Transcript
Yes, so a fairly brief update. So Q1 report, which was up to month three, was considered
by the Council's Scrutiny Committee last week. So beyond that we've had month four and month
five budget monitoring processes which report to CMT. Essentially what they show is marginally
improved position within the adult social care budget and marginally adverse movement
within temporary accommodation. But broadly speaking those net off and the Council's financial
position at month five was very much the bottom line, was in line with what was reported to
EXEC and then Scrutiny, around about £650,000. So the bottom line was around about £600,000
or £650,000. I thank you very much indeed. I realised I started the entire meeting without
switching the microphone on. Usually one gets corrected at this point, long before you ramble
on for minutes and minutes and minutes. So the live cast hasn't heard a word I've said
so far, which is probably fine. Members got any questions or comments on this? Can I just
say, Paul, can you give us a bit of assurance that the projection of end of year is robust?
It is a sound set of projections. And I say that in context that this time last year at
the Directorate's level we were projecting a deficit of £13.2 million, which eventually
landed at the year end as £19.9 million. And I think at that point we all said the
first three months of the year probably are a little bit uncertain to then project forward
for the following nine months. What is it about your projection methodology, if you
like, that makes you confident that the level of end of year deficit that was reported to
the committee last week, that that's going to stay on course?
So one of the key differences that we've started to do with the monitoring process this year
is have a kind of systematic approach to deep dives, so focusing in on those big, risky,
volatile areas, so adult social care placements, temporary accommodation, children's placements,
parking income, pretty much being those. So there is the enhanced focus. We've not necessarily
changed anything around our methodologies, but as time goes on some of those issues which
emerge around and you're going to hear a bit more about deep dive with parking, so as changes
in behaviour evolve the more information we've got the more accurate forecast we can get.
So taking that service, for instance, the kind of change in behaviour came relatively
starkly during cost of living crisis and various other things that were going on in which you
couldn't really predict the scale of the change. We knew there'd be some change as policy objectives
kind of bit and what the financial impact of that was, but the pace of that change outstripped
our ability, outstripped the decisions and the forecast that we'd put into the MTFS.
Working through where our variances are this year, all local authorities in London struggling
with temporary accommodation, I think we're managing it really well as the scrutiny committee
heard last week. The forecasts that we are putting in for that towards the end of this
financial year, they get poured over. We've had deep dives. We've got lots of different
sets of eyes and different assumptions and stress testing those assumptions to get to
the position where we believe they are robust and the Council's financial strategy includes
sufficient contingency to deal with changes to a certain order and we saw last year how
those mechanisms really helped with quite a large overspending and this year we are
we still haven't expected, but we do our best to expect.
Okay, look that's real helpful. Last year the out-term was almost, at the directorial
levels, almost 20 million deficit. The previous year it had been 23 million. Now, admittedly
a lot of that was washback from Covid recovery and so forth, so if we're, if you're confident
that we're predicting the direction level, a variance of maybe 10 million, perhaps a
little bit better than that, then the direction of travel is clearly pretty positive and as
you rightly say, nothing like on the scale of an awful lot of other London boroughs which
are experiencing 30 million or more negative variances predicted for this financial year.
Okay, thank you. Just a little thing, Janet's picked up one issue, it's not a lot of money,
well 800,000, which is that we're partly balancing the budget by drawing down a contingency which
has been set aside for the pay claim in the current financial year, which is eventually
going to realise itself that the pay claim is going to be settled at some point, in which
case it'll all be backdated, then that 800,000 can't be used to balance out, I mean I'm sure
we could find 800,000 somewhere else, but what's the thinking behind sort of grabbing
that little bit of contingency, even though we know it's got to be used?
Sorry, where is that 800,000? Well it's not in the paper in front of us tonight, but it
went to Nick's committee and to the executive, so there's an element in the descriptions
of the corporate items and the other balancing items, the use of contingencies, one of the
things in there is 800,000, which I think have been set aside to meet the current year
pay claim, but as the current year pay claim hasn't been finalised, we've sort of bothered
that to make up the gap, but it's going to have to be used eventually, isn't it?
So the chief officer pay claim has been agreed and paid?
Yeah, it's the general workforce, it's the, I was just about to call him a new pea, sorry,
it's the unison GMB combined, that national pay claim.
Yeah, so the amount that was offered and rejected was 800,000 pounds over what we'd budgeted
for when we set the budget way back in, or when we put it together back in January, so
what we allocate that from contingency, and then when we set the budget for next year,
we need to put that back into contingency, so we're not drawing down reserves or anything
like that, it's recurrent budget, we're living within our means within the year, we always
have contingency.
Janet put it very eloquently in an email amongst members earlier, basically we're borrowing
800,000 probably from next year to balance this year.
I wouldn't characterise it in that way because it is this year's money, it's this year's
budget, and we could leave contingency 800,000 pounds less for next year, but essentially
we always want to replenish our contingency, so it is this year's money, it's this year's
budget, and the contingency is absolutely there to allocate when a pressure emerges.
It's eventually settled, it will be backdated to April of the current year, we're going
to have to end up paying it, so there's just a slight risk that we're double spending that
money, and it's going to end up being another line in the MTFS of pay pressure, isn't it?
So if it went beyond 1st of April next year, we'd agree for it, we'd charge it to this
year, so it wouldn't be a problem next year, it wouldn't be an overspend next year.
There's not criticism, if anything I commend the ingenuity with which we're boxing and
coxing around some of these problems, no doubt about that at all, if there's a bit of money
lying spare right now, then use it upon the gap.
Okay, thank you very much indeed, any members got any other questions on that?
All right, let's move on then, let's move on to item B2, which is progress reports on
the external audit, and we're joined again this evening as a glass meeting by Rashpal
Kangura, who is, forgive me, my glasses are terrible, do please step forward, thank you.
Sara has been directing traffic recently, hurting the small children actually, I think.
Thank you, welcome, thank you very much indeed, there's a short presentation which we can
speak to you.
Thank you, so the progress report we're bringing today is really there to give you some assurance
that we are out delivering the final accounts audit, what we've done there and I'm not going
to repeat that here, is commented on each of the significant risk areas, as you'll note
from there, there's no significant issues, we're having good co-operation from the finance
staff, we're aiming to complete our field work during the second half of October and
then leave November for reporting, and therefore get to a point where we can issue our audit
opinion of various other outputs, such as our VFM auditors annual report, ideally in
November, but this year, and if we step back for a moment and think the accounts and audit
rates which are currently before parliament, those set a deadline for this year's accounts
of the 28th of February, so we'll be ahead of that, so back on track, and you know, if
you look at those accounts and audit rates, it looks like the deadlines are 28th of February
and 27th of February before they move back slowly towards the end of November in a few
years time, so we feel we're in a good position receiving positive co-operation from the finance
staff and getting the evidence that we need to do our audit work. Happy to take any comments
on the detail of the report or any other areas.
Good, thank you very much indeed. In the discussion beforehand, I think Alan Finch had posed the
tough question, when will the audit be delivered in your estimation?
So, I'm aiming to report towards the end of, into November, the idea of using the
18th of November audit committee to bring ISO 260 in there and then issue our audit
opinions shortly after that, so you know, I couldn't give you a date, but aiming for
the end of November, but you know, we've still got some of the audits complete and
you know, depends on issues that we identify, but we have started all the significant risk
area works where you're more likely to find disagreements, issues potentially.
Good, thank you. Other members of the committee, got questions on progress?
Sara? I just have a comment and that's thanks very much, this is quite different to what
happened last year, so it's sincerely good to hear the progress and that we'll be able
to get a kind of broad brush overview on the 18th of November. Thank you.
Thank you, can I just ask a little question, which is partly because I chair the pension
fund, but I'd see you kind of engage your own actuaries to have a look at the underlying
assumptions on the pension fund. We've had a - well I'm not sure if they were published
today, if they weren't published today, they're published tomorrow anyway - a report from
persons who are actual actuaries indicate the fund's in actually a pretty good position,
but it rather depends on what are the underlying assumptions used. On a like-for-like basis
we're probably coming in around 91% funded, on what they think are some new assumptions,
which I think seem that people don't live as long, we're probably 99% funded. Just curious
to know whether your actuaries are going to be doing an exercise which is in lockstep
with our actuaries. So our actuaries are used to working with the bigger actuaries firms
that do the local government pension scheme. We've actually done a lot of work pre to the
final accounts audit, so we did a lot of work looking at understanding what your assumptions
are going to be, so it's concluding that work. To date we've not identified any indicators
of misstatement. Now clearly, if into the future you were to change your assumptions,
I'm sure that's something myself and colleagues in finance would talk about, and make sure
we're still going to be comfortable with that assessment, because if you push your boundaries
on your assumptions, we might come to a difference of opinion and that could lead to a material
misstatement in the accounts. But I know officers are really good at discussing that with us
in advance and stuff.
You've come in with a fresh pair of eyes, which is always helpful, because you may see
things that the previous auditors hadn't seen. Looking at the report, it's very much couched
in what I would call technical audit language. Is there anything that we as a committee ought
to be worried about with regard to the medium-term financial stability of the council from what
you have found? In other words, so far, is there anything that the other lot have missed
that you've picked up upon?
To the next audit committee, we'll be bringing our BFM commentary, which includes our commentary
on financial sustainability. Certainly from our risk assessment work and the work that
we've undertaken to date, there's not any indicators of a significant risk or weakness,
because ultimately we step back and look at your arrangements, so your arrangements regarding
financial sustainability, which involve developing a medium-term financial plan, your arrangements
for delivering your budget and so on. We've not identified any significant risks from
that. Our work does need to conclude as we finish reviewing the financial statements
as well, but to date there's no significant risks, but we'll be producing that report
for the next audit committee.
That's excellent news. The long-standing members of this committee rightly observe that we're
getting a service here, which is an improvement, significant improvement. Thank you very much
indeed. Good. I think we're done on that item. First of all, thank you very much for attending.
Let's move on to item B3, which is in two parts. These are a couple of deep dives to
the parking account and to commercial income. I think at this point we're going to, again,
turn the spotlight on the corporate director in one of the relevant departments that's
been struggling a little. Jed, thank you very much indeed. Rabin, are you going to join
Jed? You might have to move some furniture, I'm afraid. Thank you very much indeed.
Good. Well, listen, we're very, very grateful for this deep dive. As you know, members have
been very concerned about the volatility of the parking income and expenditure. Members
of the committee are going to want to talk about expenditure as well as income. We're
conscious that in many ways this is a source of income which for many years was treated
as a bit of a windfall, but has actually now become much, much more a core part of the
council's income and expenditure and being so volatile it needs to be reasonably accurate.
So members have been very, very concerned. I mentioned earlier about how end of year
projections had moved around. This time last year the parking revenue account was projecting
a deficit of 4.2 million. By the time we got to year end it was actually 12.8 million.
So members, not unsurprisingly, are very concerned to know whether this is now finally bolted
down and having had a number of reassurances over the course of over a year that things
were under control. For example, this time last year when it was only 4.2 million and
then became 12.8, this time last year we were told that a board had been established, that
there was a substantial amount of work, that a grip was being got, but actually we ended
up with a deficit that was three times bigger than had been predicted this time last year.
So I think we really, really want to be reassured that this is now under control and that the
errors which were originally identified have either been rectified or rebased and that
there are mitigating measures to deal with future risk. Anyway, over to you. Tell us
what you think are the key findings in this deep dive.
Thank you, Chair, and thank you, members of the committee, for inviting us along to look
in more detail at the Park and Revenue account. I agree with all the Chair's remarks. As Paul
has set out, this is one of the relatively substantial areas of income and it's multifactored.
Not all of those factors are fully predictable. So the report we've provided for you I think
does a combination of giving you some information about in terms of income, we're regularly
benchmarking the levels of fees that we charge against other central London authorities.
We are very much at the top end, maybe reasonably. We check our levels of enforcement and recovery
of the income that we levy and it gave me benchmark fairly solidly against our peers.
And the long-term positive changes that we're seeing in London as a result of policy produced
both at a kind of London level and locally as well are showing that reduction both in
levels of vehicle ownership over time, that people are using and purchasing smaller vehicles
when they replace vehicles that they have, and there's reduced vehicle journeys both
within London and we're seeing the same effects within the borough. So that's the overall
position that we sit within. That said, there's a regular and active review and hopefully
we've set out some detail in the report itself to give you more granularity in the way the
parking income is calculated, the ability to challenge us and ask questions about the
judgements and assessments officers use to produce the overall figure. I wasn't going
to do a huge run through the report because you've got the full report in the pack other
than to take questions. I've been sent some very sensible kind of clarification questions
in advance of the meeting. I don't know if you want me to address those now or pick those
up in discussion.
I'll go to the members of the committee that pinged you those questions. Let's start with
Al Finch.
Thanks, Chair, and thanks for that introduction. Just a couple of things directly from the
report from me. It's a very detailed report in relation to income, but there's one issue
I think that probably needs a bit more explanation from me. At 3.19 you identify a pressure of
1.3 million on PCNs this year, but that doesn't feed through into your projection for the
year that essentially vanishes. You mention in the report that it's about management action
and high performance levels in the enforcement team, but it would be useful just to hear
a bit more about why you're not worried about that 1.3 million, which sounds a little bit
like a lot of money. The other issue at 8.11, which is where we see the detailed breakdown
in the table, the 1.5 million overspend you're projecting at the moment, actually over half
of that is expenditure. I think it's understandable that you've tackled income largely in the
report, but we haven't heard a lot about expenditure. Is there any scope to bear down on expenditure
as a means of getting us back on budget this year? I'll probably say a little bit more
about how that expenditure overspend is arising. Thank you.
Thank you. It's a very relevant and sensible line of inquiry. If I can just start with
the second point first. The expenditure pressure that shows up in the budget of 815,000, the
majority of that relates to increased income. It's the cost of transactions for us to derive
the income. We're having discussions with finance colleagues about whether we either
realign the way that we account for that expenditure or the way in which we report on it, because
three quarters of it, and I can give you a bit of a breakdown verbally, it might be something
we bring back to committee in any kind of future papers, set out in more detail, because
I think, as you say, it's not really clear in the report. Of that 815,000, 299,000 relate
to printing and postage costs, as we send out a lot of administrative correspondence
in relation to parking activity. Financial costs of 108,000, which is kind of directly
linked to receipts that go alongside those things. And there's a traffic enforcement
centre tech registration fee of 238,400, again, which is a cost of enforcement and recovery
costs, so it's an overhead. So the majority of those expenditure items relate to positive
growth on camera, rather than a lack of controlling expenditure. There are still some areas of
expenditure which don't relate to that, which are obviously our responsibility to manage.
So there's a relatively modest overspend against the salary budget. So there's an overspend
of 83,000, although most of that relates to it, so it would be regularised in future years
for the main contract. So most of that relates to income. And then to pick up your wider
question about the pressure, so I'm not relaxed about the pressure in delay of the implementation
of the Friday neighbourhood scheme, but I think it's correct, that those individual
schemes tracks pretty well, it's pretty good. So a delay in time, the calculation for the
impact, the loss of income, maybe that delay is reasonably accurate, it's unfortunate
that it's reasonably accurate. As you say, the net effect of that, we are mitigating
and we're seeking to reduce, and currently we're forecasting effectively that we're
absorbing a large part of that delay through increased activity. So we've got revised
enforcement practices with NSLR enforcement contractor and their levels of deployment
in the borough, and it is overachieving currently. I don't know if we've got exact numbers
just yet.
A small amount of additional costs, so it's trying to balance that.
So that contributes towards that shortfall, and again in terms of the debt recovery activity,
there's an additional process that we've put in place, particularly for expired warrants,
most local authorities effectively write down, I think so far above 150,000 in additional
income. So I think we've seen positive signs, I'm relatively confident that we'll substantially
close that PCN gap. Whether we do here, our full forecast to make up the full gap, I don't
know, but the signs are positive so far.
Are you able to quantify what's described at 3.41, which is the delayed implementation
of the new CP control zone scheme and the slippage on the Liverpool neighbourhoods?
Yeah, the delay for the Liverpool neighbourhoods, that amounts to just over 1.3 million possible
loss, but we're trying to offset that with the other management actions where it's actually
overachieving what we originally thought we would get. The delay on the CPZ extensions,
it's slightly less than 600,000 happening to try and mitigate these gaps.
I suppose, and what I'd say just for members of the committees, we can enhance those practices,
but eventually there'll be a diminution with which we can't obtain more benefit.
Yes, I just wanted to pick up on this area that has just been raised. In particular,
the increased compliance, so putting in a new low traffic neighbourhood and then you're
expecting to get a certain number of PCNs because people don't understand how the low
traffic neighbourhood works. If you are kind of efficient with the cameras and issue lots
of PCNs, then presumably people are going to work out that they shouldn't go through
those cameras and so the number of PCNs will inevitably go right down. I just wonder how
you're modelling that because I imagine other councillors have a lot of case work of people
who've gone through a camera three or four times in one day before they realised it was
there, desperately upset, often all sorts of personal circumstances that make it really
hard for them to cope with having multiple PCNs. But once they've learned that, they're
never going to go through that camera again. So the PCN piece around low traffic neighbourhoods,
is that modelled just to give you income from PCNs just immediately around the time of implementation
and then modelled to go right down, or do you assume it continues at a level state?
And again this is another one which I think we could bring back and set out in more detail
for a future committee to give you representation, but it does exactly as I say, so it assumes
a higher level of non-compliance when a new scheme is introduced and then that level of
non-compliance tapers down over time and because the programme, they're introduced scheme
by scheme as it were, the income run kind of plays that as well around those. So there
is a model that sort of plugs those assumptions in and I have to say that from the date of
Go Live it does track pretty well, so the evidence is that their modelling does track
pretty well against that.
Okay but eventually you're going to run out of streets to turn into low traffic neighbourhoods
and that scheme of money, that lumpy pattern of money coming in is going to disappear,
so have you got thoughts about what the next thing that might be producing this kind of
income might be? Because otherwise this is very, it's short term.
I wouldn't want to speculate too much into the distance but I think there is a kind of
live discussion about the kind of UK system for main road, in reality.
Road user charging.
Yeah so road user charging in the future. We're certainly for our part investigating
our small corner of the world and looking at whether we can match data sets like race
for vehicle weight, the curbs of emissions driven by engine size, largely. But as we
know, tailpipe emissions are only one form of pollution from vehicles, you know, curb
weights and other particulate matters and the effect it has on the air, wear and tear
of the highway etcetera. So we're doing some of the preparatory work around that but it's
not a scheme that's kind of ready to be introduced yet but probably would be in due course.
And sorry I've just got one further thing which is about electric vehicles which cause
a lot of damage to the roads because they're heavier than traditionally fueled vehicles
and yet they are still paying less for parking than conventional vehicles and I just wondered
if you're doing any work on that to think about whether that can be, could help you
with your parking?
So we do at the moment have kind of differential charges that try and do both things, greater
vehicle weight which is relatively speaking very high. At the moment we have a level of
banding, we're just looking at whether we could introduce greater vehicle weight as
an additional measure which would help us. So we're doing the kind of preparatory work
but it's not introduced yet.
We're probably not going to speculate too much on that. The council's position is that
we discount for EVs because they produce almost no air pollution at all and that is a very,
very good thing and that's the objective of our policy and I think that's probably where
we're still going to be over the next several years. Nick first and then Armbeg.
I want to drill down a little bit on the parking permit income projection. Looking at 3.33
what we see is quite a significant increase in the permit income for 24, 25, 25, 26, 26,
27 which seems to be going against the narrative of we have policies that are deterring car
use, the narrative of people giving up their cars and whilst we have brought in increases
in permit charges that may be driving some increase in revenue, do you have any thoughts
on the elasticity of that? In other words, does there come a point where if we keep putting
up permit prices our income will actually fall because that will deter people from replacing
cars, keeping up cars. Is there a sweet spot and are we at that sweet spot now?
It's a very cogent question. I believe we are at very close to the edge of that sweet
spot currently so we do benchmark as being very high in our level of permit charging
compared to other parts of London. What I think the chart might be too small to show
on plot but I think that line actually does go down slightly doesn't it? So we are seeing
3-4% less vehicle ownership per annum. I'm not sure if it does but effectively, so what
we've done is we've had very large increases in permit pricing and we are seeing some changes
in behaviour for us so people are buying more of the shorter permits rather than the full
year permits. People just auto renew every year, they are now starting to buy the shorter
period ones. We are seeing that long term reduction in vehicle ownership and we are
seeing an increase in proportion of permits for smaller vehicles. All of which are good
things from a policy term but they do suggest that we are at the edges of elasticity and
we have pushed our pricing really hard. Our unit pricing is now amongst the highest if
not possibly the highest. It's the highest for this part of London so I think what you're
posing is correct that we are probably at the edges of elasticity in that regard. Very
briefly, in terms of the projection of 24, 25, 25, 26, 26, 27 that we see in the chart
3.33, are you still confident that they are realistic given the Q1 figures that we've
had? We are seeing reductions in purchasing the permits but what we've based it on, so
we had an increase in our EV permits and a little bit for this year and then it's plateaued
off because we're just looking at we've based it on just the general inflation going forward
like no other sort of new schemes albeit we've got some things in the pipeline that we're
working on like the weight and things like that. The permit purchasing does seem to be
decreasing and we're keeping a very, very close eye on that. I mean it is serving all
of our ambitions and everything which is good but it could have an impact mostly and then
as soon as we start seeing the decline if it starts becoming more significant because
we can predict as best we can but it's not, we just seem to be seeing quite a significant
change here.
Very good. It's always a great meeting in my opinion when the debate moves to price
elasticity of demand. We start putting charts up and just pressing on that. Nick's right,
it may be that there comes a point where we're just charging so much that people say I'm
moving to France or rather I'm getting a smaller car. Is the thing we're facing, not so much
people responding to price by changing their behaviour but just an increase in evasion
and avoidance, is that potentially the thing that we are really struggling with now?
Yes, there's a massive increase that cuts across, again cuts across London so we've
seen a real increase in unrecoverable compliance, contraventions because of vehicles using false
number plates will be unregistered effectively. So we've seen a huge increase in that kind
of evasion activity. It's common to other boroughs, it's a problem for GLA and the
TFL family as well. We're asking questions in a London Council setting just to see whether
there is a kind of London point of report. I'd have to go back and look at that, it's
a significant number. I mean if we worked out all of the, it could be in the region
of about over a million pounds because they're unregistered and particularly when you've
got so many cameras introduced that number's going to go up because they're just flying
around the authority and hitting all of the cameras, that could be 10, 12 PCMs a day.
So we've got a little work group now that are tackling that problem and that's their
main focus and we'll work together to see if we can find a solution.
I wonder if just to help committee members have the information, maybe we can send something
out in minutes because we do have some again, some of the plots that change.
Thank you chair. Thank you for the paper, very detailed paper. And it suggests you've
got a good focus in general on what you're trying to achieve, vis-a-vis budget in particular.
You are to some extent on the hiding to nothing because you are relying on public behaviour
and activity levels all across the board. I've got two questions, one specific, one
general and one specific. The general one relates to paragraph 344 which in general
terms always concerns me when you mention risk and risk related in tangent with partnership
approaches or reliance on partnerships and 3.44 does indicate that you are trying to
limit pressures by either outsourcing or taking account of the items you've mentioned in
bullet points and 3.4. Can you just explain a bit more about how you feel that's, how
confident you feel that is working out?
Yeah, so and this somewhat relates I think to one of the earlier points we made around
that shortfall in income but we are seeing the positive effects of some of that work
with NSL. So there is a higher number of penalty charge notices being issued than originally
forecast so we are seeing actual effects of the increased activity and equally has brought
in additional income since being introduced. So how confident I am that we'll deliver
100% of our expected benefits of those, less so, but for the kind of early stage we are
seeing kind of positive effects. So there are working, whether they are across the full
year I'd hesitate to be quite so confident.
Okay, thank you. The other point I have relates also to risk which is highlighted in your
paragraphs 3.38 and 3.39 where you highlight the possibility of a million pounds income
from this BT open reach. What's the position with that?
So I'd suggest kind of good news bad news. So good news is BT have been carrying out
enabling works in some of their exchange infrastructure that are associated with a roll out in this
part of London and they are engaging with us about their desire to carry out a roll
out. The less good news is that they also haven't entered into the required way leave
agreements with the council as a housing authority as yet and there's potential one of our requirements
is that they utilise metal trunking on some of our buildings which is a building safety
measure for us and apparently that is not always the case across London so they may
be asking us to consider modifying our way leave. If we are of a view that it is of a
building safety matter we won't modify it and we will listen to their representations.
So the good news is BT are intending to do a roll out in the area. We want them to do
a roll out. It's really important for us that high speed broadband is provided to our residents
within the estates when we complete the way leave agreement with them and when they mobilise
their programme. In all likelihood we'll outperform a million pounds based on the level of activity
that they'll undertake. Actually Nick made the point I was going to make but I'll just
add a couple. Personally my street there's a lot less cars there now than there were
a few years ago. Do we still have car free developments? Yes so we're not going to be
replacing all these lost cars so we're the victim of our own success really aren't we
in this? There's always a practice. Yes although just to note and as you say it's a sign of
success of policy objectives, reduced vehicle ownership, albeit harmful in relation to this
income. On the positive side we do have car free developments but we have full cycling
provision within those developments and there is some discussion about whether or not in
the same way that car clubs were introduced to residential schemes some time ago whether
kind of pay for use cycling potentially at some point.
I'll finish off with one other issue which has just been touched on which is the equalisation
of on estate parking and on street parking because there are some really glaring anomalies
now and it's very evident that people with a particular size vehicle who live on an estate
know that it's cheaper to park on the street and vice versa. When are we going to sort
out the equalisation? So the necessary kind of legal basis in order to consider policy
harmonisation is effectively complete now so the traffic management orders needed to
be in place across the estates. That program has been running for some years and is now
effectively complete. We're starting to look at elements of policy harmonisation around
enforcement for persistent offenders for example which is also causing problems for residents
within the estates that have effectively poorly behaved drivers also taking up space within
estates where they shouldn't be making things more difficult and more congested. So I don't
have a precise time scale for when we'll get through that harmonisation but the groundwork
has been done for it. There are some policy choices to the extent to which the policies
are fully harmonised which we need to work through with the relevant executive members.
There might be a need for some consultation as well in relation to changes but the groundwork
is ready for that to take place. Because of that saying that harmonisation will increase
income because we'll be removing the loopholes. Members got any further questions? I'm very
grateful. Just to summarise I think our members now have a very clear understanding not just
this evening but in over preceding months of what has happened with parking income which
is probably a combination of some rather unrealistic budget forecasts plus behaviour change leading
to less income and what now appear to be a number of escalating costs some of which are
transaction costs but some of which are also relating to enforcement as things get tougher.
And I think there clearly needs to be a discussion in this context if the parking account is
more stabilised and the income can be considered a bit more predictable then there are some
options for members to talk about how that money is spent. Rather than spending it as
windfalls oh great we've got this money what should we spend it on are there some more
regular recurrent costs that the council faces that we could more confidently use that parking
income to fund. So some choices. Good thank you very much indeed, to Ed and Robina thank
you very much for your attendance this evening. Okay let's bring on down the community wealth
building crew and just consider the second half of this item which is our deep dive into
commercial income. Again it's worth recognising that we want to review this primarily because
the directors budget has got a negative variance, the main feature is probably triggered by
one single tenancy being terminated but this has shone a bit of a spotlight which both
of the Allens have identified ahead of this meeting which is what are the metrics that
we're using as a property owner, are there the right metrics, very possibly should we
be reconsidering a very important strategic decision taken some years ago which is to
hold onto surplus property to generate rent rather than to sell in order to get a capital
receipt. So I'm hopeful that you'll be able to cover some of that as you introduce some
of the key elements of this report. It's worth just saying to members that this report
itself has got some fingerprints here of it being a report that's been to another meeting
because it actually has some recommendations to agree which is not what our role is but
we certainly will be noting what some of the proposed changes are. Stephen over to you.
Thank you, good evening. Just to introduce Steve Kaplan who is our Interim Director of
New Hampshire Corporate Learning Services and Tim Parkington who is the Finance Lead in
words by way of context and I'm very happy to answer all your questions. So the first
thing to say is the Council has a relatively small commercial property portfolio which
is perhaps surprising for the London Borough, some members around the table will be aware
of some past decisions by the administrations which have reduced our commercial estate.
The paper here focuses on the general fund, we do have a number of commercial assets in
the HRA which I'm unhappy to talk about but the paper here is focused on the general fund
but it is small but volatile and I think that's why we're here this evening. I think there
are two challenges we face with the portfolio. One is that for various reasons before I started
the budget has always been higher than the rental yield which is always an interesting
challenge. We have tried our best to chip away at that over the years but as you'll
see in the paper now we started this year with a pressure of about £700,000 and historically
we've been able to move budgets around within community wealth building but inevitably as
we've cut cloth elsewhere that has become more exposed. So we start with a pressure
at the beginning of the year and as you can see from the summary numbers in the paper
the rental yield today is something the order of £3.6 million, the budget is set at £4.3
million so we start with that interesting challenge but then secondly again you can
see from the paper that the portfolio is quite heavily geared so the vast majority of income
comes from a relatively small number of assets and that means as Councillor Convery mentioned
at the beginning that when one of our tenants as they did decided to surrender a lease earlier
in the year there's a lot of volatility, elasticity is our word of the evening so there
is a risk in the portfolio and that again is if you like the portfolio we've been
dealt because there's no inheritance but there is this combination of the historic issue
around the budget which gives us if you like we start from behind and then the volatility
of the portfolio and again I'm sure members will have questions about this but for many
years this has been something we haven't whilst we've had the budget pressure you know
the for example the office market in Old Street has trundled along nicely but since COVID
that has fundamentally changed and again chair to you Olio and whether frankly we've got
a bit of a self-fulfilling prophecy given some of the assets we've got so probably
not much more to say by way of introduction but hopefully that gives a sense of whilst
it's fairly small it is volatile and therefore you know we find ourselves with a pressure
in year but as you can see from the paper we have a number of things that we'll be
moving forward with Steve and Tim and other colleagues to try and first of all get back
to budget and needless to say any pound above that budget improves our position but none
of that is straightforward so that's all I want to say by way of introduction but really
happy to pick up any questions that you've got.
Thank you chair and I mean people will know I used to work for the LGA so I've done
a lot of reading of reports about commercial property portfolios and this is the more traditional
kind of local authority portfolios you were saying and probably a lot of it is you know
historic decisions I suppose there's an issue that comes to mind for me about you know aside
from the three or four million quid which I'm sure you know sort of Dave and Paul are
very grateful for whether there is a strategic objective to holding the portfolio whether
there are other things that the council is getting out of having which is a relatively
small portfolio and also I think if you've got it to hand is a very specific and easily
answered question but do you know what the net yield of the portfolio is at the moment
in percentage terms so you know after expenses I was just looking at the rents of rents from
the current list of vacant assets 2350 per square foot is my knowledge of the Islington
commercial property market is not massive but that sounds on the low side for commercial
property in Islington so do you know what we're yielding at the moment in net terms?
Thank you, very happy to answer that. In terms of the strategy it has been twofold historically
primarily to generate income to do the good stuff so it's been a pure commercial strategy
that the focus has been on the yields to you know generate whatever number is four or five
million pounds to invest in services elsewhere so that has been a simple strategy we and
I think I might have talked to the committee before but as part of our broader social value
strategy as we extract social value through contracts we also extract it through leases
so any council tenant we expect to deliver a range of social value from you know things
like paying a living wage to some more specific contributions but the primary focus today
has been running as a pure commercial portfolio to maximise income to then provide that support
to other colleagues to deliver services so that is the challenge. Clearly now it's becoming
less of a simple money making machine and a pressure hence the issue so that is the
strategy. In terms of the sort of the net and gross the way almost all of these lease
arrangements are for repairing and shoring leases so effectively the tenant takes full
responsibility for their building so this is net income. We don't run it as a P&L so
for example Steve has a modest amount of resources that manage the estate pretty modest so we
don't net that off but effectively the way we treat this in the councils sort of budget
model is that all of the income you see here is net income and there are as I say a few
modest costs if you like the net off that but essentially it's net income and there
are significant running costs sort of netted off in these numbers. Clearly individual tenants
will have their own costs but the numbers you see here are net yield.
Are there some basic numbers that you can put to these? What's the capital value of
the asset? Compare that against what the present rental income is presently about 4.3 million
including bearing in mind there are some vacancies. What is the yield number?
So the estate is about 1.3 billion I think so the book value of the estate. Coming back
to Alan's question about rental yields they are very significantly variable and it's
worth bearing in mind that our estate effectively has two types of asset. One are principally
offices on Old Street. Our offices are not the nicest on Old Street but typically so
I think our last rent was about 55 pounds a square foot so you can get very much higher
but we don't have that level of quality but we've also got quite a significant estate
and a couple of members around the table's ward in Brewery Road which is like industrial
space and typically they would be 20, 23, 25 square foot. So all those yields I think
are market rents but recognising the different types of assets that we have in our portfolio.
Yeah sure thank you Stephen and Chair. When we talk about the 1.2, 1.3 billion that's
in our accounts just to be clear that will be the book value and some things aren't valued
in the open market way so some assets will be held on what's called DRC Depreciated
Replacement Cost so schools, leisure centres, things like that. You don't apply a multiplier
of the value so we clearly have a very high value area here so typically yields on rents
against values are probably in the 4 to 5% rate so that's around 20 years purchase. Take
the rent times it by 20 that gives you a capital value very, very roughly speaking but remember
a lot of that is very high value properties such as I said things like the schools, leisure,
anything like that but yeah you're probably talking around the 4 to 5% yield mark in rate
of return for commercial assets in this part of London.
It may be helpful just to break out all of those assets which don't have very much alternative
use like schools because even right now you can't sell off a school. Well you might be
able to fairly soon but what's the value of the assets which we generate that roughly
5 million or should generate that roughly 5 million from if you're saying that that's
about 4 to 5%?
So 1.3 billion I believe is the book value for the assets, the 50 or so assets that we're
talking about here.
If it's 1 3 double 0 in thousands, sorry in millions I beg your pardon and you're generating
5 million from that, that's a really low yield isn't it?
Per annum.
Yeah per year. That's a very low yield. I'll have to take our calculators out and cross
off zeros but I'm not saying that that's the way that we should be looking at this but
it is one way of looking at it because there's then an alternative scenario which again I'm
not suggesting we do this, the alternative approach, the alternative strategy is to dispose
of those assets and use the capital receipt and then you would do an assessment which
says if you put that capital receipt in the bank what does it generate and straight away
you've got a really simple decision, well if you were a commercial operator you'd have
a very simple decision to take. Now we're not commercial operators, there's a lot of
other considerations but that's got to be our sort of baseline metric hasn't it?
It is yeah and Steve might want to add more but that as you'll see the paper and appreciate
it needs to be in a public meeting slightly careful about what I answer but yes that absolutely
is our intention to relook at that because plan A which was simple and I think sensible
and prudent to maximise income is at risk now and anybody who knows for example the
degree area and city fringe and city periphery I speak most days to very much bigger landlords
than ourselves and they all have the same problem so I can sit here with this self-fulfilling
prophecy that every year you'll be coming back, what are you doing, you're creating
income pressure or we could look to your point Paul to whether we yield, generate different
value from that without going too much detail, obvious choices like disposal so it is right
now that we start to look at those options. In case of any misconception here I was one
of the most vehement, the people most vehemently opposed to the last time properties were sold
off for a capital receipt, partly because they were sold off at a discount and funnily
enough they still represent a property, that's my other question. We've got a real difficulty
in the HRA which has got the residual freeholds on leaseholds which were sold off in 2009
and it turns out that we're now facing costs attached to those freeholds which are probably
not being adequately covered by the rental income from the leaseholds. What are the options?
So that's a drain on the HRA obviously but we are concerned about the HRA I think. What's
the approach to that? I mean not that choice but Steve you might want to answer that. You're
talking about clearly a portfolio of 999 leases, so 999 year long leases and a few of them
were sold with the council retaining certain liabilities over structures. We've got a couple
that we have got a problem with at the moment, we've got some rack and we are in discussions
of the options. One of those options is a discussion with the long leaseholders, would
they buy them off us to take the problem away effectively and allow them the opportunity
to then have total control. But that's one of the options. Another option is is there
any actual enhancement development activity. So we're looking at all the options on those
but the 999 year lease is that retained liabilities is a problem and it is one we are focusing
on and getting the quantity of what that might be. Some of it is very limited, we've only
identified one that's got rack, one estate where it's affected so far.
Yeah I think, sorry this is more of a comment than a question I think, apologies but I was
just reflecting on the point that Councillor Convery raised and I think there's a real
conundrum isn't there about what the set priorities are for this council and certainly it's such
a diverse portfolio and you have small kind of voluntary sector or arts organisations
right through to the piece and I just wondered whether, I mean I don't know if it's to come
back to this committee or elsewhere but like a degree of scenario planning just so that
across the piece people could have an easy look at the A, B or C signup rather than getting
into, because I can see how different what we've got here is but just so that maybe elected
members at the very least can have a better handle on what some of the solutions might
begin to look like so that we're not just in three years time in a panic about whatever.
Do you see what I mean because it's quite, because of the diversity in it and as a lay
person just thinking this stuff through I just wonder whether a couple of scenarios
might help us a bit to grasp this and interrogate and do the job we're meant to do which is
about forward looking risk on this panel. Thanks.
Yeah, no sorry I think it's a point really well made and I think you can dice and slice
it another way but I think probably as I said earlier on the simplest way to think about
it is probably three bits. So you've got four office blocks on Old Street, you've got
the Federal Brewery Road which you'll be very familiar with and then a number of smaller
mainly retail units and some other odds and sods in my world but as you rightly spot some
of those are, you know, tenancy isn't a mind, another isn't a law centre, other hugely
important community organisations. So that's probably the dicing and slicing and that inevitably
gives us choices, not necessarily easy choices. I think the, you know, this is a public meeting
but it's perfectly, you know, no surprise to anybody that the office market as I said
earlier on is challenged. We have, you know, you speak to any landlord or developer right
around the city fringe and actually ours are really challenged to get a shortage and all
gets even harder. But our, you know, they would say there's a flight to quality, so
if you've got A grade offices you can just about make a business, anything less and you're
really struggling, ours are not A grade, they're probably, you know, without visiting them
C or D but that's the honest view. So we are not, if you like the sweet spot is getting
small here, we're out here. So there's an obvious risk and therefore, you know, my responsibility
on our behalf is to look at that and to, yeah, to Councillor Convery's question to look
at all options up to and including things we probably wouldn't have thought of a while
back when they were churning in income. Brewery Road, I mean it's worth saying that that for
everybody may be familiar or not but that's, you know, deliberately a protected industrial
area, it is unique to this borough, unique increasingly to central London and those businesses,
you know, make a huge contribution to our creative economies and others. So there are
very good reasons, other reasons apart from income to protect them and then we've got
a question, is it our job to be a landlord to support VCS and other organisations? That's,
we could have a whole discussion about that and there's pros and cons of that but if
some of that comes back I think you're absolutely right, it makes sense to look at the portfolio
in its chunks and probably to make individual decisions on that basis because there's, you
know, you could apply a different lens if you like to each of those areas, you could
probably chop it another way but hopefully that gives you a sense of what we're thinking
about. Thank you, yes, that certainly makes sense as when I first saw this page I saw
Old Street and I thought, oh yeah, Old Street, that's fine, although I notice that people
still want it rent free. But then we've got 7 Newington Barrow Way and delighted though
I am that the Andover Medical Practice is there because that worried me for many years
where that was going to go, that's not actually a great place for office space or a social
space, associated uses is it? So I think that Newington Barrow Way is really a challenge
because our staff moved out of there a good while ago. I'm sure the Finsbury Park Councillors
will be terribly upset. Sorry, apologies to Finsbury Park Councillors. Well, we're not
going to use you as the estate agent. But yeah it is, for colleagues' benefit that was
part of what we call our future work programme so it was the right thing to do in terms of
rationalising space. The challenge at the moment is it's the right thing to do but as
you say it gives us an empty space. The good news is, as Janet said, that we are a very
long running saga but we're very advanced now on the Andover Medical Practice moving
in there which both secures that practice and gives us some income. But yes, we're left
and as the paper notes with some additional space and yes, it's not the easiest place
in the borough to let more details to come but we are looking, as you might imagine,
to leverage the Medical Centre moving in and looking at options potentially with NHS colleagues
and others, potentially voluntary sector providers. But yeah, none of this is easy, I'm not sitting
here to do it, this is our challenge but we're slightly damned if we don't there but hence
why hopefully a clear message that we need to think very fundamentally about this portfolio
and certainly frankly not to keep hold of things for any longer than we should do because
some of these things are the risk. They've crystallised already, we've got the issues
already. Yes, three quick things. Bottom of page 35 under Social Value Discounted Rents
Policy it says that a transparent social value and discounted rents policy is required providing
clear and consistent justifications for discounting any rents linked to tangible social benefits.
Now I just wonder what the time scale, is that a policy that is in production and what's
the time scale for that? It's a policy in production and we will surface that policy
and not clear in the next months rather than years. Okay, I won't push you further on that
right now but that's useful to know. Then the piece about outdoor media and advertising
and it suggests that there are potential income generation opportunities from council assets
across the borough subject to planning consent and review of council policy on advertising
content and that's presumably policy against gambling adverts and things that are a social
disbenefit to our borough. So are there specific things that you're thinking because there
are costs and risks to people living in this borough of changes to those kind of advertising
policies. So I just wonder what kind of things we're up for. There are two aspects to it.
The first one is we've already got a contract with Clear Channel so we're reviewing the
commercial possible upside for the council. We've had it independently assessed and the
review is it's not the best interest of council and we can probably do better and there are
mechanics within the agreement for us to do that so we're not having to start with a document
that we're bound by. So that's the first thing and the second thing is we've also commissioned
them to have a look at any wider opportunities but noting our restrictions against certain
advertising of certain products particularly around schools and children and stuff like
that but where there are sites that might be brought forward that aren't subject to
those more sensitive areas maybe it isn't necessary to have quite so tight advertising
that would be a policy decision but if we think we need to look at that against the
commercial opportunity we're clearly not affecting any social problems that that would cause
by having food adverts outside schools. Do you have a time scale on that? It's ongoing
now. It's quite urgent. I've even got a meeting on Friday with the consultant who's done the
reports on it. It's very high on my agenda so hopefully that will come through. I would
like to have some recommendations to take to CMT and possibly members as appropriate
by the end of the year. Thank you and then finally the point about disposals. So this
is about community centres subject to finalisation of the ongoing review, dispose of specific
community centres where this is demonstrated to be the best option. Is this community centres
on estates? And what because I mean obviously that's something that has huge social value
and you know these spaces are kind of the, well they can be the sort of the glue that
holds a community together on an estate so what's the process for kind of analysing the
losses, the sort of community losses apart from the financial? So that process is ongoing
and the Councillor is the first thing to say to everybody. The first thing is we want to
take that review which is important, complex and we need to work that through and that
will effectively assess the impact of our 48, in particular our 48 community centres
across the borough which we've, and I think it is public knowledge that we've discussed
with the Councillor partners that there's a variable impact across those different centres.
Some, these are my words, I'm not trying to judge, some are absolutely brilliant in
the heart of the community. I think it would be fair to say some are less so and that's
my view but the process goes through an objective process of assessing the performance and the
impact of those centres and subject to a much broader conversation once we've done the
work across the Council and Councillors then where collectively there is an opportunity
to look at a disposal that delivers better benefit, greater benefit to the Council and
we'll look at that but none of those decisions are made yet. Rest assured I completely get
the complexity of that but you'll understand that the world we're in and I've been, had
many, many conversations over the years and many years so rest assured I'm clear but
you'll understand why we need to do it because we need to overturn every single stone for
those reasons and if that so the bit we talk about in here is right at the end of a much
more complicated review but just before that review hasn't finished yet there could be
a whole process around that which we'll be having a long conversation about and that
may end up with some proposals around disposal but we're a long way from there at the moment.
Okay, thank you.
Okay, that's been very valuable indeed. I mean we summoned you here to explain the
budget variances and the pressures and in fact what we've opened up principally on
Alan Finch's initial question, why do we hold commercial properties? I mean this is
an important discussion. I mean for those of us that are old-timers that were around
when there were some controversial disposals it's very clear now as it was then I think
that losing an enormous number of basically shops under flats all over the borough really
tilted the property portfolio, commercial property portfolio of the Council in a particular
direction, made it highly geared, meant that it was a small portfolio and volatility in
the market then immediately has significant budget pressures and that's what we faced.
I think perhaps the recommendation from this committee is when noting what's being done
recognising there isn't a single solution that sort of fixes the whole of the property
portfolio. There are different types of assets that we've got, they probably serve different
other purposes than just generating income, that there might be some selective sale and
capital receipts, there may be some interesting development opportunities, I think that's
probably true in Brewery Road where the LSIS is going through a really interesting optic
in economic activity that perhaps mirrors the downturn in economic activity around the
City Fringe. So there are lots of different solutions and then perhaps at the heart of
all of this, as both of the Allen's have indicated, do a proper net yield appraisal
of all of the properties we've got to be able to illuminate where are some of the more
problematic properties and obviously that goes more than just saying which ones which
are vacant right now but really understanding what's the value and what's the alternative
the use of those assets going forward. Also recognising that the economy is changing,
there's a change in government, a lot of rules have now, they haven't yet changed,
they're about to change and of course there's a completely new framework for commercial
developments nowadays, this is a government that wants to build, that wants to grow jobs,
that wants to grow the economy and we're holding commercial assets in that context,
there may be some fresh opportunities in the next few months and years.
Okay good, members got any other further comments? Good, thank you very much indeed.
Steve and thanks for coming.
Let's move on to the next item. I have to tell you that my benchmark is that corporate
resources went on until about 5-10 last week, we ain't going to be here until 5-10 believe me.
Sorry? Oh did it? And it did have the leaders report which is a big deal, yes.
Oh I thought I clocked it was 2 hours and 50 minutes, anyway. Good, thank you very much indeed.
We now have the internal audit report, Laura thank you very much indeed for attending.
We have a number of questions which have been thought up in advance so I don't know whether
we've pinged those over to you so you've had early.
Excellent, very good, thank you. Okay listen, over to you, thank you.
Thank you, thank you chair, so on behalf of her absence today we're asking the committee to note that report.
Is that better? Thank you. Certainly, so shall I come straight on to the questions then in that case?
Shall I plunge in chair? Yeah, actually the chair summarised it very well.
My memory is that we didn't used to get a lot of limited and no assurance internal audits reported to us
beyond inevitable TMOs and schools, there seemed to be a lot more at the moment.
So I just wondered if that's a sort of cyclical thing, whether that's a worry, whether it's a trend.
I might have a view on that as well, whether the committee should be concerned about that direction of travel
if that's what it is. And then focusing on the follow-ups which I think are all sort of the acid test.
I was worried about a couple of examples in there where we've had limited or no assurance
and only moderate implementation of actions, which was I think 22.7 on page 86
and HOU 23 at the bottom of page 91 and what we're doing really to encourage managers
to respond to what have been poor audit outcomes for them and whether it's time for the committee to escalate that.
The first question that you had there about the direction of travel as it were,
I think it's actually more complex to answer I think than being able to make a straight comparison over time.
I would say that there are several variables that I think feed into the outcomes
to for example the council's risk universe which isn't the same over time, it's always developing and moving
and I think we see an intent to move into the audit and work and report on it.
I think that's also the case when we think about the types of activities that the council might be in for this.
I don't know whether you wanted to speak to that as well.
I think the vast majority of what I was going to say but just reiterating the point around the organisation is doing more,
we've got more capacity within the internal audit service so we are doing more audits,
we're going deeper in those audits and actually what we're seeing is more finding is actually positive for the organisation
because it's a symbol that we're finding and putting in place a service
or perhaps not some audits which didn't go quite as deep means that those things wouldn't have previously been found.
That's a clear answer to that but I think there's lots of things feeding in.
If I were to move on to your second question about the rates of implementation,
I wanted to give some reassurance first of all that we find that management is typically well engaged with...
I don't want to go on too much.
Yeah, a brief follow up on that.
I've been in management positions and received limited audit assurance reports myself
and you would always treat those with a high priority and yes, delays can occur
but they would always be at the top of the list of things for management to do.
I just worry a little bit about whether you think there might be a cultural issue in the organisation
or with certain managers if they are not doing that.
So the corporate management team regularly see all outstanding actions
and it is a factor in corporate director conversations and then for managers during their check-in processes.
So certainly with the ones within my service areas, it's things that I talk to my managers about
and where they are with delivery and that is cascaded throughout the rest of the organisation.
We have controls board so we do a kind of bottom-up approach with audit leads within those departments
but then there is definitely the kind of...
I'm just remembering the way that you phrased the question about kicking things upstairs.
I think the audit actions come down from upstairs and also up from the controls board.
The actions generally what we find is the actions that are not getting delivered
are not getting delivered for very genuine reasons as opposed to a culture of ignoring them or would be neglectful.
Dare I say the question that keeps coming to my mind is what's the teeth behind all of this
because the internal audits where historically there has been problems tend to be schools and TMOs
and those are bits of our world where the town hall does not have much of a big stick to waive or a carrot to offer.
Do you think that compliance with audits is kind of relative to whether who you're auditing is right in the middle of the council or is relatively peripheral?
I don't discern that. From the work that we do I don't think it tends to work in that way.
I think it's more a case of the variety of pressures that perhaps different areas are contending with
and I have many more intense risks than others perhaps
and that naturally means that we may do more audit engagements in those areas.
We have more findings then coming out in those areas and there are more to engage with that they must make difficult decisions
I think about how they address these things and what they prioritise.
Just picking up on that point, perhaps the point you may be missing is that this committee is obliged to look at the assurance that term audit is giving.
When I look at appendix one and follow through to appendix two even, I've highlighted this in my note to the chair before the meeting,
I continue to see what I call the long standing culprits of those with limited assurance.
If I travel through all these pages, and I haven't but I'm guessing that there are as many limited assurances on these papers as there are moderate assurances,
I could then think by March 25 the overall assurance rating might not be moderate or might stay moderate
but looking at all these assurance at the moment, you appear to have some way to go to get that conversion from limited to moderate.
The other point I would make is that whilst there are recommendations that you rightly make and comments about reports or draft or the recommendations you made so far have been accepted,
I'm not clear as to whether they have been accepted because we never seem to see a management response for those acceptances nor deadlines when the full review will be implemented.
So I suppose my summary of this is that I will continue to see the same culprits in the next report because we don't seem to be moving away from it.
Now I know behind that, and we've both been internal auditors many years ago, there are ups and downs in all of this and hiccups, I understand all of that.
But the fact is it's coming forward to us now as still the same assurances as there were before.
And I see nothing that suggests those are going to change unless you're going to highlight there are particular obstacles.
But that is not highlighted here. And I'd be sympathetic if there were obstacles. But I don't read that in these papers. Is that fair?
I appreciate your feedback on that and I understand what you're saying. I can talk about the process very briefly if it would help.
So we do, once we make our recommendations, before we finalise the report, we have a closing meeting in most cases with management that they do represent the agreed action.
So when the report is finalised, instead of saying recommendation, it says agreed management action in the relevant column to those dates once they pass.
So acceptance of recommendations, it doesn't say it explicitly in there, but it converts the agreed actions which management has agreed to take.
My final comment on that could be, posing a question to you, given all that you've just said in terms of recommendations,
do you see the possibility, if not the probability, of these TMOs, these schools, all of these issues ever being converted to moderate issues?
Because there never seems to be that statement of likelihood.
That is a loaded question, I'll accept that at this point, but that's what I'm reading.
That's a good question and it's something for us to think about. I don't know whether we would be in a position to speak to that, but in terms of future trends.
The TMOs are quite often troublesome, so one of the things that we are doing to respond to that is putting in some support from Council of Finance Resource to look at the financial arrangements of each of those TMOs.
Whereas I can't remember how many there are, but there is an awful lot.
So the volume and the risk profile of that is very different to what they are for us.
So to respond so that we've got some consistent and quality financial arrangements that we can rely on,
rather than sending in the audit team on a rolling basis to do lots and lots actually will have one resource that centrally can respond to that.
So if you're asking do we expect to see a change, I would hope that that would have quite a fundamental impact on the TMO which drives a lot of the volume of it.
And in terms of overall assurance rating, obviously it's Nazreen and the audit team's responsibility to come to that arrangement.
Or I would comment on that is going back to Laura's first point around actually there's different levels of risk in the different reports.
So actually just saying well there's more of one than another isn't driven by the average, it's driven by an objective review of what the overall level of risk is.
My final comment on that would be Paul, as chair of the control board, I would be passing a message back to you, perhaps on behalf of this committee, that you perhaps need to look closer at these levels of assurance.
Because whilst I accept what you say, there's nothing coming forward in particular emphasis that suggests in my mind those assurance levels are going to change.
I know you've got mechanics working behind that, but I don't see anything and that's not a criticism, it's just a constructive comment to suggest that there's an uplift in the assurance level and sometimes it's useful for a committee to impart that to an overseeing board.
So the controls board is more of a focus on follow-ups, so actually the initial assurance rating, but we do have, so once a month our corporate management team focuses on risk and that is definitely the forum to have that conversation at the top level of the officer group within the council.
I'm not sat here defending saying everything's fine because any amount of limited assurance is bad for the organisation, so I'll take that.
A couple of things from me, firstly really building upon Anne Begg's line of questioning, this time about schools.
Themes have been consistently emerging over the years about schools and where we're getting limited assurance.
It's really the same point as the TMOs, what are we doing to prevent limited assurance?
What are we doing in a proactive sense as internal audit go out to effectively the schools department to say we are finding year after year the same themes emerging, they need to be trained, they need support, what are we doing?
Thank you, Chancellor. I fully agree with your sentiments and over the past two years or so my predecessor Ush and I have worked quite closely with the schools finance team to try and surface some of these patterns.
Ush actually provided some training alongside our head of schools finance as it would likely take place towards Christmas.
At the same time the wider learning and culture team are engaging and are asking whether it would be possible for me to attend.
We need to sort of bookend the process if you like because of course we need to ensure that everything is on a firm footing at the beginning in order to come in at the end and avoid identifying themes over and over again or things that perhaps schools will end to talk through, anything that is a particular sticking point.
But certainly there's been proactive contact with me from the schools team so we're seeing proactivity there.
And then on a separate point, just taking a couple of examples in terms of follow up, HOU23, health and safety asbestos, originally no insurance, what we have is moderate implementation.
So pattern HN22 for housing allocation for medical assessments, limited assurance, moderate implementation and then just looking ahead for next year when I see limited assurance, modern slavery.
These are with high profile, high priority recommendations.
Thinking about risk and we are an audit and risk committee, when I see limited assurance for risks such as those, I begin to worry.
Are you, can you give an assurance to this committee that in respect of those three areas, there really is nothing to worry about at this stage or are there fundamental concerns that need urgent attention in respect of those three audits,
the one that's just reported and the two where we've only had effectively moderate responses to the recommendations.
Within the limits of the authority I have, I can give you assurance that we are engaging quite close in continuous efforts to follow up on the implementation of actions.
What we need further to what we already have is to be able to verify those through supporting evidence and that can sometimes be a longer process, certainly the asbestos piece.
Housing allocations has also been a topic that's been discussed by senior in trying to understand what the status and implementation is, what the challenges might be that are stopping management from taking the action supporting evidence.
I mean, Nick's asked these questions very rightly because I think it still puts its finger on what are the factors which are leading to non-compliance for want of a better word.
And clearly the factors which lead to good levels of compliance are a culture of compliance.
It may well be management that's quite close to what I described earlier as the centre of the council. If you're the manager in a service that's got poor internal audit but you have a pretty good working relationship with a corporate director, it's not going to look good.
It's interesting that in schools and TMOs, the schools and TMOs that seem to have pretty good compliance are the schools and TMOs that have got a good relationship with children's services or housing departments.
The ones that can't be bothered with audits are the ones that are also, you know, the TMOs are engaged in mortal combat with the housing department and this is just another item on the sort of things the council bothers us about.
I'm just wondering what one does to sort of deepen, because deepening the engagement on internal audit has to be done in parallel with good engagement with the council across several other domains.
So the good schools, for example, the ones with school business managers really know the finance department well, schools finance, I mean.
You know, they're the ones that submit their returns on times. They're the ones that pick up the phone if there's something in the reconciliation they don't understand.
The schools that probably don't do much audit compliance are the ones who just wait for the problems to just go on and on and on and then blame somebody else.
And so in a way, it's a bit of a rock and a hard place here because internal audit can't necessarily have much in the way of sanction.
Therefore, we've got to rely upon a culture of compliance and if there isn't a culture of compliance across quite a wide breadth of engagement with the council, then that's going to be the case with internal audit as well.
And there may be places, as you've described, where actually the pressures are really quite significant and they don't have a culture of compliance and they don't have a very good relationship with the rest of the council.
Those would all be sort of alarm bells to ring, in my view. Caroline?
This kind of follows on from what you've just been talking about, Paul. I was wanting to pick up on something that you said earlier, Paul.
You said TMOs are troublesome and I just wondered what you meant by that.
Is that to do with troublesome to engage with, to kind of get the assurance or, yeah, what did you mean?
Sorry, it was a very superficial comment. I didn't mean anything other than they are often listed in numerous form in the audit reports, but that is partly driven because it's 27 of them.
Thank you.
In case of any problem, we think TMOs are a good thing, but they can be difficult to work with sometimes.
Members have read the report in detail and there are a number of questions that were posed in advance.
Good, thank you. Tell us what are the highlights of this annual report.
So as in previous years, we have provided an update on the work undertaken by both the Internal Audit Investigations team.
I'm Stephanie, so I manage the Housing Investigations team. For 23/24, I think we had really solid performance, actually.
It was pretty much the same as the year previously, but I'm particularly proud of the results that the team produced for 23/24 because it was also a time where we were embedding quite a few changes.
Anyway, aside from that, I'm really proud of the team's performance in terms of 23/24 and I think it will be something to shout about.
Excellent, thank you very much indeed Stephanie and Holly as well.
Members got questions?
An awful comment, not a question thing again. It's really helpful to hear that because I was surprised in a way about what looked like quite low numbers of some of the housing.
So that is very, so you basically answered my question just partly because, you know, from Ward Councillor casework, from other conversations, it feels to me that's an area where really the council could be motoring and so it's great to hear that since April that that is indeed the case, so thank you.
I think it is also quite striking that a lot of the housing, successful referrals on housing matters are sort of from tip-offs and there clearly is a difficult line to be trodden here.
Sometimes a lot of those tip-offs are a little bit malicious, neighbour disputes, a core of them. Sometimes neighbours are an outstandingly valuable source of intelligence because they really, really know who's coming and going.
And as we've moved away from a housing management regime in which housing officers might have been a bit more present on estates or where caretakers were residential caretakers, it means that that sort of intelligence gathering by officials of the council has declined.
Therefore we've got to rely a lot more on neighbours and slightly get over the sort of culture that you don't grass on your neighbour alongside a culture which says you very definitely do report your neighbour because they're making money out of something they shouldn't be making money out of.
So there is a very, very strong perception in the borough that our housing portfolio is a really profitable way of scaling the council as rents rocket in London, as house values rocket in London, as housing scarcity intensifies, as Airbnb is just out of control.
The opportunities for people to make money out of their tenancies or to illicitly secure right to buy transactions and people that are finding ways of encouraging tenants to make RTB applications which are financed through subprime lending, let us call it.
The problem is really exacerbating, and for the council, probity in what we do, especially in housing, is essential to retain that sort of narrative of probity for the reputation of the council.
So it's good to know, but again given the scale of the number of properties that we have, the gut feeling is the numbers of potential fraudulent activities is probably a great deal higher than we're currently discovering.
How do we ramp up that activity and give real confidence to our tenants and to our honest lease holders that we're applying the rules properly to everybody.
At the moment we're trying to work through those as well, but it's a really good step forward with Airbnb.
Airbnb unfortunately are notorious for not wanting to provide data.
I'd be amazed then in that vein if there were only 42, I thought you were going to say an award from the whole borough, but that is a great start, so thank you.
Excellent. Look, both of you, thank you very much indeed, unless members have got further comments to add.
Thank you very much indeed for coming along, both of you, Holly and Stephanie.
Right, let's move, sorry we're keeping Holly, let's move on to the Biennial Whistleblowing Monitoring Report, which is again extensive and really very revealing.
I was just about to say, we're now going to do this in a deep secret session, so I'm afraid anybody that's not a council officer is required to leave.
Thank you for coming though. We're going to switch off the live streaming, so obviously thousands of viewers will be disappointed at this moment.
Are we offline?
