Stockton-on-Tees Borough Council

Big plans, bright future

Audit Committee Minutes

Date:
Monday, 26th September, 2016
Time:
4.00 pm
Place:
Conference Room 2, Second Floor, Municipal Buildings, Church Road, Stockton on Tees
 
Please note: all Minutes are subject to approval at the next Meeting

Attendance Details

Present:
Cllr Barry Woodhouse(Chairman), Cllr Chris Barlow(Vice-Chairman), Cllr Lynn Hall(Sub Cllr Stefan Houghton), Cllr Eileen Johnson, Cllr Mrs Kathryn Nelson, Cllr Ross Patterson, Cllr Paul Rowling, Cllr Mick Stoker, Cllr Phil Dennis(Sub Cllr Laura Tunney)
Officers:
Andy Bryson, Garry Cummings, Paul Johnston, Martin Skipsey(F&BS), Sarah Whaley(A,D&ES)
In Attendance:
Mark Kirkham, Gareth Roberts(Mazars)
Apologies for absence:
Cllr Stefan Houghton, Cllr Laura Tunney
Item Description Decision
Public
A
12/16
EVACUATION PROCEDURE
 
A
13/16
DECLARATIONS OF INTEREST
 
A
14/16
MINUTES FROM THE MEETING WHICH WAS HELD ON THE 27TH JUNE 2016
RESOLVED that the minutes be approved and signed with the following amendment.

Councillor Eileen Johnson and Councillor Kathryn Nelson declared an interest in relation to item 'Draft Statement of Accounts' as the report made reference to Teesside Pension Fund. Councillor Eileen Johnson was in receipt of a pension from Teesside Pension Fund and Councillor Kathryn Nelson was in receipt of a pension from Teesside Pension Fund.
A
15/16
AUDIT COMMITTEE INTERNAL AUDIT SHARED SERVICE
RESOLVED that the report be noted and agreed to be presented to Cabinet and Council for approval.
A
16/16
EXTERNAL AUDIT - AUDIT COMPLETION REPORT AND VFM
RESOLVED that

1) the report be noted
2) the process for completing declarations of interest for Councillors and members of their family be referred to MAP.
A
17/16
ANNUAL GOVERNANCE STATEMENT REPORT 2015-16
RESOLVED that the report be noted.
A
18/16
INTERNAL AUDIT UPDATE REPORT 2016-17
RESOLVED that the report be noted.
A
19/16
HEALTH & SAFETY REPORT Q1 2016-17
RESOLVED that the report be noted.
A
20/16
TREASURY MANAGEMENT ANNUAL REPORT 2015/16
RESOLVED that the report be noted.
A
21/16
TREASURY MANAGEMENT STRATEGY - UPDATE
RESOLVED that the report be noted.
A
22/16
STATEMENT OF ACCOUNTS 2015/16
RESOLVED that the Statement of Accounts for 2015/16 be approved and the Chairman of the Audit Committee sign the balance sheet.
A
23/16
RISK REGISTER REPORT Q1 2016-17
RESOLVED that the report be noted.
A
24/16
WORK PROGRAMME
 
4.00pm

Preamble

ItemPreamble
A
12/16
The Evacuation Procedure was noted.
A
13/16
There were no declarations of interest.
A
14/16
Consideration was given to the minutes of the meeting which was held on the 27th June 2016 for approval and signature.

Councillor Kathryn Nelson informed the Committee that her declaration of interest had been recorded incorrectly and that it should have only reflected the fact she was in receipt of a pension from Teesside Pension Fund and that reference to her husband be omitted.
A
15/16
Consideration was given to a report which informed the Committee of a proposal to create a Shared Internal Audit Service with Darlington Borough Council.

The Director of Finance & Business Services presented Members with background information as to the reasoning behind the proposal.

The proposal built on an existing partnership working Stockton already had with Darlington Borough Council which was evidenced in the Xentrall partnership which had been shared for a number of years. An opportunity had arisen to have a shared Internal Audit Service with Darlington. The proposal was not to share the service through Xentrall but that it would be managed directly through The Director of Finance & Business Services.

It was proposed that Stockton would be delegated the responsibility to take on the Internal Audit Service on behalf of Darlington. Darlington Staff would transfer to Stockton's Audit Service in accordance with TUPE principles.

It was highlighted that there were to be initial savings and then further opportunities to scrutinise how Stockton and Darlington delivered the Internal Audit Service in the future by looking at new approaches and by sharing knowledge and best practice etc.

In times of reducing resources in a specialised service like Internal Audit, there was an opportunity to build in resilience. As Darlington was a smaller authority there was an opportunity to make the service more robust and for Stockton there was an opportunity to build in more capacity.

The report was due to be presented to Cabinet and then Council.

Members were given the opportunity to make comments/ask questions and these could be summarised as follows:

- It was seen as a positive move for Stockton.

- Members raised questions in relation to the staff transferring over from Darlington to Stockton in accordance with TUPE and at what stage the unions would be involved.

- Questions were raised as to the terms and conditions of staff at each authority and whether there were any differences to their contacts of employment.

- It was highlighted that sharing services was becoming increasingly common due to issues faced by local authorities due to the reduction of resources.

- Management would have greater flexibility to call upon a bigger pool of staff who were experts in the field and carry out audits at any time as and when requried.

Officers were given the opportunity to address the Committee in relation to issues/concerns raised. Their points could be summarised as follows:

- In relation to concerns raised re the transfer of staff and consultation of the unions it was confirmed that the unions had been informed in relation to the proposal at Darlington and Stockton.

- Officers confirmed that there were some differences to employment terms and conditions however these were quite minor. The process had been experienced previously when Xentrall was introduced, therefore Officers were quite familiar with the process and there weren't any particular problems.
A
16/16
Members were presented with and asked to consider the External Audit - Audit Completion and Value For Money report for the year ending 31 March 2016. The purpose of the document was to summarise Mazars (the authorities external auditors), audit conclusions.

The scope of Mazars work, including identified significant audit risks and areas of management judgement, was outlined in Mazars Audit Strategy Memorandum which Mazars presented on 1 March 2016. Mazars reviewed their Audit Strategy Memorandum upon receipt of Stockton's statement of accounts and concluded that the original significant audit risks and areas of management judgement were still appropriate.

Mazars took the opportunity to express their thanks to the Officers of Stockton Borough Council for their assistance during the course of Mazars audit.

The main topics discussed were as follows:

Stockton's finance team had completed their area of work much sooner than required which mirrored the high professional standards which had been set in previous years.

In the executive summary of the report Mazars had referred to some matters which were outstanding at the time the report was drafted. There were closing procedures still to be carried out however these were now complete and Mazars were ready to give their opinion on the statement of accounts.

At the beginning of the audit project, Mazars had identified some significant risks, although this was nothing unusual, however professional standards did require certain bases to be covered. The work had been successfully completed in relation to those. One of the main areas identified was; management override of controls which was considered a risk for all external auditors where senior management were in a unique position to perpetrate fraud because of their ability to change the accounts. Mazars had concluded that there were no matters to bring to the Committee's attention. The next area identified as significant risk was the pensions estimates (IAS 19). Mazars stated that the reason this had been identified as a significant risk was due to the large numbers involved in working out pension estimates and the complexity of it. When the report was written however Mazars were awaiting the assurance from the pension fund auditor which came through 21st September 2016. Mazars report concluded that the work they had carried out identified no indication of material estimation error in respect of estimates and there were no material issues to bring to the Committees attention.

Members were presented with a letter from Mazars which detailed conclusions reached on those items which were pending/outstanding within the Audit Completion Report dated 10th August 2016. The main details of the letter were contained within the attached update letter.

Discussion took place around Value for Money where Mazars were required to conclude whether the Council had proper arrangements in place for securing economy, efficiency and effectiveness in its use of resources by considering one overall criterion which was made up of three sub-criteria as detailed within the main report. Mazars clarified that it was not the Councils arrangements which were considered risky but Mazars had considered there was risk associated if Mazars did not carry out further work in relation to their value for money conclusion. Mazars had stated that they were to look at the Medium Term Financial Plan (MTFP), which was updated in February 2016 and also look at how savings had been achieved so far, what had and what had not been met. Mazars were satisfied that based on the work carried out to date they had mitigated the audit risk identified in their value for money conclusion.

Members were given the opportunity to make comments/ask questions and these could be summarised as follows:

Further discussion took place around the Draft Management representation letter which was contained within the main report.

Questions were raised in relation to the Better Care Fund, as there seemed to be suitable arrangement in place to make future savings and an update was requested.

Members sought clarity in the ‘Informed decision making' section of the report and queried whether Mazars audited documentation when reporting on whether Audit Assurance had been obtained, for example, where there was an asset register in place, did Mazars audit the register or just look the paper work?

Discussion took place in relation to the number of Councillors responding to declarations of interests including those of family members. The number of forms returned had increased, however as of July 2016 there was still 17 out of 55 who had not returned them. Suggestions were sought as to what could be done to achieve 100% by this time next year. Members felt the form was complex and the process could be made clearer. Members suggested that the Members Advisory Panel (MAP) look at streamlining the process and create less confusing forms.

The Chief Accountant informed the Committee that Members were written to on an annual basis requesting declaration of interest information. This year Democratic Services had helped to increase the number of completed forms returned which had been more successful than previous years. Going forward it was proposed to combine the form with the Member Interests form which received 100% return rate on an annual basis. Hartlepool Borough Council had already used this approach. Officers were happy to take forward the suggestion for MAP to look at with regards to streamlining the process and the forms to make it simpler for Members to follow.

Officers were given the opportunity to address the Committee in relation to issues/concerns raised. Their points could be summarised as follows:

In relation to questions raised regarding the Better Care Fund, Mazars explained that although they did not audit the CCG It was explained that through wider conversations Mazars were aware of some reduction in admissions. It was not known however whether that success was in line with the investment that all partners in the Better Care Fund had put in.

Members sought clarity as to what and how Mazars audited in terms of documentation, Mazars explained that some documentation would be looked at in detail. The asset register, for example, gave Mazars assurances in the opinion side of the audit. Mazars confirmed the content was audited and management was challenged on such things as savings plans and assumptions.

The Chairman offered his thanks to Officers for the work they had completed ahead of schedule and to a high professional standard which Stockton's external auditors, Mazars echoed.

The Chief Accountant drew Members attention to the fact that next year's deadline would remain as it had in 21016 however the deadline for 2018 would be July 2018 and therefore what would have ordinarily have been the September meeting would need to be brought forward.
A
17/16
Members were asked to consider and approve the Annual Governance Statement Report 2015-2016.

The Accounts and Audit Regulations 2015 required all authorities in England to conduct a review at least once a year of the effectiveness of its governance framework and produce an Annual Governance Statement to accompany its Statement of Accounts. The deadline for completion of the Statement of Accounts for 2015/16 was 30 June 2016 at which point they were subject to the external audit process.

A further requirement of the regulations stated that the Statement should be signed by the Chief Executive and the leading Member of the Council, following approval by the Committee. A key objective of this signing off process was to secure corporate ownership of the statement's contents.

The Annual Governance Statement included an acknowledgement of responsibility for ensuring that proper arrangements were in place around the governance of its affairs and an indication of the level of assurance that the system provided. The statement also included a description of the key elements forming the governance framework, a description of the process applied in reviewing the effectiveness of this framework, including the system of internal control, and an outline of the actions taken or, proposed to be taken, to deal with significant governance issues.

The Council's Annual Governance Statement for 2015/16 was attached at Appendix A of the report. At this time the Council had not identified any significant issues that were not being addressed within the Statement. Officers would be present at the meeting to report on the governance framework and control environment in place within the Council that enabled the detailed preparation of the statement. Mazars LLP, the Councils external auditors, had been consulted on the process and the identification of key governance issues.

The main topics discussed were as follows:

Members were asked to recall the draft Annual Governance Statement which was presented at the Audit Committee meeting held on the 27th June 2016. The Procurement and Governance Manager went through the content of the report at that meeting and invited comments. No comments had been received from Members, however a comment had been received from Mazars the Councils external auditors who had made some minor changes to the wording in the last paragraph of the report.
A
18/16
Members were asked to consider and note the Internal Audit Progress report which provided members with an update of the work carried out by the Internal Audit Section and the progress made against the Audit Plan 2016/2017.

Internal Audit was an independent appraisal function established by the Council to objectively examine, evaluate and report on the adequacy of internal controls. The role ensured that there was proper economic, efficient and effective use of resources. It also ensured that the Council had adequate accounting records and control systems.

Committee Members were reminded that the list of audit assignments undertaken in the current year to date had been circulated to all Councillors prior to the meeting. The intention was to give Councillors the opportunity to raise questions on issues that affected their ward or other areas of responsibility and for answers to be provided at the meeting.

The attached update report showed the current position in respect of the progress against the 2016/17 audit plan and the results of the work that had been undertaken.

The key topics discussed were as follows:

Member's attention was drawn to the activity of the Internal Audit Team contained within the main report where 9 audits had been completed, there were 16 in progress and 5 drafts issued. The position of completed audits had now changed to 12. There had been 1 audit cancelled which was the ‘Enterprise Property Management System 2016/17', as the system had been decommissioned and was not in use anymore. There had also been unplanned audit time added to undertake work on behalf of the Tees Valley Combined Authority around a potential fraud in using the SSI funding. The work had been completed and there was no evidence of fraud. That piece of work had now been closed down.

The Procurement and Governance Manager highlighted to Members the Audit Output report where 5 audits were given full assurance and 4 had been given substantial assurance, which continued to show a good internal control environment was in place for those which had been audited. The recommendations for the 9 audit reports were either medium or low priority risk.

Members were given the opportunity to make comments/ask questions and these could be summarised as follows:

Questions were raised in relation to the 4 failed audits which were detailed within the main report and why they had failed.

Officers were given the opportunity to address the Committee in relation to issues/concerns raised. Their points could be summarised as follows:

Officers agreed to provide the information in relation to the failed audits to the Member who raised the question..
A
19/16
Members were presented with a report which detailed the regular non-responsive services provided by the Council's Health and Safety Unit to monitor, improve and to ensure compliance of the health, safety and well-being control environment for the period 1st April 2016 - 30th June 2016.

The report encapsulated the regular, non-responsive activity of the Health and Safety Unit, and accident and assault statistics as follows:

1. Health and Safety Training
2. Health and Wellbeing Update
3. Premises Audited
4. Construction (Design and Management) Regulations 2015
5. School's Educational Residential Visits
6. Employee Protection Register Activity
7. Safety Warnings, Advice or Reminders Issued
8. Accidents Reported
9. Physical Assaults Reported
10. Verbal Assaults Reported


The main issues discussed were as follows:

The first area of the report detailed health and safety activity which had been undertaken in the first quarter. There was a strong focus on health and safety training. The authority ran a number of training courses to delegates across all departments. Some of the training courses were online courses.

The authority continued to provide access to physiotherapy and work place assessment referrals.

Premises which the Council owned were continued to be audited, the majority of which were proving to be full or substantial assurance.

Member's attention was drawn to the summary of audit opinions assurance levels recommendations. It was explained that there were a greater number of recommendations which were at the significant/urgent level than at the prudent/significant level. The recommendations which were at the urgent level were usually those which did not have risk assessments in place and quite often asbestos training was not up to date.

The Health and Safety Team continued to provide support around construction. 115 hours had been spent looking at health and safety plans for construction and helping out on site, checking health and safety plans had been put in place.

Educational Visits Advisor's role was continued to be provided to schools. There had been 35 visits in the first quarter.

The Health and Safety Team continued to operate the Employee Protection Register and provide advice and reminders. The first quarter saw additional advice provided to schools around supporting children with medical conditions, following this it was identified that there was a small gap in the Council's insurance cover. Subsequently a policy had been taken out for medical malpractice, therefore should a teacher or someone within a school provide medical assistance to a child there was extended insurance to cover.

Guidance had been provided to schools in relation to external threats from the National Counter Terrorism Security Office. In addition some schools had been provided with information about changes to first aid regulations.

The Committee were informed that there had been 50 accidents in Q1 compared to 54 in the previous quarter. However there had been 40 physical assaults compared to 29 in the previous quarter. There had only been 1 verbal assault.

The Procurement and Governance Manager informed Members reporting had now begun against the new directorates within the Council.

Members were given the opportunity to make comments/ask questions and these could be summarised as follows:

It was alarming that physical assaults had increased by such a large amount. It was felt that the number of verbal assaults did not reflect what was really happening as it was very much based on the individual and how much each person was able to take before reporting it.

Questions were raised in relation to whether the Educational Visits Advisors role was provided to schools which were now academies.

Officers were given the opportunity to address the Committee in relation to issues/concerns raised. Their points could be summarised as follows:

A number of schools asked the Council to perform the role of Educational Visits Advisors including some academies, however there were a number of academies which didn't and they carried out the role themselves.
A
20/16
Members were asked to consider a report which informed the Committee of the performance against the treasury management and prudential indicators set in the Treasury Management Strategy approved by Council in February 2015.


The Local Government Act 2003 required the Council to produce an annual treasury management review of activities and the actual prudential and treasury indicators for 2015/16.This report met the requirements of both the CIPFA Code of Practice on Treasury Management and the CIPFA Prudential Code for Capital Finance in Local Authorities. The Council was required to comply with both Codes through Regulations issued under the Local Government Act 2003.

The report summarised the following:-

• The economic and interest rate environment during 2015/16;
• The overall treasury position of the Council;
• The strategy agreed for 2015/16;
• The Council's Borrowing Requirement and debt;
• Borrowing outturn for 2015/16;
• Investment outturn for 2015/16;
• Regulatory Framework and Risk;
• Appendix A Prudential and Treasury Indicators 2015/16
• Appendix B Debt outstanding at 31st March 2016
• Appendix C Investments held at 31st March 2016.

The key areas discussed were as follows:

Stockton Borough Council had met or exceeded all of its prudential indicators in 2015/16. Member's attention was drawn to information indicating the performance against the plan for interest, investment income. The Council had a target of 600k for the year and the authority managed to achieve 744k of income. That was in part due to a large amount of money the authority was carrying for Tees Valley Unlimited (TVU). TVU had received a significant amount of funding due to the closure of SSI. By the end of the year Stockton Borough Council were carrying approximately 31 million on behalf of TVU. A better income was achieved however this was shared with TVU and schools. Stockton retained 606k.

The levels of return the authority was achieving month by month had reduced to 0.52% by March 2016. Over the year the average was 0.62% return.

The Chief Accountant gave the Committee a potted history on how interest rates had changed since 2008/9 and how increasingly challenging investments had become over the years.

Discussion took place around what proportion of revenue income the Council were actually spending on servicing debt, such as long term loans which were approximately 47 to 48 million. The proportion of the revenue income which was actually being spent was 2.6% which was considered to be very low in comparison to other authorities within the Tees Valley. Stockton Borough Council was under borrowed, there was a requirement to borrow 108 million and the actual borrowed figure was just under 48 million. At some stage there would be a need to go out to borrow although there were no immediate plans to do so as Stockton was using its own fund to support capital expenditure.

Member's attention was drawn to the amount of capital which had been invested into instant access accounts. This was due to the money which was being held on behalf of TVU and the uncertainty as to when the fund would be needed.
A
21/16
Consideration was given to a report which provided details to Members of the practical implementation, in year, of the Treasury Management Strategy approved by Council in February 2016.

The report detailed the following:

Economic Background
Interest Rate Forecast
Annual Investment Strategy
Investment Performance for quarter ended 30 June 2016
Future Investment Plans
Borrowing
Debt Rescheduling
Minimum Revenue Provision Policy
Compliance with Treasury and Prudential Limits

The main points covered were as follows:

The Chief Accountant highlighted that CAPITA periodically gave the authority interest rate forecasts. When the strategy was set for this year and as part of the budget for the amount of investment income expected, the strategy had been based on CAPITA's best estimates of interest rate forecasts and how they would change. At that point CAPITA were still recommending that there would be an increase in interest rates in the near future. As a result there was a 600k target for investment income last year and a 700k this year. Since then there had been the referendum and interest rates had now decreased and the Bank of England had also reduced the base rate, therefore the interest rate CAPITA were now providing the authority with was no higher than 0.1% for the next 12 months before a rise was to be expected. The table contained within the report at paragraph 12 detailed how this had impacted on the investment target. Although the information was showing the first quarter looking healthy this was due to the fact the authority were in receipt of some grants, however it was expected to reduce due to the reductions in interest rates following the Brexit vote and there was likely to be a shortfall of 300k in 2016/17.

In relation to Future Investment Plans the Treasury Management Strategy approved in February included the option to invest in money market funds. The Council had not used money market funds in recent years however the reduction in the banks base rate and the difficulty in obtaining a sufficient rate of return from banks and building societies had made money market funds an attractive low risk investment option. The Council had opened 4 money market fund accounts with 10 million invested which had been moved from instant access where a better return was expected.

Property Investments funds had also been flagged in the Treasury Management Strategy approved in February, however this was a long term investment option. This was something that was being actively looked at however any decision to use these investments would be subject to a report to Cabinet.

In terms of borrowing, the Council had not borrowed anything since 2008. The loan rates from the PWLB had been volatile but had been on a downward trend. Rates were now as low as less than 2%. There was the possibility of establishing a crematorium in Stockton and there was a possible Hotel project which would be subject to prudential borrowing, therefore at some stage in the next 12 to 18 months it was expected that there would be some borrowing for the first time.

The Chief Accountant went on to explain minimum revenue provision which, when summed up was when the Council decided to borrow to fund capital expenditure it would have to set aside an amount from its revenue budget every year to repay the loan. Up to 2008 that process was part of a system whereby the Government had to approve those investments as part of the grant system that was in place. The Government would fund an authority to make that repayment. In 2008 the authority moved to the prudential financial arrangement whereby in effect government approval was no longer required to borrow money, the authority needed to satisfy themselves and Members in relation to what was prudent and affordable. Up to that point the amount of money which was outstanding which needed to be provided worked on a basis of 4% being set aside on a diminishing balance basis year by year which was part of the revenue costs and would appear in the accounts. This would take hundreds of years to clear. The borrowing arrangements allowed the authority to come up with an alternative which was reasonable. A lot of councils had changed what they were to do going forward to replace that 4% basis to one which would repay the amount of borrowing within a set period. Stockton were looking at various arrangements to bring forward as part of the Treasury Management Strategy, however this would need to be discussed with colleagues in external audit, as they would clearly need to be satisfied that what was proposed was reasonable. The authority were looking at a way where they could change the amount of funds set aside on an ongoing basis that would give some savings now and change the profile when payments were made but have a fixed end date. This would also require full approval from Council.

Members were given the opportunity to make comments/ask questions and these could be summarised as follows:

Was there a penalty against the Council in terms of the authority being significantly under borrowed?

In terms of investments Members requested that it would be helpful if the expected return was shown next to each type.

Members questioned what the effect of negative interest would have on cash balances?

Members asked what the interest rate would be if Stockton borough Council loaned money to other authorities.

Was the authority able to invest in corporate bonds or guilds?

Officers were given the opportunity to address the Committee in relation to issues/concerns raised. Their points could be summarised as follows:

In terms of being under borrowed, the only penalty would be that the Council would eventually run out of money.

Officers agreed to provide additonal information in relation to returns on investments.

Where questions had been raised relating to negative interest rates on cash balances, Officers explained that this would depend on how negative this was, however alternative investments were being looked at such as the money market funds and property investment funds and lending to other local authorities as previously discussed.

It was confirmed that the level of interest charged would be the going rate should the Council offer loans to other authorities, however it would certainly be no lower than Stockton were paying on their own loans.

The authority could invest in corporate bonds and/or guilds if it was within the authority's strategy, however Stockton Borough Council avoided investments which were considered to be risky. Members were informed that the Council bought in advice from CAPITA Asset Services, there were only one or two others in the market who provided the same service to neighbouring authorities however their approach was entirely different to that of CAPITA.
A
22/16
Members were asked to consider and approve the Statement of accounts 2015/16.

The accounts had been completed in accordance with the "Code of Practice on Local Authority Accounting in the United Kingdom 2015/16" which was prepared under International Financial Reporting Standards.

The Accounts and Audit Regulations (England) 2015 came in to effect on 1st April 2015. The regulations changed the arrangements for the approval and publication of the Statement of Accounts and the Annual Governance Statement. Under the regulations the Council must publish its audited Statement of Accounts and approved Annual Governance Statement by 30th September for the financial years 2015/16 and 2016/17. Thereafter the publication date would become 31st July.

In preparation for the new earlier deadlines the accounts had been completed one month earlier, by 31st May, and the external audit process had started in early June and was completed in early August.

The period in which electors had the right to examine the accounts, question the auditor and to make objections at audit had also changed. This was now a period of 30 working days which for 2015/16 and 2016/17 must include the first ten working days of July. In 2018 this would become the first ten working days of June. The inspection period for this year commenced on 26th June and ended on 5th August 2016. During this period there were no requests from the public to inspect the accounts and there were no objections raised with the external auditor.

The external audit report on the statement of accounts and value for money, the "Annual Completion Report", highlighted a small number of agreed changes to the draft accounts presented to this committee at its meeting in June. A small number of misstatements were also reported however these were not adjusted as collectively it was felt that they did not significantly impact the content of the accounts.

The following key financial issues were included in the accounts:
Non-Current Assets amounted to 350 million; this was a slight increase of 2 million over 2014/15.

Investments and Cash amounted to 93.4 million. This was an increase of 21.5million from the previous year. This was largely due to the funds that the Council was holding on behalf of the new Tees Valley Combined Authority at the end of the financial year.

The Council's current Long and Short-Term Borrowings total 48.3 million which was a reduction of 0.3 million.

The Council's earmarked reserves (excluding schools) had increased to 124.2 million which was an increase of 12.4 million from the previous year. This again reflected the funds being held on behalf of the new Combined Authority.

The level of General Fund balances at the 31st March stood at 9.6 million and School Reserves stood at 7.2 million.

The Council's Pension Scheme deficit had increased from 224.1m to 228.5m, an increase of 4.4m. This resulted from the actuaries' assessment of fund performance and the re-measurement of scheme assets and liabilities.

The main points discussed were as follows:

The Chief Accountant explained to the Committee that due to regulation change this year there was no longer an explanatory forward within the report. This had been replaced with a narrative report which combined more none financial information with financial information. The idea was to align the report to the Councils Plan. The aim of the report was to provide more detailed information of what the Council were trying to achieve and how the Councils finances led in to support that.

Members were informed that there was to be a couple of significant changes to the accounts over the next year or two. This year the authority had started to account for ‘highways network asset'. At the moment the boroughs roads, bridges and structures were in the accounts at a fairly low level. The accounting basis for that was to change this year from several hundred million to several billion GBP. This would give internal and external auditors a challenge.

In terms of business rates, these would become 100% retained by the council instead of the 49% at present. If the council kept 100% of the business rates the government would consider this was more than was needed and therefore there would be a batch of new responsibilities which the council did not currently have. Going forward this would be a major risk due to the volatility of the current situation with business rates and how they fluctuated.

Business rates would still be set by central government.

It was confirmed that local authorities would keep business rates from within their enterprise zones however the combined authority would keep any monies where there was growth within the enterprise zones.

The Chief Accountant explained to the Committee that the authority kept 49% of business rates currently with 50% going back to central government and 1% going to the Fire Authority. In addition the authority had to keep a pot of money for potential business rate appeals which currently stood at approximately 11 million. It was reported that Virgin Media were currently asking to move to what was known as the central list which existed for major infrastructure, for example Network Rail. If Virgin Media were accepted on the central list then they would pay rates directly to the government. Stockton Borough Council would lose approximately 49% of 900,000 to 1 million per annum.
A
23/16
Members were asked to consider and note the Corporate Risk Register Progress Report Q1 2016-17.

The Committee was reminded that quarterly reports on the Corporate Risk Register were presented for the purpose of reviewing the key risks that had been identified as having the potential to deflect services from achieving their objectives over the next 12 months and beyond. They also set out the actions being taken to ensure that the risks, and possible adverse outcomes, were minimised.

As a reminder, risks were scored on a scale of one to five for both ‘impact' and ‘likelihood'. The scores were multiplied to generate a total score and any risks with a score of 15 or above were included on the Corporate Risk Register. For information, any risks scored between 9 and 12 were included on Service Group Risk Registers.


The Committee had requested that, in the absence of substantial changes to the register, quarterly reporting should be confined to highlighting significant additions and amendments since the previous update.

This report covered the period 1 April to 30 June 2016. All Service Groups had been contacted and the returns indicated that there had been no additions to the Corporate Risk Register. There had been 1 deletion relating to flood risk, following progress in the major flood alleviation schemes and internal audit feedback on the adequacy of controls in place. In addition there had been some minor updating to the risks previously included on the Council's Corporate Risk Register over the months in question and in particular a re-profiling of the risk associated with the Local Plan. The changes comprised a general update to all risks to reflect ongoing progress.

As a result, the total number of significant risks in the Corporate Risk Register at the end of Quarter 1 was 9.

For purposes of record, the changes referred to above had been incorporated in the latest version of the full Corporate Risk Register. This was available in Appendix A of the report.
A
24/16
The Work Programme was noted.

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