borrowing activity:

During 2022/23, the Council’s investment balances had ranged between £5.5m and £47.8m. The average investment balance for the year was £30.19m which was lower than the 2021/22 average balance of £44.5m and showed that the Council was using its reserves in 2022/23 as capital expenditure started to increase. The Council held investments totalling £8.54m as at 31 March 2023 which was less than the previous year due to the influx of Government grant funding which had since been repaid.

Investment income for the year totalled £590.9k. Rates had improved throughout the year. All investments had been kept short-term for liquidity purposes with a maximum duration of six months.

The total amount of loan debt as at 31 March 2023 was £10m.

Due to rising interest rates and the need for future borrowing to fund the existing 5-year capital programme, the Council had entered into an agreement with Aviva Life and Pensions UK Ltd to forward borrow £80m to bring some certainty into borrowing rates. The funds would be available during 2023/24 (£40m), 2024/25 (£20m) and 2025/26 (£20m) and the rate had been agreed at 2.89% over a 50-year term. 50-year rates with the PWLB were currently 3.25%.

·  The Council had operated within its Prudential and Treasury Indicators set out in the Treasury Management Strategy 2022/23 and in compliance with its Treasury Management Practices.

In response to questions, the Director of Finance, Resources and Business Improvement advised the Committee that:

·  Borrowing £5m from the Northern Ireland Housing Executive for a three-month period starting on 28 February 2023 at 4.05% was for cash management purposes at the time of year when the Council’s balances were generally at their lowest because people only start paying their Council Tax and Business Rates in April, and to maintain a cushion of cash.

·  The Link Group, the Council’s Treasury Management adviser, like any supplier, was subject to the Council’s usual procurement processes so when their contract expired their performance and accuracy in forecasting would be a consideration in deciding whether to reappoint them.

RESOLVED:

1.  That the review of the financial year 2022/23  ...  view the full minutes text for item 22.

The Director of Finance, Resources and Business Improvement introduced his report setting out a process for identifying and co-opting an Independent Member to the Committee. It was noted that:

·  The Constitution adopted by the Council at its meeting on 19 April 2023 made provision for the co-option of an Independent Member to the Committee. This was in line with best practice and guidance from the Chartered Institute of Public Finance and Accountancy (CIPFA). The Independent Member would be in addition to the two Parish Council representatives already sitting on the Committee and like the Parish Council representatives would not have voting rights. It was considered that the co-option of an Independent Member would bring an informed and external perspective to the work of the Committee.

·  It was proposed to advertise for the role on LinkedIn, PF Jobs and the Council’s website. A panel comprising the Chairman, Vice-Chairman, Director of Finance, Resources and Business Improvement and Head of Mid-Kent Audit would meet to review applications and a short list would be drawn up of no more than four candidates who meet the criteria set out in the job description and person specification. The panel would then meet the shortlisted candidates and select one to recommend to the Committee for recommendation to the Council for co-option. It was envisaged that the process would be carried out over the next three months with a view to a recommendation being made to the Committee in November.

In response to questions by Members, the Director of Finance, Resources and Business Improvement advised the Committee that:

·  The Independent Member would be expected to attend each meeting of the Committee, prepare in advance and participate fully in helping the Committee to carry out its responsibilities.

·  It was proposed that an allowance of £900 per annum be paid to the Independent Member which was the same amount as the allowance paid to the Council’s Independent Person and in line with the allowances paid by other districts in Kent for the role.

RESOLVED: That the process for co-opting an Independent Member to the Committee, as set out in the report of the Director of Finance, Resources and Business Improvement, be approved.

The Director of Finance, Resources and Business Improvement introduced his report highlighting the risks faced by the Council in delivering the budget. The Director of Finance, Resources and Business Improvement advised the Committee that:

·  The revenue out-turn for 2022/23 was an underspend of £212k against the budget. The prospects of achieving a similar out-turn for 2023/24 looked reasonable at this early stage in the financial year.  However, there were two specific risks which were being addressed in the Medium-Term Financial Strategy.

·  Firstly, the Council’s financial position risked being adversely affected by the continued high rate of inflation given that it was severely constrained in its capacity to increase revenues in response to increased costs with a Council Tax referendum limit of 3% for 2023/24.

·  The other risk was around the Capital Programme. The level of borrowing was currently quite modest, but the Council would be borrowing significant amounts over the next few years to fund the Capital Programme and notwithstanding that a lot of the funding had been locked in, there were risks involved in the delivery of a Capital Programme of the scale now proposed (inflation, increasing construction costs etc.).

During the discussion, reference was made to the risks associated with the specific requirement in relation to the Affordable Housing Programme to provide the necessary subsidy for tenants and it was suggested that a risk be added to ensure that an adequate amount is transferred to the Housing Investment Fund.

RESOLVED: That the updated risk assessment of the Budget Strategy, provided at Appendix A to the report of the Director of Finance, Resources and Business Improvement, be noted and that a recommendation be made that a risk be added to ensure that an adequate amount is transferred to the Housing Investment Fund.

6.30 p.m. to 8.55 p.m.