An apology for absence was received from Cllr Jenny Wallace; Cllr Alison Williams substituted.

The minutes of the Finance and Audit Committee held on Wednesday, 06 November 2024 were agreed and signed by the Chair.

No declarations of interest were made.

The Committee were presented with a report that informed them of the findings of the Council’s External Auditor, Grant Thornton UK LLP, from the audit of the council’s financial statements and arrangements for securing Value for Money for the years ending 31 March 2021, 31 March 2022 and 31 March 2023.

Appendix one to the report provided the conclusion of the audit undertaken by Grant Thornton on the Council’s financial statements for the years ended 31 March 2021, 31 March 2022 and 31 March 2023. The Accounts and Audit (Amendment) Regulations 2024, which were approved on 30 September 2024, set a date for the completion of external audits up to and including 2022/23 of 13 December 2024.

The External Auditor, Grant Thornton reminded the Committee of the Governments intention to implement a backstop to sign off accounts for the financial years 2020/2021 to 2022/2023 in order for all Councils to catch up to the current financial year; the original deadline was 24 September 2024, but the new Government amended the deadline to Friday, 13 December 2024. The External Auditor estimated that there would be circa 50% of Councils across the country with backstopped audits, up to and including the 2022/23 accounts, in place by that date. 

Set out below were the statutory backstops dates for the financial years 2023/24 up to 2027/28:

• 2023/24: 28 February 2025
• 2024/25: 27 February 2026
• 2025/26: 31 January 2027
• 2026/27: 30 November 2027
• 2027/28: 30 November 2028

The External Auditor, Grant Thornton stated that a lot of their time was spent on the 2019/20 accounts due to the technical issues with the St Georges transaction but that was resolved now, and he advised that they would have caught up with the outstanding accounts given enough time. Due to the Government deadline, and the consequences of not producing signed off accounts on the backstop date, Grant Thornton had taken a different approach to meet the deadline. On the audit of accounts for the years 2020/21,2021/22 and 2022/23, a statutory disclaimer had been applied which stated that the accounts hadn’t been audited but had been required to be closed due to the backstop; Members were assured that the Council was fully compliant with the backstop requirements. The External Auditor, Grant Thornton added that all value for money work had been completed on those three years of accounts, which could be viewed at appendix one.     

The External Auditor, Grant Thornton fielded questions from Members and explained that:

• A requirement of auditing accounts was to identify those things that might be material and pervasive; the issue with the backstop was that the accounts had not been audited which therefore meant that theoretically there could be material and pervasive errors in the accounts. The wording on page 23 ‘We have concluded that the possible effects on the financial statements of undetected misstatements arising from this matter could be both material and pervasive’ accounted for that unknown and that wording was standard in all local authority accounts that were implementing  ...  view the full minutes text for item 42.

The Committee was presented with the draft Statement of Accounts for 2020/21 for consideration and approval was sought for the Chair of Finance and Audit Committee to sign the audited Statement of Accounts for 2020/21 and the Letter of Representation.

The Assistant Director (Corporate Services) took Members through the 2020/21 accounts on pages 41-167 of the report and highlighted key points; the information provided was further to the video issued previously in advance of the meeting to the Committee.

• 2020/21 was the first year of Group Accounts, showing the Council’s relationship with the Rosherville Companies, and a consolidated set of Group Accounts. The Group Accounts looked at Rosherville as a whole, and the overall Group position was that of the Council and Rosherville combined, but with transactions between the two excluded
• A key movement on the balance sheet on page 92, was in the top line relating to the Council dwellings. It reflected the increase in property valuation of the Council’s Housing Stock between 2020 and 2021
• Another significant item was the increase in the Short-term creditors on the balance sheet, increasing by approximate £14.5m. which had largely arisen where the Council received significant government funding to distribute as part of Covid-19 support. Funds were dispersed to local businesses in accordance with government policy, however the final reconciliation of the schemes took much longer to complete, and thus as at the year-end the Council was holding funds due to return back to government
• There were around £5.5m in Usable Reserves at the bottom of the balance sheet which was attributable to a one-off increase in the Business Rates Equalisation Reserve relating to Covid-19 grant funding

The Director (Corporate Services) fielded questions from the Committee and explained that:

·        In 2019, the Council had identified a gap in the financial position of the Council and determined that a multi strand approach needed to be undertaken, one of those strands was to secure additional income streams as part of the ‘bridging the gap’ activity. The Council created a Local Authority Trading Company called Rosherville Limited which was an opportunity to bring forward the objectives of the council around housing and development and assist in income maximisation to balance the budget. Rosherville Limited was owned by the Council but operated as a commercial entity. One of its subsidiary companies, Rosherville Property Development Limited, was being used to bring forward the  Charter development which was viewed as a significant catalyst for regeneration opportunity for the Town Centre. Other income streams were currently being investigated through the use of Rosherville subsidiary companies.

Resolved that Members:

• considered the draft Statement of Accounts for 2020/21 and agreed that the Chair of the Finance and Audit Committee sign the Statement of Accounts for the Council subject to any final comments received by the External Auditor. Any further amendments required will be notified to members of the Finance and Audit Committee

• approved the Letter of Representation at Appendix Two of the report for signing by the Chair of the Finance  ...  view the full minutes text for item 43.

The Committee was presented with the draft Statement of Accounts for 2021/22 for consideration and approval was sought for the Chair of Finance and Audit Committee to sign the audited Statement of Accounts for 2021/22 and the Letter of Representation.

The Assistant Director (Corporate Services) took Members through the 2021/22 accounts on pages 177-299 of the report and highlighted key points; the information provided was further to the video issued previously in advance of the meeting to the Committee.

·        A significant change on the balance sheet was an increase in long term debtors from £2.573m in 2020/21 to £11.793m in 2021/22.  A long term debtor was the total amount owed to the Council by a third party which the Council did not expect to receive within the next 12 months.  In 2021/22, the movement between the two years primarily related to the Council’s increased interest in its wholly owned local authority trading company, Rosherville and its subsidiaries

·        During 2021/22 the Council provided Rosherville Property Development with £9.2m worth of loans towards the cost of the Charter in line with the approved scheme within the capital programme.  As at 31 March 2022 those loans were not due to be repaid within 12 months and so they had been included in the balance sheet as a long term debtor

·        The value of the Council’s short term investments also increased during 2021/22 from £16m in 2020/21 to £27m by the end of March 2022.  During the Covid 19 pandemic the government issued a number of grants to councils across the country to help businesses and individuals financially. The Council administered those loans on behalf of the Government and facilitated payments. The reconciliation of those grants took some time to be concluded and therefore whilst the Council held those grant balances, the money was invested short term in accordance with the Treasury Management Policy.

·        Alongside the long term debtor, the Council undertook borrowing to facilitate the loan payments to Rosherville Property Development Ltd. When the development commenced all loans secured were taken to mid-April 2024 to coincide with the original forecast completion date; the majority of the loans had a maturity date of over 12 months and were classified as long term borrowing.

·        Within the Unusable Reserves section there was an increase in 2021/22 of around £29m which related to increases in the valuation of Property, Plant and Equipment and Investment Properties held in the Revaluation Reserve and Capital Adjustment Accounts. Those reserves were deemed “unusable” in the sense that they related to the timing of valuation movements, and did not get realised until assets were bought/sold

Resolved that Members:

• considered the draft Statement of Accounts for 2021/22 and agreed that the Chair of the Finance and Audit Committee sign the Statement of Accounts for the Council subject to any final comments received by the External Auditor. Any further amendments required will be notified to members of the Finance and Audit Committee

• approved the Letter of Representation at Appendix Two of the report for  ...  view the full minutes text for item 44.

The Committee was presented with the draft Statement of Accounts for 2022/23 for consideration and approval was sought for the Chair of Finance and Audit Committee to sign the audited Statement of Accounts for 2022/23 and the Letter of Representation.

The Assistant Director (Corporate Services) took Members through the 2022/23 accounts on pages 309-431 of the report and highlighted key points; the information provided was further to the video issued previously in advance of the meeting to the Committee.

• There was a further significant movement in the long term debtors between 2021/22 and 2022/23 from £11.793m in 2021/22 to £26.748m. Similar to the previous year, the majority of the increase related  to loans totalling £13.8m provided by the Council to Rosherville Property Development towards the delivery of The Charter
• The Council also provided loan funding of just over £1m during the year to Elizabeth Huggins towards a capital build project on their site in Gravesend. As at 31 March 2023 there was still no expectation for the monies to be repaid within the next 12 months and the expenditure has been categorised as a long-term debtor
• There was a small movement in long term borrowing but a significant increase in short term borrowing from £7.854m in 2021/22 to £36,789m in 2022/23. During 2022/23 interest rates started to increase from their historically low position of the previous few years but were expected to stabilise before falling back. In the early part of 2022/23, there was still a significant supply of very cheap short term money available which the Council accessed to meet its borrowing need. As rates started to increase during the latter part of the financial year, the Council continued to take further loans out to one year with a view of being able to replace them when rates had come down. As at 31March 2023, the Council had significantly more borrowing that was due to be repaid within the next 12 months.
• Within the long-term liabilities section of the balance sheet, there was significant movement in the “Liability Related to Defined Benefit Pension Scheme”. That related to the external valuation of Pension Fund liabilities, undertaken by the actuary, and arose due to their changing financial assumptions for pension valuations. In addition, there was a corresponding change in Unusable Reserves– as Pension Fund changes were effectively valuation movements rather than a cash transactions, the timing of the valuation change was recorded in the report

In response to the Chairs question, the Principal Accountant (General Fund) advised that property valuations were undertaken by Strategic Property Services and a number of things factored into a property valuation including building valuation, the market, rental yield and the property condition etc. The revaluation material changes between 2022 and 2023 in section 14.9 of the report wasn’t a significant movement and swung up and down each year; the Principal Account (General Fund) couldn’t comment on the reasons for the change but during that time there had been movement in valuation of units at  ...  view the full minutes text for item 45.

The Committee were updated on the audit plan and the findings of the Council’s External Auditor, Grant Thornton UK LLP, on the risk assessment regarding the councils’ arrangements to secure value for money for the year ended 31 March 2024.

The Public Sector Audit Manager, Grant Thornton outlined key points from the report:

• At the September Committee meeting, Members were advised that originally Grant Thornton had the intention of performing a full audit on the 2023-24 accounts, but as the backstop date had been brought forward to 28 February 2025, there was not sufficient time for a detailed audit. In order to provide assurances to Members and to members of the public, specifically in response to some of the risks identified within their audit plan,it was agreed with officers to look at the risk assessment and the implementation of design controls and processes by the council to inform the auditors annual report on the value for money arrangements for the authority. That included specifically looking at The Charter transaction, the new group accounts, and the Aviva transaction that occurred in 2023-24.
• A timetable, agreed with Management and the Chair of the Committee, set the work to be completed in January and February 2025
• The report also discussed VFM assurance for 2023/24 and completed risk assessments; outlined in the report was a significant risk of weakness around the Council’s financial sustainability if appropriate action was not taken. The risk would be reviewed in detail as part of VFM audit procedures and an update would be provided in the audit findings report in 2025

In response to the Chairs query regarding the amber judgment on improving economy,efficiency and effectiveness on page 446, the Director (Corporate Services) confirmed that the improvement recommendation came up in discussions with Grant Thornton on VFM arrangements and she confirmed that the recommendation had been actioned which would be reported in due course. A further minor improvement recommendation related to how information was provided to Members on progress against the capital programme; this recommendation has also been actioned and was visible in the next two items on the agenda

The Committee were presented with a budget monitoring report for 2024/25 that provided an

assessment of performance against approved budgets for the 2024/25 financial year for the seven months to 31 October 2024, as well as updating Members on other key areas of financial performance.

The Principal Accountant (General Fund) directed Members to pages 4/5 of the supplementary pack which held an executive summary of the report. 

The Principal Accountant (General Fund) took Members though the report and highlighted key points; Members noted the information provided: 

• against the approved Revenue and Capital budgets for 2024/25, including projected variances agreed or identified through budgetary control activity; and
• on other key areas of financial performance that may impact on the Council’s Medium Term Financial Strategy, Medium Term Financial Plan (MTFP), or Financial Statements

The Principal Accountant (General Fund) and the Assistant Director (Corporate Services) fielded questions from the Committee and explained that:

• As KCC decided to not renew the Waste & Recycling – Inter Authority Agreement, there would be a £300K adverse variance moving forward which impacted the MTFP overall. Fortunately, for the current financial year, the overall position had been partly mitigated by a higher than expected payment recently received for 2023/24 of £175k. Thus, the net budgetary impact for 2024/25 for the Inter Authority Agreement overall, was an adverse variance of £125k
• The council tax incentive scheme involved payments made by KCC to district councils to enable councils to undertake a stricter discretionary discount schemes; the council were obligated to collect monies to a basic level but the payments from KCC assisted in undertaking more advanced recovery work. Gravesham only received 11% of each council tax payment whereas as KCC received 73%; on occasions it would cost Gravesham more money to chase for an outstanding payment than the proportion of the outstanding payment the council would actually receive if collected.
• Examples of why those payments had been received from KCC in the past were to encourage councils to maximise their discretionary powers that existed to levy the maximum permitted council tax on empty properties. In addition, KCC had also encouraged the council to keep the maximum percentage award that could be given by the Council Tax Reduction Scheme to working aged people, which was a form of benefit, at 80% so that all working age people paid a minimum of 20%

The Director (Corporate Services) informed the Committee that a report was being taken to Cabinet next week which specifically discussed the council tax incentive scheme and encouraged them to look at the agenda outside of the meeting if they wished to know more.

The Chair noted that KCC’s risk of financial sustainability had become significantly higher and asked that it be ensured that risks of Policy decision by KCC be included on the strategic risk register that was currently being developed.

The Committee were presented with a budget monitoring report for 2024/25 that provided an

assessment of performance against approved budgets for the 2024/25 financial year for the seven months to 31 October 2024, as well as updating Members on other key areas of financial performance.

The Assistant Director (Corporate Services) directed Members to pages 30/31 of the supplementary pack which held an executive summary of the report. 

The Assistant Director (Corporate Services) took Members though the report and highlighted key points; Members noted the information provided on: 

• actual performance against the approved Revenue and Capital budgets for 2024/25, including known variances agreed or identified through budgetary control activity
• other key areas of financial performance that may impact on the Council’s Medium Term Financial Strategy, HRA Business Plan or Financial Statements.

The Director (Corporate Services) and the Assistant Director (Corporate Services) fielded questions from the Committee and explained that:

• Most of the councils work in Housing was carried out in-house but there would always be a certain amount of work caried out by specialists, such as scaffolding, as it would not be financially viable for the council to invest in the assets required to perform that specialist work. The other issue that the council had experienced was around recruitment and retention of skilled workers; this alongside the increase in activity in recent months had driven the need to use of external contractors. Work associated with damp and mould was having the biggest impact on the budget and the Repairs Payments to Contractors workstream.  It was confirmed that the council had increased its workforce a number of years ago to complete more work requests inhouse and that the team continued to keep this under review
• Apprenticeships were ongoing throughout the council including within the HRA and they would be continued as there was value in providing opportunities for the local community and continuing to expand the knowledge and skills of the workforce
• There had been 193 void properties throughout the period with works on 161 being completed; Members noted the importance of completing such works to ensure rental income to the HRA was restored as soon as possible and to reduce liability for council tax whilst the properties were void
• During the year, property sales for right to buy had been estimated at 20 properties but only 6 had been sold to the end of October.. There had been a rush of people wanting to purchase their properties after the announcement in the Autumn Budget  that right to buy discounts were to be reduced after November, but it was expected that not all applications would translate into a sale. It was estimated that a reduction in right to buy sales would result in increased rental income. Members noted that a reduction in sales of right to buy also meant less receipts to finance the new build programme. Money would need to be borrowed for additional development and the cost of this additional borrowing would likely cancel out any additional rental income benefits  ...  view the full minutes text for item 48.