Agenda and minutes

Audit Committee
Thursday, 8th December, 2016 7.00 pm

Venue: Civic Offices, St Nicholas way, Sutton, SM1 1EA

Contact: Fiona Bywaters, Committee Services Team Leader  Tel: 020 8770 5122 | Email:

No. Item


Apologies for absence


There were no apologies for absence.


Minutes of the last meeting pdf icon PDF 133 KB

To approve as a correct record the Minutes of the meeting held on 22 September 2016.



RESOLVED: that the Minutes of the meeting held on 22 September 2016 be agreed as a correct record.



Member Development

Member development on the topic of ‘risk management’.




The member development session focussed on risk management in the London Borough of Sutton, as presented by Phil Butlin, Executive Head of Finance. The presentation outlined:


·         What is risk management?

·         Key Concepts

·         The approach of the London Borough of Sutton

·         Guidance and support available



Declaration of interests


No declarations of interest were made.



Order of Items


The Chair announced that Item 9 – Insurance Service Review 2015/16 – would be heard first on the agenda.



Insurance Service Review 2015/16 pdf icon PDF 88 KB

The report provides assurance that the insurance service is operating efficiently and effectively as well as acting on a commercial basis providing services to other local authorities and generating new income.


Appendix A: EXEMPT


Additional documents:


Bradley Peyton, Insurance Manager, presented the report.


Members posed questions on differences between authorities with regards to insurance matters, strategy and purchasing, savings achieved, the insurance trading account, the vision and forward plan.


Further clarifications were sought as to each of the arrangements in place with other local authorities and the consolidation of existing resources.



1.    The efficient and effective operation of the insurance service be noted.



Treasury Management update – Mid Year 2016/17 pdf icon PDF 128 KB

This report is the treasury management review for the quarter ended 30 September 2016. It summarises the Council’s Treasury Management operations during the first six months of 2016/17. It is presented for the purpose of monitoring and review and meets best practice as suggested by the Treasury Management Code of Practice.


Additional documents:


Lyndsey Gamble, Head of Financial Strategy and Planning, presented the report, focussing on the review of the Lender Option Borrower Option (LOBO) loans and the Municipal Bond Agency framework agreement.


The Head of Financial Strategy and Planning gave a verbal update on the review that had been undertaken of the Council’s LOBOs. The review covered three areas:


·         Structure of the LOBOs,

·         Decision-making,

·         Fees and levels of risk.


The Head of Financial Strategy and Planning explained that the LOBOs held by the Council are all loans of a simple structure and a fixed interest rate during the primary period of the loan. They continue to be fixed in the secondary period with the lender having the option to change the interest rate. Should this occur, the Council has the option to repay the loan and refinance elsewhere. The interest rate on the loan is fixed and is therefore not linked to movements in interest rates.


As part of the decision-making process, the Council had compared the loan structures and interest rates available for each of the financing options. It was explained that the Council paid a broker’s fee for the arrangement of the loan and that this was greater than the level of fees which would be applicable under a PWLB loan.


It was added however, that there was a significant difference between the interest rates on available Public Works Loan Board (PWLB) loans and the LOBOs and the increased fees would have been covered by the lower interest payment in just one year. Levels of risk with the LOBOs were explained to be low, but with the addition that a small risk exists in that the lender may look to increase the interest rate in the future, however, if this happens the Council has access to the PWLB for refinancing. 


With regards to the Municipal Bond Agency framework agreement, Members discussed the key risks of the framework and the mitigation factors put forward. Clarification was sought as to the obligations outlined in Paragraph 4.20 of the report, the credit rating confidentiality mentioned by Paragraph 4.22 and the borrowing options of Paragraph 4.24.


Members questioned who would be able to borrow via this process which was confirmed to be local authorities only at present. Members further discussed the role of the Municipal Bond Agency in the review of credit ratings. Members were given assurance that the methodology was similar to that used by the three main ratings agencies, Members confirmed that they were comfortable with the proposal, but questioned the process of monitoring the credit ratings given by the Bond Agency.


Further discussion centred upon investment strategy as mentioned in Paragraphs 4.11 to 4.14 of the report. Finally, it was clarified that Paragraph 4.29 should read as an increase of 0.25%.



1.    The Treasury Management activity undertaken during the first six months of the year be noted.

2.    The proposal to sign the Municipal Bond Agency framework agreement was considered and commented upon.

3.    This report be adopted  ...  view the full minutes text for item 32.


Internal Audit – Half Year Progress Report pdf icon PDF 199 KB

In March 2016, the Audit Committee agreed an Annual Audit Plan comprising a total of 765 chargeable days. This report summarises Internal Audit’s progress in delivering the Annual Audit Plan up to October 2016.


Additional documents:


Margaret Culleton, Head of Internal Audit, presented the report.


Members discussed the 2016/17 Audit Plan under Paragraph 3.4 of the Internal Audit: Progress Report.


It was suggested by Members that information on actions taken in respect of Appendix B of the report would prove useful to include, as well as a timetable of their implementation. Gerald Almeroth, Strategic Director of Resources, confirmed that all proposed actions had to be approved by management as recommendations.


Specific regard was given to the environmental risk management, Tweeddale Primary School and Sutton Music Service opinions outlined under this same Appendix. The Chair questioned the authorisation required in the creation of non Council bank accounts, and the Head of Audit committed to confirm the details behind the establishment of a separate bank account under Opinion 5. The deficits outlined under Opinion 7, Sutton College, were also discussed among Members with the Executive Head of Finance clarifying its status as a separate entity in relation to the Council. The Chair requested further detail as to the role of Sutton College and its relationship with the Council from the Officers following Committee.


The Strategic Director of resources reminded the Audit Committee that the relevant Executive Head could be called to committee to respond to audit concerns.


Members asked whether audit services could be offered to other external entities to which Strategic Director Resources, responded that any such consideration would have to offer business advantages. The Chair added that the remit of the audit function currently related to local authority financial interests. Discussion on Sutton Housing Partnership using separate auditors (Mazars).  The Head of Internal Audit stated that the council's Internal Auditors still had access to information and Internal Audit work had recently been undertaken at Sutton Housing Partnership on Capital Works.



1.    The internal audit half year progress report was considered and commented upon.



Annual Audit Letter 2015/16 pdf icon PDF 114 KB

The Annual Audit Letter for 2015/16 formally reports the outcome of the external audit of the Council’s financial statements for the year and the auditor’s opinion on the Council’s arrangements to secure value for money. The auditor gave an unqualified opinion on the financial statements, including the pension fund statements, and concluded that the arrangements to secure value for money were adequate.


Additional documents:


Phil Butlin, Executive Head of Finance, presented the report with further information provided by the representatives of Grant Thornton.


The representatives of Grant Thornton clarified that the Highways Network Asset changes referred to in the Annual Audit Letter was now to  apply from the  2017/18 accounts. In addition, the additional fee of £8,000 mentioned under Paragraph 4.6 was confirmed.


Member discussions focussed on the Pension Fund, the reports issued and associated fees (in particular what was meant by ‘recovery’).



1.    The outcome of the external audit of the Council’s accounts for the 2015/16 year be noted.

2.    The work in progress to address the auditor’s recommendations be noted.

3.    Any comments on the annual audit letter or matters arising from it were considered and it be recommended to the next meeting of the Strategy and Resources Committee.



SWLFP Anti-Fraud and Investigations Update pdf icon PDF 150 KB

This report summarises the results of the Council’s Counter-Fraud and investigations work undertaken since 1 April 2016, including an update on investigations undertaken by the South West London Fraud Partnership.


Additional documents:


Kevin Holland, Deputy Head of Fraud & Risk (SWLFP), presented the report. Particular attention was drawn to Paragraphs 3.6 and 3.7 of the report and the amended governance arrangements.


Members questioned the effectiveness of the new governance arrangements and their performance was confirmed as positive by the Executive Head of Finance.


Further clarification was sought in respect of Paragraph 4.8, tenancy data-matching, and the status of the cases there-mentioned was elaborated upon by the Deputy Head who committed to provide further detail to Members following committee.


With regards to the National Fraud Initiative, Members questioned the work undertaken in relation to the data sets of the London Borough of Sutton. The Deputy Head confirmed that these had been completed and submitted since the publication of the report.


Further discussion related to the results of cases closed (Appendix A), including whether this had involved criminal prosecution with regard to properties in Sutton. The Deputy Head confirmed that prosecution had not been merited in the instance mentioned.


The Chair questioned the Deputy Head as to potential future concerns. It was responded that in other authorities, this currently related to No Recourse to Public Funds. Internal Audit work is currently being undertaken on these areas in the first instance.



1.    The contents of the fraud referrals and investigations update were commented upon and noted.



Appointment of External Auditors pdf icon PDF 99 KB

The Local Audit and Accountability Act 2014 abolished the Audit Commission and put in place a new local audit and accountability framework for local public bodies in England. This framework allows local bodies the freedom to appoint their own auditors from an open and competitive market and to manage their own audit arrangements, with appropriate safeguards to ensure independence.



Phil Butlin, Executive Head of Finance, presented the report.


Member discussion focussed on details mentioned under Paragraph 3.3 and 3.4 of the report with regards to consultation with an independent auditor panel and eligible audit firms.


Members asked about the arrangements to ensure that neighbouring boroughs had the same auditor as mentioned in paragraph 4.5. The Executive Head of Finance outlined his understanding of how the process would operate. If the Committee and subsequently Full Council agree with the recommendations Public Sector Appointments Limited (PSAA) would be notified that Sutton wished to opt in. PSAA would conduct a procurement, likely appointing an auditor and a substitute for each lot based on geographical areas. The substitute would be used where the main appointment could not take up the appointment due to conflict of interest. Otherwise the successful bidder for the relevant lot would be appointed as Sutton’s auditor.


The Executive Head of Finance confirmed that the recommendations did not require any changes to the function of Council Committees. .



1.    It be recommend to Full Council that the London Borough of Sutton opts in to the appointing person arrangements made by Public Sector Audit Appointments Limited (PSAA) for the appointment of external auditors from 2018/19 onwards.



Audit Committee work plan pdf icon PDF 56 KB

The Committee’s Work Plan is attached.


The committee noted the work plan.


Any urgent items brought forward at the discretion of the Chair

The Chair must approve the reason for urgency.


There was no urgent business.


Date of next meeting

The next meeting of the Audit Committee will take place on 16 March 2017.


The date of the next Audit Committee meeting was confirmed as 16 March 2017.