Corporate Governance, Audit and Standards Committee - Monday, 9th April, 2018 7.00 pm - Agenda and minutes

To confirm the Minutes of the Meeting held on 29th January, 2018 (copy attached).

The Minutes of the Meeting held on 29th January, 2018 were approved and signed by the Chairman.

To receive an update from Ernst & Young (copy attached) on the progress of the 2018/19 audit.  Andrew Brittain and Justine Thorpe from Ernst & Young will be in attendance at the meeting.

The Committee welcomed Andrew Brittain and Justine Thorpe from Ernst & Young who presented the company’s External Audit Progress Report, which summarised the work undertaken since the meeting of the Committee in January 2018. 

The Committee was advised that the interim audit had been performed in February and that work had been commenced on two value for money risks: delivery of a sustainable medium term financial strategy; and, the effectiveness of the Council’s risk management framework. 

The year-end audit was due to commence on 25th June, 2018.  In advance of this visit the external auditors would be meeting with Finance staff on 26th April, 2018 to discuss their detailed working papers request to help ensure that the audit could commence promptly on the agreed date. 

The progress report also set out key messages for the Council in respect of the earlier timetable for accounts production and audit completion for 2017/18.

RESOLVED:  That the External Audit Progress Report be noted.

To receive a copy of the external auditor’s briefing paper (copy attached), which covers issues which may have an impact on the local government sector and audits undertaken.

The Committee received Ernst & Young’s Local Government Audit Committee Briefing, which covered Government and economic news, accounting, auditing and governance, regulation news and key questions for the audit committee.

RESOLVED: That the Local Government Audit Committee Briefing be noted.

To consider the Head of Financial Services’ Report No. FIN1813 (copy attached), which provides an update on the introduction of International Financial Reporting Standard (IFRS) 9, the new accounting standard relating to financial instruments, including investments that will apply to local authorities for the 2018/19 financial year and onwards. 

The Committee considered the Head of Financial Services’ Report No. FIN1813, which provided an update on the introduction of International Financial Reporting Standard (IFRS) 9, the new accounting standard relating to financial instruments, including investments that will apply to local authorities for the 2018/19 financial year and onwards.

One of the key impacts of IFRS9 would be that, while many local authority loans and investments would continue to be held at amortised cost, gains and losses arising from changes in the fair value of some categories of investment would have to be recognised in the Council’s revenue account.  This meant that, from 2018/19, changes in the value of certain investments would have a consequential impact on the general fund.  Previously, such changes would only be recognised in the revenue fund when the asset was sold.  The introduction of IFRS9 to local authority accounting had the potential to cause major fluctuations in the Council’s net budget requirement and could result in a negative impact on council tax payers, as reserves would have to change to reflect any unrealised losses or gains. 

While there was potential for the Government to introduce a statutory override, which would negate this effect, consultation on such proposals had yet to be issued.  

Arlingclose, the Council’s Treasury Management advisers, had advised that, when first adopting IFRS9, the Council could irrevocably elect to account for individual investments as “equity instruments” at fair value through other comprehensive income (FVOCI), which was very similar to the current available for sale accounting.   Investments purchased after the transition to IFRS9 might also be elected to FVOCI upon acquisition. 

Taking the proposed action would ensure that movements in the fair value of the Council’s strategic pooled fund investments would not be taken to the revenue account after the application of IFRS9, thereby providing the Council with some certainty over the treatment of the assets specified in the election and would mitigate the risk that a statutory override might not be implemented. 

Members discussed the potential size of the impact on the general fund if IFRS9 were to be introduced with no statutory override and without the election to treat as FVOCI.  Clarification was also provided that there was no cost to making the election.  Members were supportive of the approach outlined in the Report.

RESOLVED:  That approval be given to the irrevocable election to treat the Council’s strategic pooled funds as “equity instruments” at fair value through other comprehensive income (FVOCI) on 1st April, 2018, as set out in the Head of Financial Services’ Report No. FIN1813. 

To consider the Head of Democratic and Customer Services’ Report No. DEM1803 (copy attached), which proposes changes to the Council’s governance structure.  It is proposed that the existing policy and review panels will be replaced by one Overview and Scrutiny Committee and a Policy and Project Advisory Board.  There are also a number of changes to be made to the Cabinet working arrangements, although the review of portfolio responsibilities is still to be completed.  This will be determined by the Leader, who has authority to do this within the Constitution. Finally, this report also  proposes a number of consequential changes to documents within the Constitution.

The Committee considered the Head of Democratic and Customer Services’ Report No. DEM1803, which proposed changes to the decision making structure. 

The Report advised the Committee of the background to the review, which included: the new political leadership which was focusing on delivering a wide range of priorities through its Council Plan; the results of a recent Peer Challenge Review, which had recommended a change in approach to scrutiny and overview; and, changes to internal working arrangements and restructuring of the organisation.

In undertaking the review of the governance structure, Members had been consulted and research had been undertaken on the way in which other organisations undertook their overview and scrutiny and policy development work.  The following objectives had also been used to develop a new structure and working arrangements:

·                    re-working the Cabinet portfolios to secure a more even spread of responsibilities

·                    providing a focus for the delivery of the Council Plan and Member priorities

·                    streamlining and re-working the policy and review panel structure to provide clarity for scrutiny and policy development

·                    establishing opportunities for Members to develop their roles

In respect of Cabinet working arrangements, the Report advised that the portfolios would be reviewed and this would be finalised by the Leader of the Council.  Under the proposed new structure, working/standing groups would report to the Cabinet (e.g. Budget Strategy Working Group, Member Development Group, Community Cohesion Group, Elections Group).   The Cabinet was keen to establish some roles that would provide development opportunities for Members who were not on the Cabinet.  It was proposed that Cabinet Champions could be used to work on a particular area or project that did not fall within an existing portfolio.  These would reflect certain priorities within the Council Plan.  There would be a maximum of three Cabinet Champions per year to be reviewed annually by the Cabinet and appointed by the Leader. 

In respect of the Council’s work on scrutiny, it was proposed that one committee should be established to drive the scrutiny process, concentrating on performance, progress chasing and pre-decision scrutiny of items on the Cabinet Work Programme.  The committee would consist of eleven Members with a Chairman and two Vice-Chairmen who would provide active support to the Chairman by chairing task and finish groups and co-ordinating the work.  Task and finish groups would be established to carry out specific areas of scrutiny identified by the committee and would consist of Members drawn from all Council Members who were not on the Cabinet.  The Chairman and Vice-Chairmen would be required to undergo training for chairing meetings and managing the scrutiny process. 

In respect of developing policy, it was proposed to set up a Policy and Project Advisory Board which would look at a range of priorities, policy and project areas that would then report to the Cabinet or potentially to the full Council.   The Board would consist of eleven non-executive Members and a Chairman and two Vice-Chairmen.  The Vice-Chairmen would lead specific projects and chair task and finish groups, working in a  ...  view the full minutes text for item 46.