Agenda item - Ernst & Young Audit Results report 2016/17

Report of Ernst & Young (copy attached).

1)            That the Committee note the findings set out in the 2016/17 Audit Results Report.

26.1      The Committee considered a report of Ernst & Young that summarised the findings of the 2016/17 audit and included key messages arising from the audit of the financial statements and the results of work undertaken to assess the council’s arrangements to secure value for money on its use of resources. Representatives from Ernst & Young stated that they were in a position to give an unqualified opinion of the council’s financial statements subject to full completion of outstanding areas of work. A unqualified opinion would be issued for the council’s value for money arrangements as Ernst & Young were satisfied that the council had put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2017.

26.2      Councillor Cobb noted the payments due under PFI arrangements and asked who had agreed to enter into PFI contracts and whether the council would be in a better position to deliver services if it had not entered into the arrangements.

26.3      The Deputy Chief Finance Officer replied that PFI agreements were popular across local government during the 1990’s and 2000’s and were backed by government grant funding. In relation to the council’s arrangements, three PFI agreements were in place for Jubilee Library, a Joint Waste PFI with East Sussex County Council and a schools PFI all of which were kept under review to see if the contract terms could be renegotiated or restructured at appropriate junctures. The council had in the past removed ’soft services’ and one of the schools from its schools PFI arrangement however in most cases it would normally be prohibitively expensive for the council to withdraw wholly or partly from PFI contracts given the loss of government grant funding that would accompany such a decision.

26.4      Councillor Cobb asked for further detail on the precise figure of central government funding in proportion to the council’s payment obligations.

26.5      The Deputy Chief Finance Officer stated that he did not have the information readily available but figures could be circulated after the meeting.

26.6      Councillor Cobb noted that the EY value for money assessment identified that the council were in the highest 10% of statically similar authorities for Adult Social Care spending and highest 5% for spending for Children & Young People Services and Housing Services. Councillor Cobb asked what action was being taken to bring spending down.

26.7      The Deputy Chief Finance Officer confirmed that was a true position and one arrived at through the choices made by Members over time. Furthermore, a higher spend also reflected that Brighton & Hove had some different characteristics in terms of its demographic profile and the level of support that its residents required. The key point to note however was that Members’ choices were always made in the full knowledge of comparative cost of services.

26.8      Councillor Sykes noted that significant time had been spent considering a complaint made in relation to Lender Option Borrower Option (LOBO) loans and asked whether a reasonableness clause existed similar to that applicable to Freedom of Information requests. Furthermore, Councillor Sykes noted that a slight change in tone relating to the assessment of value for money arrangements and asked whether this represented an acceptance that this was not caused by poor performance.

26.9      Paul King stated that the investigation into the complaint made relating to LOBO loans had taken time due to the technical detail of the matter and because the process was quasi-judicial by nature. He added that 24 objections had been made nationwide and he was not aware of any that had been determined. Paul King noted that the complainant potentially had the right of appeal and due to the legislation in place, the costs of the investigation would fall upon the council. In relation to the terminology of the value for money conclusion, Paul King explained that steps had been taken by the council such as a four year budget planning and detailed saving plans that provided assurance. Furthermore, there was a reflection upon the particular demographic characteristics that Brighton & Hove needed to serve.

26.10   The Chair noted that a large undervaluing of Hove Town Hall had occurred and asked EY whether they had found that to be a trend during their undertakings.

26.11   Paul King stated that undervaluation did occur in Brighton & Hove slightly more than other areas however, there had been increased focus by EY in the area prompted by emphasis by the regulator. Paul King added that valuations were broad assessments that could have different assumptions and a small tweak in valuation could have a large effect.

26.12   Councillor Lewry noted that the total number of employees receiving more than £50,000 remuneration had increased by ten individuals in the financial year. In addition, Councillor Lewry enquired as to who was responsible for determining termination benefits.

26.1      The Deputy Chief Finance Officer stated that the increase in employees receiving more than £50,000 remuneration could be related to many factors including pay awards or service restructuring which could have brought more officers into a higher pay band . On the matter of termination benefits, the figures would include the voluntary severance savings programme that was taken into account in budget saving plans. Decisions on higher value payouts such as for termination of a Chief Executive were jointly determined by the Chief Finance Officer, Monitoring Officer and were reviewed by external audit. Decisions for other staff were made by an officer Compensation Panel which reviewed cases against set business criteria with part of that criteria being that savings would be recovered after a two year period.

26.13   Dr Horne asked if the recommendations and areas of audit focus made by EY could be tracked and reported back to the committee as part of the regular Internal Audit reports considered. The Committee agreed to the request.

26.14   Diane Bushell noted that there were three areas of audit focus that had not been fully implemented and asked for assurance that these would be addressed.

26.15   Paul King stated that the reasons for the absence of implementation were unclear. EY would track the areas of audit focus through the audit for 2017/18 and any actions that may be taken by the council through the year.

26.16   The Chair noted that there had been a significant rise in long term debtors and enquired as to the reasons behind that.

26.17   The Deputy Chief Finance Officer clarified that there could be a number of reasons behind the rise and he would gather the specific detail and circulate an update to the committee members subsequent to the meeting.

26.18   RESOLVED- That the Committee note the findings set out in the 2016/17 Audit Results Report.