The Governance and Audit Committee of Cardiff Council met on Tuesday 26 March 2024 to review the council's financial health, audit progress, and risk management. Key discussions included the approval of the 2024/25 Treasury Management Strategy, the noting of the 2022/23 Audited Statement of Accounts, and updates on internal audit activities and corporate risk management.

Directorate Control Environment Update: Economic Development

The committee received an update on the control environment within Cardiff Council's Economic Development Directorate. This directorate encompasses a wide range of functions, including city centre management, tourism, major projects, parks, sport and leisure, harbour authority, recycling, and shared regulatory services, employing over 1,200 staff. The report highlighted strategic priorities for 2023/24, such as job creation, attracting visitors, regenerating the city centre and Cardiff Bay, modernising the council's estate, and supporting sport, leisure, and green spaces. The directorate outlined its governance arrangements, including monthly management team meetings, project boards, and quarterly health and safety committees, to monitor strategic commitments, operational responsibilities, and risk management.

Discussions also touched upon the prioritization of projects within the Highways Asset Management Programme (HAMP), with officers explaining that projects are primarily prioritized based on asset condition, but also taking into account engagement with elected members, service requests, and development opportunities. Innovative engagement methods, such as those used for the One Planet Cardiff Strategy, were highlighted, including outreach to traditionally harder-to-reach community groups like the Youth Council. The challenges of responding to real-time changes and developments within complex strategies like the One Planet Cardiff Strategy were also acknowledged.

Audited Statement of Accounts 2022/23

The committee reviewed the draft Audited Statement of Accounts for Cardiff Council and the Cardiff Harbour Authority for the financial year 2022/23. Anil Hirani, Operational Manager for Capital, Corporate and Treasury, presented the report, which had been revised to include amendments agreed upon during the audit and feedback from the committee's previous meeting. Julie Rees from Audit Wales presented the key findings, noting that outstanding audit work on cash flow statements and associated notes had been completed. Audit Wales proposed an unqualified audit opinion for Cardiff Council, with no uncorrected misstatements identified.

A significant issue highlighted related to the valuation of property, plant, and equipment. Audit Wales advised that a rolling programme of asset valuations was no longer sufficient given high inflation and building cost increases. The council had commissioned valuers to review council housing and a sample of other land and buildings, which revealed material changes in valuation, particularly for Depreciated Replacement Cost (DRC) assets. Amendments were made to reflect these changes, and it was recommended that asset valuations be reviewed annually to ensure accuracy. A second significant issue concerned the evidencing of impairment and downward revaluation of property, plant, and equipment. Following audit inquiries, three key council buildings – St David's Hall, City Hall, and County Hall – were reviewed, necessitating amendments to the statements.

Regarding the Cardiff Harbour Authority report, a similar misstatement related to property, plant, and equipment was noted, but an unqualified audit opinion was proposed.

Members raised questions about the £38 million allocated to 'invest to save' schemes, seeking assurance on how their deliverability and savings realization are monitored. Officers explained that each service area has efficiency savings targets, and proposals are risk-assessed and monitored quarterly. They acknowledged that demand pressures in areas like Children's Services make achieving savings more challenging. Discussions also covered the Cardiff Capital Region City Deal, with clarification provided on the transfer of cash balances to the new Corporate Joint Committee (CJC) and the legally binding agreement underpinning these arrangements.

Financial Update including Resilience Issues

Chris Lee, Corporate Director Resources and Section 151 Officer, presented a financial update covering the 2023/24 Month 9 monitoring position, the Budget Strategy for 2024/25, and the medium-term financial challenge. The presentation highlighted efficiency savings, with officers explaining the processes for assessing the realism of these savings, which are risk-assessed and monitored quarterly. It was noted that while Cardiff has a good track record in delivering efficiency savings, demand pressures in areas like Children's Services make achieving these targets more difficult, leading to lower targets for some service areas. The council engages in peer discussions through networks like the WLGA and Core Cities Network to address these challenges. Concerns were raised about the potential impact of school budget deficits on the council's overall budget, and officers agreed to monitor these closely.

Statement of Accounts 2023/24: Accounting Policies and Timescales

The committee received a report outlining the proposed timescales for the 2023/24 statements, draft accounting policies, key assumptions, expected changes from the 2023/24 CIPFA Code of Practice, and factors impacting future statement preparations. A new accounting policy allowing the capitalization of borrowing interest costs for major projects under specific circumstances was highlighted. This change, researched with external advice and aligned with CIPFA guidance, aims to support projects with significant construction periods and costs before they become operational. Consultation with Audit Wales confirmed their feedback on this policy change.

Audit and Investigation Team - Progress Update

Chris Pyke, Audit Manager, presented an update on the Internal Audit and Investigation Teams' work for January to February 2024. The report detailed progress against the 2023/24 Audit Plan, highlighting that delivery was lower than pro rata targets due to initial staff vacancies and subsequent training priorities. However, the plan had been reviewed and prioritized to support a full annual audit opinion. Critical findings included an audit opinion of 'insufficient with major improvement needed' for Fairwater Primary School due to control process gaps. The Investigation Team reported a decrease in identified cases but an increase in the financial value attributed to concluded investigations compared to the previous year. The team also highlighted the development of a refreshed mandatory fraud awareness training module and ongoing participation in the National Fraud Initiative (NFI) data matching exercises.

Audit Charter and Audit Plan 2024/25

The committee received the draft Internal Audit Charter and Audit Plan for 2024/25 for approval. Chris Pyke, Audit Manager, confirmed that Directorate Risk Registers are integrated into the audit programme and are considered a key element in audit planning. The Audit Plan was developed using a risk-based methodology, with input from senior management and assurance mapping. The plan includes fundamental audits of key financial systems, corporate audits covering governance and risk management, and service-specific audits. The committee noted the upcoming changes to Global Internal Audit Standards and the subsequent review of the UK Public Sector Internal Audit Standards.

Corporate Risk Management (Q3)

Ian Allwood, Head of Finance, presented the Q3 2023/24 risk management update. Fifteen Directorate risks were carried forward as SMT escalated risks, with eleven targeted for achievement by Q4 2023/24. Four escalated risks were de-escalated. Notably, the 'Homelessness Housing Emergency' risk was added to the Corporate Risk Register, with an expectation that it will remain 'Red' for the next two years due to ongoing investment in solutions. The Q4 report will review target risk progress and consider medium to long-term risks, including outputs from the Core Cities Risk Management Group. A member requested clearer identification of the consequences of the homelessness risk for the council, which the Head of Finance acknowledged.

Treasury Management Strategy 2024/25

The committee received the Treasury Management Strategy for 2024/25, approved by the Council in March 2024. The strategy outlines the council's approach to borrowing and investments, driven by capital investment requirements. It was noted that the council has a borrowing requirement that could reach approximately £1.5 billion over the medium term. The strategy prioritizes security and liquidity for investments, with yield being a secondary consideration. Members discussed the liability benchmark KPI and its usefulness, the maturity structure of borrowing, and the need for elected members to understand borrowing durations and repayment plans. Officers offered further briefings on Treasury Management processes and the Minimum Revenue Provision Policy.

Treasury Management Practices

Anil Hirani, Operational Manager, Capital, Corporate and Treasury, presented the proposed Treasury Management Practices (TMPs) for April 2024 onwards. These practices are based on CIPFA's Treasury Management Code of Practice and cover areas such as risk management, performance management, and reporting. The changes from previous years were noted as not material, primarily involving updates to reflect the 2024/25 investment strategy and staff changes.

Outstanding Actions, Correspondence, and Work Programme Update

Reports on outstanding actions, correspondence, and the work programme were noted by the committee.

Waste Management Post Trial Review

The committee reviewed the proposed Terms of Reference for the Waste Management Post Trial Review, following a corruption investigation. Concerns were raised about the appropriateness of an internal officer leading the review, given potential conflicts of interest and public perception. The Section 151 Officer assured the committee of objectivity and confirmed that independent external advice would be sought if necessary. The scope of the review, including ICT systems, was clarified. The committee approved the draft Terms of Reference.

Waste Management - Confidential Update

A confidential update on an investigation within Waste Management was received, with the public excluded from this part of the meeting.

Date of Next Meeting

The next meeting was scheduled for 9 July 2024.

Statement of Accounts 2023/24: Accounting Policies and Timescales

The committee was informed about the proposed timescales for the 2023/24 statements, draft accounting policies, and key changes expected from the 2023/24 CIPFA Code of Practice. A new policy allowing the capitalization of borrowing interest costs for major projects was highlighted, with consultation undertaken with Audit Wales.

Internal Audit Charter and Audit Plan 2024/25

The committee received the draft Internal Audit Charter and Audit Plan for 2024/25 for approval. Chris Pyke, Audit Manager, confirmed that Directorate Risk Registers are included in the audit programme. The plan was developed using a risk-based methodology and included fundamental audits of key financial systems, corporate audits, and service-specific audits. The committee noted the upcoming changes to Global Internal Audit Standards.

Corporate Risk Management (Q3)

Ian Allwood, Head of Finance, presented the Q3 2023/24 risk management update. Fifteen Directorate risks were carried forward as SMT escalated risks, with eleven targeted for achievement by Q4 2023/24. Four escalated risks were de-escalated. The 'Homelessness Housing Emergency' risk was added to the Corporate Risk Register, with an expectation that it will remain 'Red' for the next two years due to ongoing investment in solutions. The Q4 report will review target risk progress and consider medium to long-term risks.

Treasury Management Strategy 2024/25

The committee received the Treasury Management Strategy for 2024/25, which had been approved by the Council. The strategy outlines the council's approach to borrowing and investments, driven by capital investment requirements, with a projected borrowing need of approximately £1.5 billion over the medium term. Security and liquidity are prioritized for investments. Officers offered further briefings on Treasury Management processes and the Minimum Revenue Provision Policy.

Treasury Management Practices

Anil Hirani, Operational Manager, Capital, Corporate and Treasury, presented the proposed Treasury Management Practices for April 2024 onwards. These practices align with CIPFA's Code of Practice and cover risk management, performance, reporting, and organizational responsibilities.

Outstanding Actions, Correspondence, and Work Programme Update

Reports on outstanding actions, correspondence, and the work programme were noted.

Waste Management Post Trial Review

The committee approved the draft Terms of Reference for the Waste Management Post Trial Review, following a corruption investigation. Concerns about the appropriateness of an internal officer leading the review were addressed, with assurances of objectivity and the potential for external advice.

Waste Management - Confidential Update

A confidential update on an investigation within Waste Management was received.

Date of Next Meeting

The next meeting was scheduled for 9 July 2024.

Statement of Accounts 2023/24: Accounting Policies and Timescales

The committee was informed about the proposed timescales for the 2023/24 statements, draft accounting policies, and expected changes from the 2023/24 CIPFA Code of Practice. A new policy allowing the capitalization of borrowing interest costs for major projects was highlighted.

Internal Audit Charter and Audit Plan 2024/25

The committee received and approved the draft Internal Audit Charter and Audit Plan for 2024/25. The plan is risk-based and includes fundamental audits of key financial systems, corporate audits, and service-specific audits.

Corporate Risk Management (Q3)

Ian Allwood, Head of Finance, presented the Q3 2023/24 risk management update. Fifteen Directorate risks were carried forward as SMT escalated risks, with eleven targeted for achievement by Q4 2023/24. The 'Homelessness Housing Emergency' risk was added to the Corporate Risk Register, expected to remain 'Red' for two years.

Treasury Management Strategy 2024/25

The committee noted the Treasury Management Strategy for 2024/25, which outlines the council's borrowing and investment approach, projecting a borrowing need of approximately £1.5 billion. Security and liquidity are prioritized for investments. Officers offered further briefings on Treasury Management processes.

Treasury Management Practices

The committee noted the proposed Treasury Management Practices for April 2024 onwards, which align with CIPFA's Code of Practice.

Outstanding Actions, Correspondence, and Work Programme Update

Reports on outstanding actions, correspondence, and the work programme were noted.

Waste Management Post Trial Review

The committee approved the draft Terms of Reference for the Waste Management Post Trial Review.

Waste Management - Confidential Update

A confidential update on a Waste Management investigation was received.

Date of Next Meeting

The next meeting was scheduled for 9 July 2024.

Statement of Accounts 2023/24: Accounting Policies and Timescales

The committee was informed about the proposed timescales for the 2023/24 statements, draft accounting policies, and expected changes from the 2023/24 CIPFA Code of Practice, including a new policy on capitalizing borrowing interest costs for major projects.

Internal Audit Charter and Audit Plan 2024/25

The committee approved the draft Internal Audit Charter and Audit Plan for 2024/25, which is risk-based and includes fundamental audits of key financial systems, corporate audits, and service-specific audits.

Corporate Risk Management (Q3)

Ian Allwood, Head of Finance, presented the Q3 2023/24 risk management update, noting the addition of the 'Homelessness Housing Emergency' to the Corporate Risk Register.

Treasury Management Strategy 2024/25

The committee noted the Treasury Management Strategy for 2024/25, which projects a borrowing requirement of approximately £1.5 billion and prioritizes security and liquidity for investments. Further briefings on Treasury Management processes were offered.

Treasury Management Practices

The committee noted the proposed Treasury Management Practices for April 2024 onwards.

Outstanding Actions, Correspondence, and Work Programme Update

Reports on outstanding actions, correspondence, and the work programme were noted.

Waste Management Post Trial Review

The committee approved the draft Terms of Reference for the Waste Management Post Trial Review.

Waste Management - Confidential Update

A confidential update on a Waste Management investigation was received.

Date of Next Meeting

The next meeting was scheduled for 9 July 2024.