(a)

there were two outstanding issues from the 19/20 accounts; one was a national issue of infrastructure assets and how they were accounted. This was expected to be resolved in 2022 via a statutory override. The second issue was regarding the pension transaction as set out in the External Auditor’s September report;

(b)

the report set out the value for money (VFM) report for two financial years (20/21 and 21/22) and could only be finalised once the accounts were finalised therefore the report remained interim. The National Audit Office changed the approach to VFM beginning 1 April 2020 and brought in the requirement for a detailed report which required auditors to give a commentary on three areas: financial sustainability, governance and economy, efficiency and effectiveness;

(c)

the report focused upon financial sustainability and the risks facing the council surrounding this, specifically regarding demand led pressures and inflation.  Croydon Council’s section 114 report was referenced as well as Hampshire County Council and Kent County Council and the struggles they were facing;

(d)

page 15 of the pack set out a summary table with the external auditor’s conclusions in all three areas; there were three key recommendations which had to be addressed, as well as improvement recommendations which were good practice to be addressed. The three key recommendations focused upon council tax levels; the medium term financial plan and staffing arrangements in the finance department.

(e)

a statutory override was being laid by the Department for Levelling Up and Communities and Housing within the next few weeks; this was not a matter for people to vote for or against and was instead a formality which had to go through the parliamentary process. This would come into force around Christmas and as a result of this override there was expected to be a major increase in accounts being signed off; for Plymouth this was one issue that would be dealt with, leaving the outstanding pension issue remaining;

(f)

in terms of value for money, the external auditor was required to carry out an assessment of the arrangements the Council had in place to achieve VFM. In terms of childrens/ adult services, the opinion of regulators of the services was taken into account. If the CQC or Ofsted deemed the Council’s arrangements to be inadequate that would have an impact upon the external auditor’s assessment;

(g)

the Council had a duty to achieve a balanced budget position by law therefore the external auditor considered that putting the council tax up to the referendum limit of 5% would give the Council an opportunity to make more savings;

(h)

by increasing the council tax it gave the Council the opportunity to increase its funding base going forward. This may put pressure on families however there were schemes such as the Council Tax Support Scheme available – political choices and options had to be made however every time the Council made a decision not to put the tax up it either had to use reserves (which wasn’t considered sustainable) or use other savings. The external auditor highlighted that if the Government made an assumption that council taxes would rise, and if it was an option, then it should be seriously considered by the Council;

(i)

the report work was carried out by the external auditor over the summer period of 2022 and into October 2022; some of the detailed commentary in the report reflected historical matters however it was highlighted that this was a fast moving situation and the council was in the process of taking a number of actions to address its financial situation;

(j)

the Council was open and transparent in communicating that there was a £37.5m gap in the budget that needed to be addressed in order to balance the budget, as was the legal duty. Approximately £26m of savings were out for public consultation and had been communicated with the Council’s scrutiny panels and opposition political parties however this still left £11m of savings to find. Even if the Council tax was raised to the full 5% it was considered that this wouldn’t entirely fill the gap in the Council’s budget therefore it was a serious consideration but further options would need to be investigated;

(k)

the External Auditors 20/21 and 21/22 Annual Report was expected to be an accompanying document to the Council’s budget scrutiny sessions scheduled for January 2023 as it was considered useful to have an external commentary to inform the budget scrutiny process. It was suggested by the external auditor that the recent Section 114 report from the Financial Director at Croydon Council, and the report produced in September on public interest reports and the lessons learned might also be useful documents to consider;

(l)

one of the challenges of a Section 151 officer was that the Government funding was not clearly set out over a significant period of time and there was now considered to be an inflationary spiral where it was not known when it would end. The Council needed to make a judgment as to what it expected inflation to be; there was advice from the Bank of England on their expectations and indications of those would play into the Council’s budget setting process;

(m)

the outstanding issues in the Council’s 19/20 accounts regarding the pension transaction was the subject of a degree of legal debate by the external auditor. The latest position was that the external auditor’s KC needed to have a discussion with actuarial valuations given for the pension transaction – the council was still exploring that issue with the actuary and it was hoped that this issue would be concluded shortly.

1.

that web-links to the recent Section 114 report from the Financial Director at Croydon Council, and the report produced in September on public interest reports and the lessons learned, would be provided to Members for their consideration;

2.

that the External Auditor – Auditors 20/21 and 21/22 Annual Report recommendations should be submitted to Cabinet for consideration, as well as the minutes of the Audit and Governance Committee relating to the discussion of this item;

3.

To note the recommendations contained within the External Audit – Auditor’s 20/21 and 21/22 Annual Report.