The Audit and Risk Committee of Lambeth Council met on Thursday 22 October 2026. The meeting focused on the Council's financial management, audit findings, and risk management. Key discussions included the independent assessment against the CIPFA Financial Management Code, updates on the Statement of Accounts, and the Council's response to statutory recommendations from external auditors. The committee also reviewed the external auditor's draft annual report, which highlighted significant weaknesses in financial sustainability and governance, and discussed the Council's key risks.

Independent Assessment Against the CIPFA Financial Management Code

An independent review by Grant Thornton assessed Lambeth Council's financial management arrangements against the CIPFA Financial Management (FM) Code. The assessment found that the Council is compliant with areas for potential improvement in nine standards, but at risk of non-compliance in eight.

Key areas identified as at risk of non-compliance include:

• Demonstrating value for money: The Council cannot yet consistently evidence that its spending, contracts, and income plans deliver value for money. Recommendations include agreeing a corporate policy on commercial income, completing purchase-to-pay and contract management improvements, starting options appraisals for major contracts well ahead of expiry, and improving central visibility of spend below £100,000.
• Financial resilience assessment: The Council has not yet carried out an explicit financial resilience assessment that tests its plans against plausible adverse scenarios. Recommendations include preparing a formal financial resilience assessment for the 2027/28 budget and setting out a three-to-five-year asset disposal pipeline.
• Medium-term financial planning: While the Council understands its medium-term prospects, the planning horizon is short, and the plan for repaying Exceptional Financial Support (EFS) is not yet settled. Recommendations include aligning the phasing of staff savings with realistic delivery plans and linking service plans and outcomes more clearly to the MTFS.
• Stakeholder engagement with members: Engagement arrangements are still evolving following the move to no overall control, creating uncertainty around how financial proposals secure cross-party support. Recommendations include formalising terms of reference for the Cross-Party Budget Working Group and formalising financial briefing arrangements for opposition groups.
• Monitoring financial performance: Weaknesses remain in the monitoring of the balance sheet and in the preparation of the annual accounts. Recommendations include formalising quarterly balance sheet reviews, strengthening directorate ownership of balance sheet risks, and continuing to review and deploy S106 and CIL balances.
• External financial reporting: The Council has faced challenges in meeting statutory deadlines for draft accounts publication and has received disclaimed audit opinions for several years. Recommendations include providing further updates on the Closedown & Accounts Improvement Plan, committing to a timetable to rebuild assurance with the external auditor, and strengthening scenario modelling within the MTFS.

The review acknowledged significant progress made by the Council in strengthening its financial management, including improved financial controls, increased challenge through benchmarking, and a greater focus on financial discipline. However, it stressed the need to embed these improvements consistently across the organisation.

Statement of Accounts 2025/26 Update and Closedown and Accounts Improvement Plan

The Council published its draft Statement of Accounts for 2025/26 on 22 July 2026, three weeks after the statutory deadline. This delay was attributed to the complexity of prior period adjustments, particularly lease assessments and IFRS 16 application, and challenges in preparing Group Accounts due to changes in key finance team members. The Council has reviewed the causes of the delay and updated its Closedown and Accounts Improvement Plan with actions to strengthen year-round accounting processes, improve balance sheet reconciliations, and enhance the preparation of disclosures. The plan aims to improve timeliness and quality for future accounts.

Treasury Management Mid-Year Performance Report

The report detailed the Council's treasury management performance for the quarter and six months ending 30 September 2026. The Council's net debt had reduced, investment balances increased, and cash outgoings were marginally lower than the previous year. The Council performed in line with or better than all performance indicators within the Treasury Management Strategy. Gross external debt stood at £1.118bn, with a weighted average interest rate of 4.17%. Investment balances were £90m, with an average interest rate of 3.95%. The Council's investment in the Real Lettings Property Fund 2 continued, with a yield above its target.

External Audit Update

Forvis Mazars, the external auditor, provided an update on their audit of the Council's and Pension Fund's financial statements for the year ended 31 March 2026. Due to historic challenges in preparing the accounts and the ongoing issues with the Pension Fund's sundry debtors and creditors balances, the auditor intended to issue a disclaimed opinion for both the Council and the Pension Fund. This means the audit report will not express an opinion on the financial statements. The auditor noted that two objections relating to the 2023/24 Statement of Accounts were still in progress. The auditor also reported that two of the five previously identified weaknesses in Value for Money arrangements had been addressed, but three remained outstanding.

Council's Response to Statutory Recommendations

An update was provided on the Council's Action Plan in response to statutory recommendations from external auditors, Forvis Mazars. The report noted that the Council had made substantial progress in addressing financial challenges, including rebuilding General Fund balances to £45m and implementing enhanced financial controls. However, the Council continues to face significant financial pressures and relies on EFS funding. The report recommended the closure of recommendation SR2-01, relating to savings and efficiencies.

Annual Governance Statement 2025/26 Action Plan Update

This report provided an update on progress against the actions identified in the Council's Annual Governance Statement (AGS) for 2025/26. The AGS is a statutory document reviewing the effectiveness of governance, risk management, and internal control arrangements. Progress against 11 key actions was detailed, with the Council committed to producing responses and action plans for addressing recommendations from the independent CIPFA FM Code review.

Internal Audit Progress Report 2026-27

The report detailed progress against the Internal Audit plan for 2026/27. Delivery of the plan was underway, with some audits completed or in progress. Emerging concerns were noted regarding limited assurance opinions for Children's Direct Payments and Purchase Cards, indicating weaknesses in financial controls. Implementation rates for management actions had declined, with a significant number of high and medium priority actions overdue, leaving the Council exposed to risk.

Counter Fraud Progress Report 2026-27

The report provided an update on Counter Fraud activity for 2026/27. The service had maintained a consistent level of performance, with 79 tenancy recoveries and £1.2 million in savings through preventing fraudulent Right to Buy applications. Four new roles had been created to expand the team's capacity, focusing on fraud relating to temporary accommodation and homelessness.

Key Risk Summary (Q2 2026/27)

This report provided an overview of the Council's key risks at Quarter 2 2026/27. The top risks identified related to finance, cyber security, regulations, reputation, emergency planning, workforce, and occupational health, safety, and wellbeing. The report detailed the inherent and current risk ratings, existing and planned controls, and the assurance received on the management of these risks. The Council's financial position remained a critical risk, rated as High (32), with a target risk rating of Medium (12). A new corporate risk relating to occupational health, safety, and wellbeing was added to the register.

The meeting also included discussions on the Council's Treasury Management performance, with the gross external debt at £1.118bn and investment balances at £90m as at 30 September 2026. All performance indicators within the Treasury Management Strategy were met.

The committee also received updates on the Council's response to statutory recommendations, the Annual Governance Statement action plan, and internal audit progress. The external auditor's draft annual report highlighted significant weaknesses in financial sustainability and governance, particularly concerning the Homes for Lambeth (HfL) companies and the timeliness of financial reporting. The auditor noted that the Council had addressed some previous weaknesses but retained concerns about the consistent application of controls and the need for sustained improvement.