The Audit and Governance Committee of Newham Council met on Thursday 4 January 2024 to discuss the governance arrangements of Populo Living Ltd, the council's wholly-owned housing company. The committee reviewed an advisory report by Veritau concerning Populo, focusing on shareholder roles, conflicts of interest, risk management, business plans, and financial reporting. Several actions were agreed to improve transparency and oversight of Populo's operations.

Populo Living Ltd Governance Review

The Audit and Governance Committee extensively reviewed the governance of Populo Living Ltd, a company wholly owned by the council, following an advisory report by Veritau. A key concern raised was the lack of clarity with Shareholder roles and the absence of scrutiny of Populo by the Audit Committee or Overview and Scrutiny. Veritau noted they had not seen evidence of such challenge. Officers clarified that while direct oversight wasn't initially requested, the Audit Committee could request quarterly updates on Populo, as its accounts are consolidated into the council's.

A decision was made to advise the cost of the Veritau advisory report to the Clerk for circulation to the Committee (ACTION AC192). Members suggested that the Shareholder Group provide a summary of governance arrangements for all council subsidiary companies to help determine the appropriate level of committee involvement. Veritau stated they had not reviewed other subsidiaries and that risk levels varied.

Regarding the appropriateness of Populo's governance arrangements, Veritau reported they had drawn up their report against CIPFA guidance but struggled to be satisfied with the level of evidence provided. This lack of evidence was a significant concern for some members. The committee also discussed the absence of formal minute-taking at monthly shareholder meetings. Officers explained that notes and action points were taken, but not full minutes, as the Shareholder Group is not a decision-making body. However, acknowledging concerns about loss of corporate memory in view of high staff turnover and the need to evidence reasons for decisions, it was agreed that formal minutes would be taken at the Shareholder Group monthly meeting and the most recent set of notes would be circulated (ACTION AC193). Veritau was also requested to provide the committee with a copy of their testing plan, detailing the information requested and the replies received (ACTION AC194).

Concerning conflicts of interest, members noted that the Director of Community Wealth Building held multiple roles within Populo. Officers stated this was not uncommon and that investment decisions were made at Cabinet level. It was clarified that officers attend Board meetings for their skillset, and their presence does not curtail their advice. A member highlighted that the Veritau report indicated no policy to manage conflicts of interest. Officers confirmed a policy had been drafted and was expected to be completed by 7 February 2024, with a copy to be circulated to the Committee via the clerk (Action AC195). Populo Living Ltd also has its own conflicts of interest policy.

On council risk management and scrutiny, a question was raised about the filing of year-end accounts. Populo officers confirmed accounts were agreed and signed by their Audit and Risk Committee and filed by Populo. Initial concerns about accounts being outstanding on Companies House were later clarified; Companies House had received them but had not yet uploaded them due to staffing issues and the Christmas break. Members sought assurance that Cabinet was aware of financial risks and whether decisions fell within the council's risk appetite. Officers stated that detailed financial modelling was provided in Cabinet reports, and officer monthly finance meetings addressed risks and cash flow issues. In future, Cabinet reports will include an assessment of the overall viability of the portfolio.

The committee discussed the absence of a business plan for one year, with Populo explaining they had a draft plan that was not published due to being out of date post-pandemic. Veritau was unaware of this draft plan. Populo detailed that they consider project risks at a granular level, with Health and Safety being the biggest risk in construction. Cabinet makes decisions on each project, and if risks increase, officers present new details back to Cabinet. To ensure Cabinet saw the portfolio of risks strategically, officers confirmed that Cabinet receives quarterly reports. It was agreed that an audit would be taken on an action plan created from the Veritau report and the progress made in December 2024 (ACTION AC196).

Councillor Lester Hudson, Chair of Overview and Scrutiny, inquired about the delay in filing accounts, which Populo officers attributed to a non-executive director raising a query on working capital and national issues affecting the Pier Road Scheme, such as the second staircase requirement for buildings over 18 metres.

Regarding dividend payback and loan covenants, a member noted the council had forgone dividend payments until 2045. Officers explained this was due to a change in 2018 to increase the supply of affordable housing. The break point where financial interests outweigh social impact could not be measured, but the council's budget did not rely on dividend income. A decision was made to suspend Rule 11 of the standing orders regarding the duration of meetings and extend the meeting until 9:30 pm or the conclusion of business (6.43 RESOLVED). The committee also requested to be sighted on a formal exit strategy for Populo (ACTION AC199).

On the business plan, officers confirmed a requirement for one every three years under the shareholder agreement, but they created one yearly as good practice. Performance was managed through reports to Cabinet, with worsening performance linked to external factors. Populo confirmed KPIs were scrutinised at a granular level, and maintenance and rental income were monitored. Projects could be paused or slowed down to ensure financial viability, as seen with the Pier Road project, where the proportion of affordable units was reduced. It was agreed that the committee would raise the issue of officer non-compliance with audit requests with the Chief Executive (ACTION AC197).

Under Theme 7, concerning the Grant Thornton and internal review report, a document addressing multiple actions was to be created by March 2024. The council would formally respond to the Grant Thornton report within this document.

Year Ahead Forward Plan

Concerns were raised about the Grant Thornton finding on relationships between members and officers, and the effectiveness of standards processes, including delayed reports and lack of access. It was agreed that these concerns would be discussed in a meeting with the Corporate Director of Resources, with the Chair of Audit Committee present if possible (ACTION AC198). A request to bring forward the confidential Fraud Report from April to February was noted and would be followed up with the relevant officer.

Actions Log

It was agreed that a risk identified in Action AC184, concerning officers' right to work in the UK, would be added to the corporate risk register. A member expressed dissatisfaction with the response to Action AC189 regarding compliance with mandatory training, and this action will remain open until further assurance is received. Members requested further clarification on Action AC187 for the February meeting.