The Audit and Governance Committee of Worcestershire County Council met on Tuesday, 21 July 2026, to discuss the Dedicated School Grant (DSG) deficit and the Local SEND reform plan. The meeting also included updates on the draft annual statutory financial statements, the annual report of the Chairman of the Audit and Governance Committee, the counter fraud annual summary report, the internal audit annual report and opinion, debt management, and the treasury management annual report. The committee's work programme for the upcoming year was also scheduled for review.

Dedicated School Grant (DSG) Deficit and Local SEND Reform Plan

A significant portion of the meeting was dedicated to discussing the Dedicated School Grant (DSG) deficit and the Local Special Educational Needs and Disabilities (SEND) reform plan. The report highlighted the considerable financial pressures within the SEND system nationally and specifically for Worcestershire County Council. As of 1 April 2026, Worcestershire County Council had an accumulated DSG deficit of £180.8 million, with projections indicating this could rise to £446.4 million by March 2028 without intervention.

The report detailed the proposed SEND Reform Plan, which is a requirement for local authorities to access the High Needs Stability Grant. This grant, offered by the Department for Education (DfE), aims to cover 90% of historic DSG deficits accrued up to March 2026, subject to the approval of a local SEND reform plan. The council's plan outlines a three-year transformation approach, focusing on strengthening inclusion in mainstream education, improving local capacity, and reducing reliance on high-cost or out-of-area provision. Key priorities include earlier identification and intervention, improved access to specialist support, embedding co-production, and aligning funding with inclusion and value for money.

The financial impact of the deficit and the proposed mitigations were extensively detailed, including forecasts for both unmitigated and mitigated scenarios. The report noted that the Deficit Management Plan aims to reduce the deficit, but even with these measures, a significant residual deficit is forecast. The council's external auditors had previously issued a statutory recommendation urging the council to urgently address its increasing DSG deficit and develop a deficit management plan.

The report also outlined the national context of SEND reform, including the Schools White Paper and the SEND Reform consultation, which aim to rebalance investment towards prevention and early intervention. The council's Local SEND Reform Plan, developed in response to these national changes, was presented, detailing a blueprint and three-year roadmap for reform across education, health, and care.

Draft Annual Statutory Financial Statements for the year ended 31 March 2026

The committee received an update on the draft annual statutory financial statements for the year ended 31 March 2026. The report indicated that the draft accounts had been completed ahead of the statutory deadline and published on the council's website. The external auditors, Grant Thornton UK LLP, had commenced their audit fieldwork and Value for Money assessment. A high level of confidence was expressed by both council officers and the external auditors that the audit would be completed and the audited accounts published in time for the statutory deadline of 31 January 2027. The report also highlighted the significant accumulated DSG deficit and its potential impact on the council's financial sustainability.

Annual Report of the Chairman of the Audit and Governance Committee

The Chairman's Annual Report provided a summary of the committee's performance against its terms of reference, its engagement with internal and external audit, and highlighted significant issues considered during the 2025/26 municipal year. The report noted improvements in the council's governance arrangements, with a generally sound system in place, although areas for further improvement were identified. The committee had actively monitored the council's risk management framework, internal control environment, and financial reporting processes. The report also mentioned the upcoming appointment of two co-opted independent members to the committee for the 2026/27 municipal year.

Counter Fraud Annual Summary Report 2025/26

This inaugural report detailed the counter fraud activity undertaken during the 2025/26 financial year. It highlighted that while the council has a zero-tolerance approach to fraud, bribery, and corruption, there was no dedicated corporate counter fraud resource during this period. Work was undertaken by Internal Audit, including reactive and limited proactive investigations, collaboration on the corporate risk register, and policy reviews. The report noted that lower detected fraud often reflects lower detection resources and limited proactive activity. Key gaps identified included the lack of a dedicated fraud team, limited proactive detection, underdeveloped performance metrics, and lower visibility at senior levels. The report outlined plans for 2026/27 and 2027/28, including the establishment of a dedicated counter fraud resource, the implementation of data analytics, and improved reporting to senior management and the committee.

2025/26 Internal Audit Annual Report and Chief Internal Auditor Annual Audit Opinion

The Chief Internal Auditor presented their annual opinion on the adequacy and effectiveness of the council's governance, risk management, and internal control framework for 2025/26. The overall assurance rating given was 'satisfactory', indicating a generally sound system with some identified areas for improvement. The report detailed the internal audit coverage, assurance levels, and thematic conclusions, such as non-compliance with policies and procedures, and issues with policy design. It also highlighted the progress made on implementing recommendations from previous audits. The report noted the ongoing challenges related to financial resilience, transformation, devolution, and human resourcing, as well as the persistent risk of fraud. The Chief Internal Auditor confirmed that the internal audit service had maintained its independence and objectivity throughout the year.

Debt Management

The committee received an update on the council's debt management position. The report indicated that the collection of debtor income remained challenging, with a significant portion of outstanding debt relating to Adult Social Care. The total debt outstanding was £27.2 million as of June 2026. While the overall debt level had remained fairly static over the past 12 months, increased effort was required for debt collection. The report detailed the debt clearance activity undertaken by the Debt and Legal teams, and provided an aged debt analysis by directorate and customer classification. The committee also noted that mandating or incentivising Direct Debit payments for Adult Social Care clients was not legally permissible, but the council would focus on promoting Direct Debit through targeted campaigns and flexible payment arrangements.

Treasury Management Annual Report

The committee reviewed the treasury management performance and position for the year ended 31 March 2026. The report indicated that the council's Capital Financing Requirement (CFR) had increased, and total external borrowing had risen. The council had maintained a prudent approach to investments, with a focus on security and liquidity. The report detailed the borrowing position, cash and treasury investments, and treasury performance against budget. Compliance with the CIPFA Code of Practice and authorised borrowing limits was confirmed. The report also highlighted the council's exposure to market risk, credit risk, and liquidity risk, and the strategies in place to manage these.

Work Programme

The committee reviewed its future work programme, which included planned discussions on external audit findings, financial statements, internal audit progress, risk management, debt management, treasury management, and the annual governance statement. The committee was asked to consider if there were any other matters it wished to incorporate into its future work.