A verbal update on the account’s improvement plan, by Marion Kelly, Finance Improvement Team.

Mr Kevin Bartle, Interim Corporate Director for Resources, Ms Marion Kelly Finance Improvement Programme Director and Mr Tim Harlock, Interim Chief Accountant presented the progress made in completing the accounts for 2018/19 and 2019/20.

Mr Bartle said he was tremendously pleased both set of accounts had been reproduced and reinstated with the draft set of accounts attached at item 4.1. He thanked his team for all their hard work in achieving this milestone and said this achievement was no mean feat. He informed members the presentation would discuss the findings of the independent review and provide a summary of the progress made to date in implementing the recommendations. He said it would also provide an update on the accounts for both years as well as the Council’s Improvement plan with key actions being triaged into Phase one and Phase two of the improvement plan.

With respect to the independent review Mr Bartle said this was now publicly available on the Council’s website. The review had set out 24 recommendations in four sections, which had been summarised into two sets of higher-level recommendations. Those which the Council should do to complete the 2018/19 Audit and another set recommending what the Council needed to do to sustainably improve its Accounts process.

Mr Tim Harlock, Interim Chief Accountant then provided a summary of the challenges incurred in producing the 2019/20 accounts and the third version of the 2018/19 accounts. Mr Harlock said correcting the errors in areas such as discrepancies in CIL accruals, school accounting errors, Thames Water charges and leaseholders had taken an inordinate amount to time to resolve. He said smaller errors such as the completing of the NNDR3 form and valuations of assets had also impacted on resources with each query having to be worked through.

Ms Marion Kelly, the Improvement Plan Programme Director explained the Improvement Plan would be in two phases as it was simply not possible to implement all the changes in one go. Ms Kelly said in Phase One a series of reviews would be undertaken, and changes would be made before the end of March 2021 with a further set of changes being made by May 2021 before the 2020/21 accounts need to be produced. Phase Two would deal with key improvements that cannot be completed in a short timeframe and would be led by the soon to be appointed Chief Financial Officer.

Mr Kevin Bartle said a considerable amount of changes were required and hoped the detailed presentation provided sufficient detail on the challenges faced in producing the accounts. He said he hoped to have a set of qualified accounts to present at the July 2021 meeting.

The Chair thanked the Officers for their presentation and acknowledged the work of the finance team in producing the accounts as well as taking forward the improvement plan.

In response to questions from Members the following was noted:

·         The Improvement Plan Governing Board would start reporting in February 2021 to the Corporate Leadership Team.

·         Mr Bartle said the overhaul of Agresso was part of Phase Two because whilst this remained a concern any move to a new system or ERP solution would be a two-year project and therefore it was simply not advisable to do this straight away. Mr Bartle said the finance team was working alongside the IT team to ensure changes to the current software Agresso could be made with extra features such as better budget management and financial controls. He said he was confident these changes would help improve the collation of data in the production of the 2020/21 accounts. He said the changes which they wanted to make were broken down into phases in terms of what can be achieved with the existing resource levels and with additional resources.

·         Councillor Marc Francis asked why the presentation had not been made available to members before the meeting.

o   ACTION: Mr Kevin Bartle said the presentation would be circulated to members directly after the meeting. He said the presentation summarised the detail in the full report attached to the agenda at item 4.1.

·         In response to if the delays in producing the accounts were a result of the restructure of the finance team from Directorate level teams to a centralised team, Mr Bartle said the restructure did impact of the production of the accounts, as stated in the independent review. He said in his view, he would have done things differently and whilst some staff left the organisation at that point, staff remained in their directorates with some functions moving to the centre. For example, the HRA (Housing Revenue Account) was moved to the centre however he believed this should be the responsibility of the Place Directorate and therefore this has been moved back to that Directorate.

·         In addition, Mr Bartle explained the work undertaken to investigate and conclude queries in relation to the accounts had been done substantially by existing staff. However, additional expertise had been recruited by way of interim staff to help mentor, coach and improve the process. He said it ought to be recognised that some of the issues stem from the software system not being set up properly. This had resulted in officers having to work much harder to attain the information they needed. For example, for one year there were over 100,000 journal entries and as such a piece of work is required to rationalise this, so staff can do their job more efficiently and effectively.

·         Mr Tim Harlock, Interim Chief Accountant explained the £13m schools accounting errors could be broken down into two areas. He said £11.7m had been covered by General Fund resources, following a report to Cabinet in July 2020 to draw down from reserves but £1.3m did effect school balances directly. He said this was where advances had been made to Schools but had not been accounted for correctly in the general ledger. Mr Harlock said the £11.7m related to multiple errors. He said the accounting discrepancies lied with officers of the Council rather than officers in the schools. He said the £11.7m errors related mainly to one year, made by a temporary officer who no longer worked for the Council.  

·         In response to how many other finance functions, other than the asset register were reliant on Excel, Mr Bartle explained quite a few areas needed to be transferred to a proper accounting system. Mr Bartle said owing to the complexity of the work needed, the Improvement Plan had been broken down into bitesize chunks however more information could be provided to the Committee. 

o   ACTION: Mr Bartle to make available a list of finance functions reliant on Excel to be provided to the Members of the Audit Committee.

·         In reply to what the criteria is to retain staff, given the enormity of the work required by the Improvement Plan, Mr Bartle said an assessment would be made regarding resources and this would be reported to the Chief Executive, CLT and Cabinet for decision. He said the demand for finance staff would need to be balanced against pressures in other parts of the organisation.

·         In relation to the Thames Water charges £9m had been set aside for the compensation scheme, however decisions were required on how repayment would be made to current and past tenants.

·         Leaseholders are consulted on works carried out to their property and are billed for this. The anomaly referred to in the slides relates to errors in accounting when there is slippage in the timing of billing into the next financial year.

o   ACTION: Mr Harlock to consult with Tower Hamlets Homes to find out how much notice is given to leaseholders in relation to billing of works carried out to their properties.

·         The school accounting errors centred around the Council’s accounting of returns. More work is required to validate the returns made and to reconcile these. The independent review recommended monthly reconciliations however under the Improvement Plan, the finance team were aiming for quarterly reconciliation. The newly appointed chief finance officer for the Children’s Directorate would be overseeing the process and building the relationship with schools.

·         Councillor Edgar stated it was vital the central finance team had a strong level of control and oversight to improve the quality and delivery of outputs.

The Audit Committee RESOVLED to:

1.    Note the progress on completing the 2018/19 and 2019/20 Accounts; and,

2.    Note the contents of, and the initial response to, the Independent Review and the intention to bring a detailed Improvement Plan to the Audit Committee at its 7^th April 2021 meeting.