The Audit Committee of Tower Hamlets Council met on Thursday 23 July 2026 to discuss the provisional audit plan for the year ending 31 March 2026, review progress on action plans in response to external recommendations, and consider the draft statement of accounts for 2025/26. Key decisions included noting the council's audit planning report, receiving updates on progress against action plans, and reviewing the draft statement of accounts.

EY Audit Planning Report for Year Ended 31 March 2026

The external auditors, EY, presented their provisional audit plan for the 2025/26 financial year. Stephen Reid, partner at EY, outlined the intended approach to the external audit, focusing on key risks and materiality levels. Significant risks identified include management override of controls, revenue recognition, property, plant, and equipment valuations, and the implementation of IFRS 16 leases. There were no changes to these risks from the prior year, although there was a subtle change in focus on one revenue recognition risk. An additional risk for this year relates to the minimum revenue provision (MRP) policy, particularly changes made for 2024-25 that had a material impact on the Council's reserves. EY also noted that they would be reporting on the Council's value for money arrangements, expecting to report the majority of significant weaknesses and statutory recommendations from the previous year.

Councillor David Edgar asked for clarification on how the key risks were identified, and Stephen Reid explained it was a combination of EY's two years of auditing the authority and specific planning discussions with officers, alongside wider knowledge of the local government sector. Councillor Mohammed Omar Mehdi questioned assurances on audit completion timelines and potential cost reductions. Stephen Reid confirmed the audit had commenced and was progressing well, but that the opinion for 2025/26 would likely be another disclaimed audit opinion. He explained that audit fees are based on assumptions of a perfectly functioning control environment, and that until the Council sustainably addresses its matters and reduces its risk profile, audit costs will remain higher.

Councillor Kamrul Hussain inquired about the Council's progress and the timeline for moving away from disclaimed audit opinions. Stephen Reid stated it was too early to comment on progress but explained that local government complexities, such as property, plant, and equipment (PPE) and the nature of reserves, differ from corporate entities. He estimated that an unmodified opinion might be achievable by 2029-30, assuming all goes well.

Regarding materiality, Stephen Reid elaborated on the qualitative and quantitative elements of their judgement, explaining the process for accumulating and discussing quantitative differences with officers and the scan of files to address cumulative impacts. Richard Ennis, Interim Corporate Director for Resources, endorsed the positive working relationship with EY and highlighted the Council's commitment to addressing issues to reduce audit fees. He also mentioned the publication of reserves information.

Audit Committee Terms of Reference, Membership, Quorum and Dates of Meetings 2026-27

The Committee reviewed its terms of reference, membership, quorum, and dates of meetings for the 2026-27 municipal year. Councillor Martin Parker noted that the terms of reference appeared to delegate nothing to the committee, despite the requirement to make recommendations to Council and produce an annual report. Officers were asked to review this. Councillor Foysal Ahmed requested that Kabir Ahmed be removed from the membership list. The Chair, Barry Quirk, Independent Chair of the Audit Committee, stressed the importance of clarity on the basis for making recommendations and the need to align with the committee's delegated authority.

Progress Update on Action Plan Delivery in Response to External Recommendations

Satinder Jas, Director of Compliance, presented an update on the Council's action plan to address recommendations and findings from EY's Value for Money reports. EY had identified four statutory recommendations and six significant weaknesses. While these remained open at the end of the financial year, actions were underway to embed improvements. A new Director of Compliance had been appointed to lead the review of the action plan, focusing on clearer actions, strengthened accountability, and defined delivery timescales. The anticipated timescales for clearing the statutory recommendations were noted, with an aim to achieve an unqualified opinion by 2029-30. Kate Brunning, Interim Head of Internal Audit, Anti-Fraud and Risk, also highlighted the appointment of a new Head of Internal Audit to strengthen the Council's approach to implementing recommendations. The plan involves a two-phase approach: mobilisation (completed December 2025) and implementation (by December 2026). The Council has allocated £4.5 million over three years to support this.

The report detailed progress on four workstreams: Financial Management & Accountability, Effective Operation of Internal Controls, Contract Management and Procurement, and Process for Conducting Internal Investigations. Significant progress was noted in financial reporting, with the publication of draft accounts by the statutory deadline. Improvements were also highlighted in the quality of working papers, training, and the implementation of a new procurement waiver application. However, challenges remain in embedding these changes consistently across all services.

Annual Schools Internal Audit Summary Report, 2025/26

Kate Brunning, Interim Head of Internal Audit, Anti-Fraud and Risk, presented the summary report of school audits undertaken during 2025/26. Out of 12 schools audited, three received a Substantial Assurance opinion, an increase from the previous year. However, two schools received a Limited Assurance opinion, indicating significant gaps and weaknesses requiring improvement. The report noted a decrease in the total number of recommendations raised compared to previous years, but an increase in the severity of these recommendations. Common themes for recommendations continued to be in Governance and Procurement, with notable issues including inadequate terms of reference for governing bodies, inconsistent interest declarations, and DBS check issues. Income collection and banking controls also showed areas for improvement.

Self-assessment of Conformance with the Global Internal Audit Standards and Public Sector Application Note

Kate Brunning presented the self-assessment of conformance with the Global Internal Audit Standards (GIAS) and the Public Sector Application Note. The assessment indicated general conformance with the GIAS, but highlighted areas for improvement, particularly regarding the absence of an External Quality Assessment (EQA) in 2025/26. The Head of Internal Audit's annual opinion for 2025/26 provided Limited Assurance on the Council's governance, risk management, and control arrangements, consistent with external audit findings. The report noted that the internal audit team's reporting line had changed, and the job description for the Head of Internal Audit needed updating. An EQA is planned for later in 2026/27.

Annual Insurance Report 2025/26

Cheryl Williams, Insurance Manager, presented the annual insurance report. The report highlighted that out of 231 claims received, 134 were repudiated, resulting in a saving of approximately £1.3 million. The Council's insurance function provides good value for money through a combination of self-insurance and external catastrophe cover. The report detailed the Council's insurance provision (£4.2m) and reserve (£8.3m) for self-insurance, supported by actuarial reviews. Premiums for motor insurance had increased significantly, particularly due to the Waste Management service's claims experience. A virtual medical care service had been launched to support employee health and wellbeing. Future plans include retendering for property, terrorism, and engineering inspection policies through the Insurance London Consortium (ILC), and a review of the ILC's future management.

2025/26 Draft Statement of Accounts

Ahsan Khan, Corporate Head of Financial and Technical Accounting, presented the draft statement of accounts for 2025/26. The Council met the statutory deadline for publication. Key observations included significant service demand pressures leading to a £18.6m General Fund overspend, a reduction in reserves and cash, and a strengthened balance sheet due to accounting for pensions and asset revaluations. The Housing Revenue Account (HRA) had a net £12.6m overspend, and the Dedicated Schools Grant (DSG) had a cumulative deficit of £35.2m. Capital investment was £189.1m, financed primarily by capital grants and contributions. The Council's cash position had significantly reduced. The external audit of the accounts had commenced, with a planned completion by November 2026.

Minimum Revenue Provisions (MRP) Update

Chris Leslie, Acting Director of Finance, presented an update on the Council's Minimum Revenue Provision (MRP) policy. The Council had adopted the annuity method, which results in lower MRP charges in earlier years and higher charges in later years. This approach provides greater flexibility for current investment, such as in transformation projects, but places greater pressure on future financial sustainability. The current budget is sufficient until 2059-60, after which additional growth will be required. The report detailed the forecast MRP costs against budgets for 2025/26 to 2028/29, showing an overall forecast underspend.

Audit Committee Work Plan

The Committee reviewed the proposed work plan for future meetings, noting that items should align with the Committee's terms of reference and delegated responsibilities.

The meeting was webcast and members were encouraged to watch online. Apologies were received from Councillor Halima Islam, Councillor Ahmed and the Chief Executive. Councillor Fausto Ahmed was appointed Vice-Chair. The Committee thanked EY for their presentation and vigilance.