The audit and governance committee is always a serious business. Never more so than in Reading Borough Council’s (RBC) current situation where it finds itself stuck between the rock of negative reports from external auditors, internal auditors and Ofsted and the hard place of budget cuts.
Thunderstorms gathered both inside and outside the council chamber on the night of 18 July.
Office for Standards in Education, Children’s Services and Skills (Ofsted)
In June 2016 Ofsted judged RBC children’s services as inadequate. Since then the local authority has been subjected to an ongoing inspection and reporting regime as it addresses the improvements that were required. These changes resulted in significant additional spending in the financial year 2016/17 which continues.
The latest Ofsted report was published on 30 June and concluded that “significant weaknesses still persist” and that “progress has been too slow”.
Although external auditors Ernst & Young gave an unqualified audit report on the council’s statement of accounts for the year ending 31 March 2016, their adverse ‘value for money’ conclusion delivered in November 2016 shocked councillors.
On top of this, the auditors issued a section 24 letter in February 2017 in which they made written recommendations to the council covering three areas for urgent action:
- sustainable resource deployment,
- maintaining a sound system of internal control,
- children’s services.
The final blow came on the night in the internal audit and investigations assurance report presented to the committee which stated:
whilst no assurance can ever be absolute, on the basis of work completed during the course of the year, the chief auditor has concluded that only limited assurance can be taken that arrangements to secure governance, risk management and internal control within those areas audited in 2016/17, are suitably designed and applied effectively.
A limited assurance opinion has profound ramifications for the council.
The chief auditor explained that the opinion in the assurance report had been informed by the internal audit work undertaken during the year, as well as reports from the external auditors and Ofsted.
Weakness were highlighted in:
- many financial systems areas,
- reconciliations including the bank account,
- lack of compliance with governance procedures.
The council’s internal audit faced difficulties with starting and finishing audits on time, as well as with the responses from managers of the audited areas. These difficulties in engaging with departments within RBC were highlighted by the failure to meet some of the key performance indicators (KPIs) for internal audit. There was a target that 90% of management responses to a draft audit report should be received within 3 weeks, but this had only been achieved in 36% of cases, and only 39% of audits compared with a target of 75% had been completed within the budgeted number of days.
The report by the chief auditor is an important foundation for the annual governance statement a final version of which will be signed by the chief executive Peter Sloman and leader of the council Jo Lovelock on completion of the audit of the 2016/17 accounts. It includes a plan to deal with issues identified in the statement and who is responsible for implementing the actions required.
Councillor David Stevens, chair of the committee, said that in his experience of the committee and its predecessor [at 00:16:32] “… he had never heard anything quite as concerning as this one.”
Leader of the council Jo Lovelock agreed that [at 00:16:52] “… it was of great concern to all of us to read something such like this and in particular… there are some systems here which should be, in my view, things that are done properly all the time as good practice [and] should be working all the time… such as not being able to reconcile bank accounts… it is just not good enough”.
Councillor Tom Steele said [at 00:18:09] “I found it depressing and I challenge myself. I’ve been on this committee for two years. Have I been good enough? Have I been challenging enough? I probably haven’t.”
Members of the committee asked questions of the recently appointed chief executive, Peter Sloman, and recently appointed interim finance director, Peter Lewis, about how they will address the issues raised and how improvements were to be demonstrated beyond verbal assurances. Set against the background of the budgetary issues that RBC is facing, councillors also challenged them on how reliable financial information and current savings projections actually were.
Peter Sloman said that the situation was [at 00:30:03] “… not unrescuable; other councils have been in similar positions and pulled themselves round. I’m sure Reading will do so.” He went on to add [at 00:32:50] “in terms of the overall position of the council, the strategy is to stabilise the local authority.”
In their update on the current year’s audit, the external auditors added more doom and gloom, telling the committee that the statement of accounts had not been produced, so the final accounts audit had not yet started [at 1:14:00]. “The audit has been delayed in order to enable officers time to make sure that they are properly quality assured and that a proper set of working papers is provided for audit. One of the things that I am really clear on is that I won’t bring the team in until that’s ready because otherwise it just wastes our time and officers time and there is a clearly a cost to that.”
The meeting was a fascinating display from the three sets of protagonists; chief executive and finance director setting out the actions that they are taking, internal and external auditors giving balanced explanations of their reservations about the current situation and councillors questioning and challenging auditors and officers. There is more to say about some of the issues raised at this meeting and why the situation has reached what seems to be something approaching a crisis despite earlier warning signs.
It is definitely worth a look at the webcast of this committee performance, which by popular demand may now take place bi-monthly rather than quarterly.
- OFSTED reports relating to Reading
- Auditors finally deliver their report on council finances
- Auditors now have their two pennyworth on Council finances
- Permanent New Chief Executive set to be appointed
- Audit & Governance Committee 19 July 2017 – papers and webcast