Audit Committee (ceased to operate 21/05/2019) Minutes

Monday, 28th November, 2016
4.00 pm
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

Cllr Barry Woodhouse(Chairman), Cllr Stefan Houghton, Cllr Eileen Johnson, Cllr Mrs Kathryn Nelson, Cllr Ross Patterson, Cllr Mick Stoker, Cllr Laura Tunney
Martin Skipsey, Any Bryson, Paul Johnston, Sarah Whaley(DCE)
In Attendance:
Gareth Roberts (Mazars)
Apologies for absence:
Cllr Chris Barlow(Vice-Chairman), Cllr Paul Rowling,
Item Description Decision
RESOLVED that the minutes be approved and signed as a correct record by the Chairman.
RESOLVED that the report be noted.
RESOLVED that the report be noted.
RESOLVED that the report be noted.
RESOLVED that the report be noted.
RESOLVED that the report be noted.
RESOLVED that the report be noted.


1. the content of the report be noted

2. Members recommend to Council that Public Sector Audit Appointments Ltd are appointed to make the external audit appointment for the Council.
RESOLVED that the work carried out by the Committee be noted.
RESOLVED that the work programme be noted.
4.00pm - 4.50pm


The Evacuation Procedure was noted.
There were no declarations of interest.
Consideration was given to the minutes from the meeting which was held on the 26th September 2016 for approval and signature.
Consideration was given to the External Audit Progress Report, the purpose of which was to provide the Audit Committee with a report on progress in delivering Mazars responsibilities as Stockton Borough Councils external auditors.

Mazars also sought to highlight key emerging national issues and developments which may be of interest to Members of the Audit Committee.

At the Audit Committee’s September meeting, Mazars reported, including their update letter and verbal update, that they had completed their work on the 2015/16 financial statements and Value for Money (VFM) conclusion, subject to final closing procedures.

Following the meeting, on 28 September 2016, Mazars issued an unqualified:

• opinion on the Council’s 2015/16 financial statements; and

• Value For Money Conclusion (VFM).

Mazars also reported to the National Audit Office on the Council’s Whole of Government Accounts pack on 28 September 2016.

Mazars had discussed their Annual Audit Letter with officers and would be presenting it as a separate agenda item to this meeting. Appendix 1of the main report provided an overall summary of reporting outputs of Mazars 2015/16 audit.

In terms of the 2016/17 audit, Mazars had continued to meet senior management and review minutes, which would inform their risk assessment for the 2016/17 audit. Mazars would issue their Audit Strategy Memorandum to the Audit Committee in early 2017, which would set out the risks Mazars had identified and the programme of work Mazars planned to carry out in response to those risks.

The Main issues discussed were as follows:

- It was highlighted that in relation to Certification of Claims and returns there were no significant issues to report.

- The 2015/16 Housing Benefits Subsidy Claim was the largest claim and had now been certified and submitted to the Department of Works and Pensions(DWP). Similarly the 2015/16 Teachers Pension Return had been completed, with the only outstanding certification being the 2015/16 Initial Teacher Training for the National College of Teaching and Leadership. The deadline for this was December and was on schedule.

- In terms of National publications and other updates, Members attention was drawn to the summary of performance of all firms appointed under the Public Sector Audit Appointments (PSAA).

Members raised questions in relation to the 2015 - 2016 Housing Benefits Subsidy Claim. Mazars confirmed that there had been a couple of minor issues however nothing which had been significant.

Members sought clarity as to the value of the Housing Benefits Subsidy, which was confirmed to be approximately £70 million.
Consideration was given to the External Annual Audit Letter which provided a summary of Mazars work and findings for the 2015/16 audit period for Members and other interested parties.

Mazars reported the detailed findings from their audit work to the 26 September 2016 Audit Committee in their Audit Completion Report, and follow up letter.

Mazars also completed their reporting to the National Audit Office on the Councils whole of government accounts return. The key conclusions for each element were summarised below.

Mazars issued an audit report including an unqualified opinion on the Council’s financial statements on 28 September 2016.

In relation to the Value for Money Conclusion(VFM), Mazars carried out sufficient, relevant work, in line with the National Audit Office’s guidance, so that Mazars could conclude on whether the Council had in place, for 2015/16, proper arrangements to secure economy, efficiency and effectiveness in the use of resources.

An unqualified VFM conclusion was issued by Mazars on 28 September 2016.

Mazars provided assurance to the National Audit Office (NAO), as the auditor of central government departments, in relation to the consistency of the Councils Whole of Government Accounts (WGA) consolidation pack with the audited statement of accounts. Mazars reported to the NAO that the Councils consolidation pack was consistent with the audited statement of accounts on 28 September 2016.

As the Council’s appointed external auditor, Mazars had other powers and responsibilities as set out in the Local Audit and Accountability Act 2014. These included responding to questions on the accounts raised by local electors as well as a number of reporting powers such as reporting in the public interest. Mazars did not receive any questions about the accounts or valid objections in relation to the Councils 2015/16 accounts from local electors, nor did Mazars exercise their wider reporting powers.

Mazars issued their certificate, closing this year’s audit, on 28 September 2016.

Members attention was drawn to the fact there were no variation to fees which was detailed within the report.
Consideration was given to the Internal Audit Report Q2 which provided Members with an update of the work carried out by the Internal Audit Section and the progress made against the Audit Plan 2016/17.

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 main issues discussed were as follows:

Members attention was drawn to the Audit Progress where it was highlighted that 16 Audits had been completed out of the 71 which had been scheduled for this financial year. There was another 30 in progress however the programme was well underway. 4 Audits had been cancelled in the programme, one being an enterprise property management system which was an IT system that the Council were no longer using. The remaining 3 areas were in Adults and Health which were all undergoing reviews as part of a review programme in the Council. The reviews were being supported with officer time rather than auditing them so the outcome and the output of the reviews took into account the Audit Teams controls.

The Procurement and Governance Manager highlighted the position statement around the output of the Audits carried out so far. Out of the 16, 10 had been given full assurance and 6 had been given substantial assurance which confirmed that the right controls were in place. In terms of the recommendations which came out of those, the vast majority, 85% were medium recommendations and the rest were low.

Members commented that it was good to see that Audit were getting involved with new systems at an early stage to make sure controls being put in place were effective.
Consideration was given to 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 July 2016 - 30th September 2016.
The detail 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

5 programmed corporate health and safety training sessions were delivered to a total of 34 delegates, with 6 further bespoke courses delivered to 75 delegates within departments.
In support of the Control of Asbestos Regulations 2012 and the Council’s Asbestos Management Policy, an on-line e-learning platform had been made available to provide refresher training to key nominated personnel with responsibility for managing asbestos containing materials. This would ensure compliance was maintained amongst Services and individual premises personnel with responsibility for the effective management of asbestos containing materials. Online asbestos refresher training had been made available to the workforce, as well as other pertinent topics. 4 programmed online training sessions had been set up and a total of 86 delegates took part in online training. In total, 15 health and safety training courses were delivered to 195 candidates.

Further details of training activity could be found at Appendix 1 within the main report.

Referrals to the services provided by the Well-being Team were detailed within the main report.

The number of health and safety audit inspections completed during the reporting period was 13. Individual prioritised audit opinions and audit opinion assurance levels were summarised within the main report.

In relation to Construction (Design & Management) Regulations 2015, the revised Regulations came into force on 6 April 2015. The Health & Safety Executive (HSE) objectives behind the new regulations were far-reaching and marked a significant shift in the health and safety regulatory regime for procurement, design and delivery of construction projects.
The Regulations applied to all construction work whether or not the project was notifiable to the HSE and imposed specific duties onto:

• Clients,
• Principal Designers,
• Designers,
• Principal and Sub-contractors,
• Others involved with the project.

Subject to the size and complexity of individual projects, the Health and Safety Unit acted as ‘CDM Advisor’ to the Client and or the Principal Designer, as duty holders. The CDM Advisor carried out functions including:

• notification to the regulator, the HSE
• production of Pre-construction Information
• appraisal of the Principal Contractors Construction Phase Plan
• provision of construction health & safety advice.

During the reporting period, 4 Pre Construction Information Documents were issued.
A total of 92 hours of resources were dedicated to the preparation, planning, monitoring and reviewing of a broad range capital works construction projects to ensure compliance with the CDM Regulations and other associated statutory provisions.

Design Stage
Ensuring design management arrangements were in place, providing pro-active and practical help to Clients and designers in response to individual project’s demands. Facilitating design risk management process, providing advice and assistance to Clients and designers on risk reduction and health and safety management in design.

Pre-Construction Stage
Appraise and approve Contractor’s Construction Phase Health and Safety Plan. Ensuring construction management arrangements were in place prior to works commencing.
Ensure effective co-operation and co-ordination and that sufficient time had been allocated for planning and preparation of project safety.
Provide when requested advice on competence of Client appointments - Principal Contractors.

Construction Phase
Ensure construction management systems remained in place for the duration of the construction phase. Liaise with Client, Designer, Principal Contractor throughout the construction phase to ensure safe design and build. Conduct site inspections on certain construction sites where there may be specific risks to the general public.

In relation to the Educational Visits Adviser’s role, the Health and Safety Unit performed the role of Educational Visits Adviser in accordance with the revised guidance issued by the Department for Education in February 2014.

During this quarter, the safety management safeguards 28 school’s educational residential visits had been appraised, challenged and endorsed. The risk management process involved had regularly been reviewed and revised, further improving schools and the authority’s resilience to an adverse event occurring.

The Employee Protection Register(EPR), launched in July 2008, was an on-line database of known data-subjects who presented an identified risk to the safety of the Council’s and partner organisation’s workforce. The EPR had been successfully launched in all schools to provide additional security to Parent Support Advisers and other members of the school’s workforce who may be conducting pastoral care or domiciliary visits.

The current EPR user base was detailed within the main report.

In relation to safety warnings, advice or reminders Issued, warnings issued to social care settings on the hazards associated with the use of 13amp electrical socket inserts sold as safety devices. The devices could in certain circumstances overcome the safety features designed into socket outlets exposing live terminals, Issued 1.8.16

Organisers of case meetings, organised social or other activities were provided with a reminder of the anticipatory duty to ensure the adequacy of the measures that must be put into place to respond to the foreseeable eventuality of fire or other emergency situation. Issued 16.9.16

Advice was issued to schools regarding the role of the designated safeguarding lead (DSL) during out of hours activities, or residential visits, to facilitate access to the DSL by the most appropriate means. Issued 27.9.16

Accidents reported to the Health & Safety Unit during this reporting period were 27, which compared with 34 in the previous reporting period.

Physical Assaults reported to the Health & Safety Unit this period were 31, which compared with 42 in the previous reporting period.

Verbal Assaults reported to the Health & Safety Unit during this reporting period was 5. There was 1 verbal assault recorded in the previous reporting period.
Consideration was given to the Corporate Risk Register Q2 report.

The Committee were 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.

The report covered the period 1 July to 30 September 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 2 deletions relating to the Care Act and Better Care Fund, following progress in the respective projects and the introduction of additional controls. 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. 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 2 was 7.

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 at Appendix A contained within the main report.
Consideration was given to a report which provided Members with an update of the practical implementation, in year, of the Treasury Management Strategy approved by Council in February 2016.

Economic Background

UK GDP growth rates in 2013 of 2.2% and 2.9% in 2014 were strong but 2015 was disappointing at 1.8%, though it still remained one of the leading rates among the G7 countries. Growth improved in quarter 4 of 2015 from +0.4% to 0.7% but fell back to +0.4% (2.0% y/y) in quarter 1 of 2016 before bouncing back again to +0.7% (2.1% y/y) in quarter 2. During most of 2015, the economy had faced headwinds for exporters from the appreciation during the year of sterling against the Euro, and weak growth in the EU, China and emerging markets, plus the dampening effect of the Government’s continuing austerity programme. The referendum vote for Brexit in June this year delivered an immediate shock fall in confidence indicators and business surveys, pointing to an impending sharp slowdown in the economy. However, subsequent surveys had shown a sharp recovery in confidence and business surveys, though it was generally expected that although the economy would now avoid flat lining, growth would be weak through the second half of 2016 and in 2017.

The Bank of England meeting on August 4th addressed the expected slowdown in growth by a package of measures including a cut in Bank Rate from 0.50% to 0.25%. The Inflation Report included an unchanged forecast for growth for 2016 of 2.0% but cut the forecast for 2017 from 2.3% to just 0.8%. The Governor of the Bank of England, Mark Carney, had warned that a vote for Brexit would be likely to cause a slowing in growth, particularly from a reduction in business investment, due to the uncertainty of whether the UK would have continuing full access, (i.e. without tariffs), to the EU single market. He also warned that the Bank could not do all the heavy lifting and suggested that the Government would need to help growth by increasing investment expenditure and possibly by using fiscal policy tools (taxation). The new Chancellor Phillip Hammond announced after the referendum result, that the target of achieving a budget surplus in 2020 would be eased in the Autumn Statement on November 23.

The Inflation Report also included a sharp rise in the forecast for inflation to around 2.4% in 2018 and 2019. CPI had started rising during 2016 as the falls in the price of oil and food twelve months ago fall out of the calculation during the year and, in addition, the post referendum 10% fall in the value of sterling on a trade weighted basis was likely to result in a 3% increase in CPI over a time period of 3-4 years. However, the MPC was expected to look through a one off upward blip from the devaluation of sterling in order to support economic growth, especially if pay increases continued to remain subdued and therefore posed little danger of stoking core inflationary price pressures within the UK economy.

The American economy had a patchy 2015 with sharp swings in the growth rate leaving the overall growth for the year at 2.4%. Quarter 1 of 2016 disappointed at +0.8% on an annualised basis while quarter 2 improved, but only to a lacklustre +1.4%. However, forward indicators were pointing towards a pickup in growth in the rest of 2016. The Fed. embarked on its long anticipated first increase in rates at its December 2015 meeting. At that point, confidence was high that there would then be four more increases to come in 2016. Since then, more downbeat news on the international scene and then the Brexit vote, had caused a delay in the timing of the second increase which was now strongly expected in December this year.

In the Eurozone, the ECB commenced in March 2015 its massive 1.1 trillion programme of quantitative easing to buy high credit quality government and other debt of selected EZ countries at a rate of 60bn per month; this was intended to run initially to September 2016 but was extended to March 2017 at its December 2015 meeting. At its December and March meetings it progressively cut its deposit facility rate to reach -0.4% and its main refinancing rate from 0.05% to zero. At its March meeting, it also increased its monthly asset purchases to 80bn. These measures had struggled to make a significant impact in boosting economic growth and in helping inflation to rise from around zero towards the target of 2%. GDP growth rose by 0.6% in quarter 1 2016 (1.7% y/y) but slowed to +0.3% (+1.6% y/y) in quarter 2. This has added to comments from many forecasters that central banks around the world were running out of ammunition to stimulate economic growth and to boost inflation. They stressed that national governments would need to do more by way of structural reforms, fiscal measures and direct investment expenditure to support demand in the their economies and economic growth.

Japan was still showing growth and making little progress on fundamental reform of the economy while Chinese economic growth had been weakening and medium term risks had been increasing.

Interest Rate Forecast

The Council’s treasury advisor, Capita Asset Services, had provided an interest rate forecast up to Jun 2019 which was detailed within the main report.

Capita Asset Services undertook a quarterly review of its interest rate forecasts after the MPC meeting of 4th August cut Bank Rate to 0.25% and gave forward guidance that it expected to cut Bank Rate again to near zero before the year end. The forecast contained within the main report included a further cut to 0.10% in November this year and a first increase in May 2018, to 0.25%, but no further increase to 0.50% until a year later. Mark Carney, had repeatedly stated that increases in Bank Rate would be slow and gradual after they did start. The MPC was concerned about the impact of increases on many heavily indebted consumers, especially when the growth in average disposable income was still weak and could well turn negative when inflation rose during the next two years to exceed average pay increases.

Annual Investment Strategy

The Treasury Management Strategy for 2016/17, which included the Annual Investment Strategy, was approved by the Council on 24 February 2016. It set out the Council’s investment priorities as being:

- Security of capital;
- Liquidity; and
- Yield.

The Council would also aim to achieve the optimum return (yield) on its investments commensurate with proper levels of security and liquidity. In the current economic climate it was considered appropriate to keep investments short term to cover cash flow needs, but also to seek out value available in periods up to 12 months with highly credit rated financial institutions, based upon Capita’s suggested creditworthiness approach, including a minimum sovereign credit rating, and Credit Default Swap (CDS) overlay information.

Officers could confirm that the approved limits within the Annual Investment Strategy were not breached during the quarter ended 30 September 2016.

Investment rates available in the market were broadly stable during the first half of the quarter but then took a slight downward path in the second half concluding with a significant drop after the referendum on a sharp rise in expectations of an imminent cut in Bank Rate and lower for longer expectations thereafter.

The average level of funds available for investment purposes during the quarter was £91.56m. These funds were available on a temporary basis, and the level of funds available was mainly dependent on the timing of precept payments, receipt of grants and progress on the Capital Programme. The Council plans using the assumption that it would have approximately £80m for investment purposes (i.e. funds available for more than one year). As requested at the September meeting, a full list of investments held at the end of quarter two was attached at Appendix 1 of the main report.

Investment performance for quarter ended 30 September 2016.

Investment returns for the first six months of this year were detailed within the main report.

Future Investment Plans

As reported to this committee at the September meeting, property investment funds were currently being evaluated. Officers had met with one property investment fund and were planning to carry out due diligence on this and other property funds ahead of producing a report to Cabinet as required by the Treasury Management Strategy.


Borrowing at 30 September 2016 amounted to £47.69 million, of which £4.69 million was owed to the PWLB, with the remaining £43 million owed to Banks. Over the last few years the Council had followed a policy of reducing their cash balances to finance the Capital Programme rather than take out further borrowing. This was because the cost of borrowing in relation to what the Council received on its investments (the cost of carry) was high as was the risk of counter-party failure.

The PWLB loan rates had continued to be volatile throughout quarter 2, as depicted within the main report. During the quarter ended 30 September 2016, the 50 year PWLB target (certainty) rate for new long term borrowing started at 3.00% and ended at 2.10%.

No borrowing was undertaken during the quarter, in fact the Council last borrowed in August 2008. In view of the Council’s planned developments including the crematorium and the hotel project it was anticipated that borrowing would be undertaken with the next 12 to 18 months. The Council remained significantly under borrowed to the extent of £56.8 million and therefore had sufficient room to borrow with its Capital Financing Requirement.

Debt Rescheduling

Debt rescheduling opportunities had been limited in the current economic climate and following the increase in the margin added to gilt yields which had impacted PWLB new borrowing rates since October 2010. No debt rescheduling was undertaken during the quarter.

Compliance with Treasury and Prudential Limits

It was a statutory duty for the Council to determine and keep under review the affordable borrowing limits. The Council’s approved Treasury and Prudential Indicators (affordability limits) were included in the approved Treasury Management Strategy.

During the financial year to date the Council had operated within the treasury and prudential indicators set out in the Council’s Treasury Management Strategy and in compliance with the Council's Treasury Management Practices.


Members were informed that since the report had been written an update had been received from CAPITA where the expected rate reduction that was being built in from December 2016 was now not likely to happen and the Bank Base rate would remain at 0.25% rather than falling to 0.1%, therefore it was anticipated that they would be staying at the current levels until March 2019 before it was expected that any interest rate rises would be seen. Rises were not anticipated until June 2019 and these were expected to rise slowly after that rising to 0.5%.

The slow rise would impact on the Councils investment performance. Members attention was drawn to the table contained within appendix one of the main report which was showing that investment returns for September 2016 had already dropped to 0.34%. The total investment return for the year so far was 0.44% which was lower than anticipated as this time last year as an increase had been expected. Brexit and the American Presidential results had impacted on markets.

In relation to boosting future investment plans using money market funds, it was highlighted that the Council now had a number of money market funds in place which were generating better interest rates than the Council was getting from deposit accounts. The Councils bank deposit account which was, 6 months ago, paying 0.4% on overnight balances, had reduced to 0.25%. Within the next 2 weeks Members were informed that after receiving a letter from the bank interest rates would reduce further to 0.1%.

Members attention was drawn to the comments in the Management Strategy Update where it was indicated that Officers were evaluating property investment funds. Officers had met with one property investment fund which was a specific local authority based investment fund ran by CCLA. Officers were impressed with what they had seen however due diligence would need to be carried out as it would with any property investment fund. A report was anticipated within the next 2 to 3 months to Cabinet with the view this was a good investment with an anticipated term of at least 5 years to minimise cost and increase return.

The Chief Accountant explained the information at appendix 1 within the main report which detailed investments held at September 2016 at Members request. One of the key issues Members were asked to note was that the fixed investments which had now matured were not getting the same rate of return as they had done.

Members raised questions in relation to the likelihood that interest rates could go as low as zero. The Chief Accountant informed the Committee that he did not think this would be likely. It was believed that one of the reasons CAPITA were late submitting their forecast was they were waiting for the latest inflation report form the Bank of England, the latest MPC decision and the outcome of the American Presidential Election.

Questions were raised in relation to how common it was becoming for local authorities to invest in Property Investment Funds. The Chief Accountant explained that it was becoming increasingly common and there was one specifically for local government which had a number of local authorities involved. The North East was probably more unusual as this step had not been taken as yet. External advice was being sought by Stockton on due diligence on the property investment fund specifically for local authorities and some others. Once that information had been received this would be reported to Cabinet.
Members were asked to consider a report which detailed the Council’s options for appointing external auditors for the financial year 2018/19.

The appointment of external auditors for local government bodies was formerly a function of the Audit Commission under the Audit Commission Act 1998. The Audit Commission was abolished in 2015 and the responsibility for auditor appointments was passed to a new body, Public Sector Audit Appointments Ltd (PSAA), a company set up by the Local Government Association for that purpose. This however was a transitional arrangement and from 2018/19 local authorities would be responsible for appointing their own external auditors. Audit appointments would have to be made by 31 December 2017 to apply from April 2018. Current auditor contracts had been extended until the end of 2017/18.

The new requirements were set out in the Local Audit and Accountability Act 2014. This required local authorities to either:

- Establish a local audit panel to make their auditor appointment. The local audit panel must consist of a majority of independent members and must have an independent chair. The panel must have a minimum of three members of which at least two must be independent, or

- Opt into any sector-led body that may be established as the appointing person under the Local Audit and Accountability Act and relevant regulations. If they decided to do so, the authority would not need an auditor panel.


To be considered independent under the regulations, the panel members:

- Could not be elected members or officers of the authority.

- Could not have been elected members or officers of the authority in the last 5 years.

- Could not have a familial relationship or friendship with an elected member or officer of the authority, a connected authority or connected entity.

- Could not have a contractual relationship with the authority either personally or through a corporate body.

- Could not be an employee, partner or director of the current auditor, previous auditors within five years, or of a prospective auditor.

The panel members were required to have the sufficient skills, knowledge and experience to carry out their roles, these were likely to include at least a general knowledge of:
- local authority finance

- accountancy (public sector or commercial)

- audit processes and regulation (public or private sector, external/local audit or internal audit), including more specifically,

- the role and responsibilities (statutory duties) of a local public auditor in local government

- The existing Audit Committee could not act in this role in its current format.

It was not recommended that the Council adopted this approach for a number of reasons:

- The appointment of independent members would need to be subject to a recruitment process and these would be salaried appointments.

- The appointment of the external auditor would be a full EU procurement process due to the cost of the contract over its lifetime of five years (a compulsory time period).

- The contract price that would be negotiated by the Council was likely to be higher than that available through a larger group of authorities or a body acting on behalf of the sector.

It should be noted that the Audit Commission and PSAA had negotiated significant reductions in external audit fees over recent years which had seen the fee paid by Stockton reduce from £311,000 in 2010/11 to £126,758 for the most recent year, 2015/16. The planned fee for 2016/17 remained at £126,758.


Under the Local Audit and Accountability Act 2014, a body could be established which would act as the appointing person. It would then make auditor appointments for the authorities that had opted in to its services. Public Sector Audit Appointments Ltd had now been established as an appointing person.

PSAA had written to the Council asking whether it wished to become an opted-in authority. It was recommended the Council accept this offer and become an opted-in authority.

The decision to accept the offer from PSAA to become an opted-in authority must be approved by the Council meeting as a whole. It was proposed that this approval would be sought at the same time as the budget and Council Tax is approved in February 2017. The deadline to opt-in was 9th March 2017.


The Local Audit and Accountability Act set out a range of other options that were allowable under the Act. These were:

- set up a panel jointly with one or more other authorities, however there had been no interest expressed in doing so within the Tees Valley to date.

- use an existing committee or sub-committee to act as the auditor panel (subject to compliance with the other provisions and regulations relating to auditor panels)

- ask another authority’s auditor panel to carry out the functions for the authority. Again there did not appear to be any interest in doing this locally.

The adoption of any of these other options was not recommended.


Appointed auditors would operate under the National Audit Office’s Code of Audit Practice and must have the necessary skills, knowledge and experience to carry out the role. At present only five companies were appointed to provide external audit to local government; these were: Mazars LLP, Grant Thornton LLP, BDO LLP, Ernst & Young LLP and KPMG LLP. PWC LLP and Deloitte LLP no longer provided external audit services to local government.

Members asked if Mazars could be reemployed by the authority. The Chief Accountant stated that it would be the PSAA that would make the appointment should the sector-led audit appointment be agreed. Mazars contract had been extended to 2017/18, and that an appointment under the new arrangements must be made by December 2017 at the latest. There were a limited number of companies able to provide the audit service required for local authorities and Mazars were one of those companies. The ultimate decision would lie with PSAA.
The Chartered Institute of Public Finance & Administration (CIPFA) stated that an effective Audit Committee would produce annual reports on its work and findings.

This report was to inform members of the work of the Audit Committee during the past year and the sources of information upon which the enclosed Audit Committees opinion statement was based.
Consideration was given to the Work Programme.

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