The Audit Committee of Aberdeenshire Council met on Thursday 10 September 2026 to review the internal and external audit reports for the past year. Key discussions included the internal audit annual report, which found the council's governance, risk management, and control framework to be adequate and effective, despite identifying recurring weaknesses in areas such as record-keeping and financial controls. The committee also reviewed the external audit's Best Value thematic report on asset management, noting areas for improvement in planning, monitoring, and capital strategy, and discussed the council's corporate improvement plan, noting the completion of several key action plans.

Internal Audit Annual Report

The Audit Committee received the internal audit annual report for the year ended 31 March 2026. Chief Internal Auditor, Jamie Dale, presented an overall assurance opinion that Aberdeenshire Council had an adequate and effective framework of governance, risk management, and control in place. This opinion was based on the totality of work undertaken across the council, including 37 audit reports covering financial systems, governance, major projects, and operational delivery.

While the overall opinion was positive, Mr. Dale highlighted that the report identified significant weaknesses in some areas, resulting in limited assurance opinions. Recurring themes included weaknesses in record-keeping and audit trails, opportunities to strengthen management information and monitoring, deficiencies in some financial controls, and challenges in consistently implementing established frameworks and procedures. Despite these issues, recommendation acceptance remained high, indicating a commitment to improvement.

Councillor Glen Reynolds raised concerns about the internal audit team's capacity and specialist expertise, particularly regarding IT and cyber risks, questioning reliance on external contractors. Mr. Dale confirmed that no planned audits had been deferred due to a lack of specialist staffing and that while IT knowledge existed within his team, external resources could be utilised for highly specialised matters.

Councillor Gillian Owen questioned the evidence supporting the adequate and effective governance conclusion, given the recurring weaknesses identified. Mr. Dale clarified that these were not indicative of systemic cultural issues but rather isolated weaknesses, and that the majority of audits provided reasonable assurance.

The committee noted the high number of extensions granted for implementing audit recommendations, with some original dates dating back to 2024. Mr. Dale acknowledged this but stated it reflected management engagement and the complexity of some actions, expressing optimism that a focus on realistic timelines would reduce future extensions.

The committee agreed to note the internal audit annual report, the chief internal auditor's confirmation of organisational independence, the absence of limitations on audit scope, and the outcome of the internal audit self-assessment against global standards.

Audit Committee Forward Planner 2026-27

Michelle Milne presented the Audit Committee Forward Planner for 2026-27, outlining the reports scheduled to be presented to the committee throughout the year. The committee considered and commented on the updated timetable.

Audit Committee Self-Evaluation Report and Improvement Plan 2026

Michelle Milne also introduced the Audit Committee's 2026 self-evaluation report, which used the Public Sector Improvement Framework (PSIF). The findings were generally positive, with 84.75% agreement across the assessment, particularly strong results for committee effectiveness, including chairing, constructive challenge, and engagement with officers.

Areas identified for improvement included member training, clearer role definition, greater awareness of the committee's purpose across the council, and stronger follow-up of audit recommendations with realistic timescales and improved monitoring. Proposed actions included structured induction and refresher training, improved guidance and awareness materials, and the use of SMART recommendations and staged milestones. Progress on these actions would be monitored through the corporate improvement plan and reported to the committee every six months.

Councillor Glen Reynolds inquired about benchmarking against other public sector audit committees, and Ms. Milne stated this could be explored for future reporting. Councillor Craig Miller sought clarification on the 41% success rate for the self-evaluation, which was confirmed to be based on the responses from all audit committee members and substitutes. Councillor Moray Grant added that refresher training and introductions to the audit committee would be beneficial for both new and existing members.

The committee reviewed and agreed the proposed actions within the improvement plan, noting they would be incorporated into the council's corporate improvement plan for six-monthly monitoring.

Corporate Improvement Plan - Bi-Annual Update

Michelle Milne provided an update on the Corporate Improvement Plan, highlighting strong progress. All actions within the Best Value Workforce Planning Action Plan and the Council-wide PSIF Transformation Action Plan had been completed and were proposed for removal from the corporate improvement plan.

One action remained outstanding within the Best Value Transformation Action Plan: the development of a corporate RAG rating framework. This was proposed to be extended until January 2027 to align with wider transformation governance arrangements. New actions arising from the Accounts Commission's Best Value 2026 report would be added in the next reporting cycle.

Councillor Doreen Mair sought more detail on the outcomes and benefits of the improvements being made. Councillor Gillian Owen questioned how the council measured whether completed actions had improved outcomes rather than just being administratively completed, and whether there was a risk of actions being closed before benefits were realised. Rob Simpson, Director of Business Services, acknowledged these points and committed to providing more detail in the next report. He also clarified that the RAG rating criteria had been completed and needed to be published across the organisation, with completion expected before January 2027.

Councillor Glen Reynolds expressed cynicism about the tendency for vital improvement actions to be deferred or abandoned due to personnel pressures. Rob Simpson assured the committee that actions were prioritised rather than abandoned, though some might become irrelevant over time. He stressed that capacity challenges could lead to due date changes but not non-compliance.

The committee considered and agreed to incorporate the transformation actions identified from the Accounts Commission's Best Value 2026 report into the Corporate Improvement Plan.

Best Value Audit Report and Action Plan

Rob Simpson presented the Best Value Audit Report and Action Plan, noting that the Best Value report had been discussed at full council. He highlighted that transformation actions identified would be incorporated into the corporate improvement plan.

Councillor Gillian Owen raised concerns about the council's projected funding gap of £81 million and previous undelivered transformation savings, questioning management's confidence in future savings projections. She also asked how conflicting messages between the report's mention of community engagement through place plans and internal audit's limited assurance over place strategy implementation were being reconciled. Rob Simpson explained that while place work was happening on the ground, strategic fit and documentation were areas for development. He expressed confidence in delivering savings and balancing the budget, acknowledging the significant gap but believing the right structures were in place to address it. He noted that while past transformation savings hadn't been fully met, other savings had been achieved, demonstrating financial resilience.

Councillor Moray Grant questioned the impact of pausing the drawdown of a reserve established in 2023/24, which had significantly reduced. Rob Simpson stated that the pause had not impacted the transformation strategy as business cases requiring funds had not materialised, and funding had been secured through other means. He confirmed that voluntary severance costs had been funded by the reserve, enabling changes in working practices.

The committee considered and agreed to incorporate the transformation actions identified in the Best Value Accounts Commission report into the wider council corporate improvement plan.

External Audit - Sector Update Report

Mark Stocks and Andrew Wallace from Grant Thornton UK LLP presented the External Audit Sector Update Report. Andrew Wallace outlined the progress of the 2025/26 external audit, which was on track with fieldwork underway and no significant audit matters to report. Key audit risks remained management override of control, valuation of land, buildings, and council dwellings, and the valuation of the defined benefit pension liability.

The 2025/26 Best Value thematic review focused on asset management, with review work completed and presented as a separate agenda item. Key deliverables over the coming months included the annual audit report in October 2026, non-domestic rates certification in October, and housing benefits certification in November.

The sector update highlighted challenges facing local government, including financial pressures, increasing service demand, workforce constraints, and the need for ongoing transformation. Changes within the CIPFA code relating to the valuation and indexation of non-investment assets were also noted as a key change for 2025/26.

Councillor Glen Reynolds inquired about the systemic financial volatility around health and social care partnerships and IJBs, and any specific warnings regarding the council's residual financial liability if recovery plans failed. Colin Watts, Strategic Finance Manager, responded that while there was a risk, significant action had been taken to support the IJB's finance team, leading to better financial management. He acknowledged the ongoing pressure on health and social care costs due to an ageing population but did not see an immediate crisis with the IJB's finances.

The committee noted the external auditor's progress report and sector updates, as well as emerging local government issues and existing council arrangements for monitoring and addressing them.

External Audit - 2025/26 Best Value Thematic Report - Asset Management

Andrew Wallace from Grant Thornton presented the Best Value Thematic Report on Asset Management. The review found that the council had strengthened its strategic approach with a new Strategic Asset Plan and an updated Corporate Asset Management Plan (expected to be approved in Autumn 2026). These documents align with strategic priorities and provide a clearer framework. The council has demonstrated a long-term commitment to estate rationalisation, reducing its operational estate by approximately 35% since 2010.

However, challenges remain. Transformation activities are at an early stage, and continued delivery is needed to realise anticipated benefits. The approved capital plan to 2041 includes a forecast borrowing requirement of approximately £289 million, with gross external debt projected to increase to £1.33 billion by March 2029. While current plans remain within the affordability cap, an ageing estate, significant maintenance liabilities, and constrained capital funding pose challenges.

Regarding climate change, the council targets net zero emissions by 2045. Progress has been made through estate rationalisation and energy efficiency, but emissions remain above target, and the interim target of a 75% emissions reduction by 2030 was removed as unachievable within current funding levels.

Governance arrangements provide an appropriate framework, but the council continues to experience significant capital slippage, reporting a £30.6 million underspend in 25/26 due to project delays. The report identified four audit recommendations:

1. Monitoring of asset management actions: Formal monitoring and reporting arrangements need to be embedded to track delivery against planned actions. Management agreed to strengthen reporting, with implementation targeted from April 2027.
2. Asset management planning: Planning documents should incorporate or reference key performance data, including asset condition, utilisation, and occupancy levels. The council agreed to develop an annual property performance report.
3. Capital strategy: The existing capital strategy is out of date and a refresh is needed, aligning with the council plan, asset management, and financial planning. A revised strategy is expected by March 2028.
4. Capital programme slippage: Budgets and timescales should be set realistically, and risks identified and managed early. Management is developing a revised approach treating the capital programme as a multi-year investment programme.

Councillor Moray Grant inquired about capital slippage in other local authorities and suggestions for governance arrangements. Andrew Wallace confirmed that capital slippage is a national issue, impacting other councils, and that a three-year planning approach is being adopted elsewhere. Councillor Grant also asked why this issue was increasing in relevance despite existing governance arrangements. Rob Simpson explained that it's a persistent issue across local government, exacerbated by rising construction costs and the need for political will for multi-year funding.

Councillor Ian Sutherland questioned the figures regarding gross external debt and its increase to £1.33 billion by March 2029, asking if this was normal or an outlier. Rob Simpson stated that borrowing for long-term assets is reasonable and the council is not a particular outlier in terms of debt levels. However, he advised caution regarding the increase to £1.3 billion and the impact on revenue.

The committee considered and agreed to note the external auditor's progress report and sector updates, and to agree the recommendations within the Best Value Thematic Improvement Action Plan, which would be included in the council's corporate improvement plan.