The Audit and Governance Committee of Croydon Council met on Thursday 31 October 2024 to discuss the council's financial statements, the Oracle Improvement Programme, and the Dedicated Schools Grant Deficit Management Plan. Key decisions included noting the progress of the Oracle Improvement Programme and approving the committee's work programme for 2024-25.

Financial Statements and Accounts Update: 2020/21 Audit Findings Report

The committee received an update on the 2019/20 financial accounts, noting that a pack of information was being prepared for the Improvement and Assurance Panel's sign-off before submission to MHCLG to agree the council's capitalisation direction. It was anticipated that this sign-off would be relatively quick. The committee had previously delegated authority to the Corporate Director and the Independent Chair of the Audit and Governance Committee to submit letters of representation. Despite the outstanding Kroll report preventing the external auditors from providing a certificate for the 2019/20 accounts, the council was in a strong position to have a finalised and audited set of these financial statements.

Allister Bannin, Deputy Section 151 Officer and Director of Finance, highlighted the government's introduction of a backstop for local authority audits, setting a deadline of 30 December 2024 for accounts up to 2022/23. This necessitated the council cutting short audit work for 2020/21, with the report detailing the work completed. Updated accounts for 2020/21, along with a management letter of representation and a disclaimer of audit opinion, would be presented at the next committee meeting. The draft 2021/22 accounts had been published on the council's website, allowing for public inspection before the December backstop date, and would also be presented for approval at the following meeting.

Stuart Frith from Grant Thornton introduced the audit findings report, explaining that due to the government's backstop, auditors were required to report on progress made to date. While the audits were not complete, some assurances could be drawn from the findings. The committee raised concerns about instances where no evidence was provided or available, questioning whether this was due to obstruction or time constraints. Grant Thornton advised that it was a combination of factors, including auditors running out of time due to capacity, delays in information returning from the council team, and significant staff changes within the council making information retrieval challenging. They did not believe officers were being obstructive or hiding information. The committee noted that issues identified in the 2019/20 accounts had led to a higher inherent risk and thus larger audit sample sizes. Officers reassured the committee of their transparent approach, explaining that unavailable information was often due to staff turnover. The intention to complete a full audit for 2024/25 following the backstop was noted.

The committee queried the value of historical external audits given the government's legislation and the role the committee would play in scrutinising the 'backstopped' years' accounts. Officers stated that the value of an external audit lies in providing a solid accounting foundation and anticipated challenges in establishing opening balances for the 2024/25 audit due to the backstop legislation. They expressed a preference for completing Croydon's accounts in full but acknowledged this was not permitted. Officers reassured the committee that the 2021/22 accounts had been carefully reviewed and were satisfactory. The 2022/23 accounts would be signed off late due to the required 30-day public inspection period, and the 2023/24 audit was expected to miss the backstop by approximately one month for the same reason. The focus would then shift to the 2024/25 accounts and audit. The committee was advised that they could hold the council accountable for audit deadlines and request reporting on the work to complete the 2024/25 accounts, particularly the process for establishing opening balances.

Grant Thornton stated that the 2019/20 audit provided value as a completed audit, despite a disclaimed opinion, as the accounts were materially accurate. Subsequent years (2021/22, 2022/23, and 2023/24) would have no assurance from an audit perspective. The backstop for the 2024/25 accounts was February 2026, allowing ample time for the audit process. A key issue was the approach to opening balances for 2024/25, with the government aiming to restore full assurance by March 2026. Grant Thornton was awaiting government guidance on this. It was expected that over 50% of local authorities would have 'backstopped' accounts, and full recovery could take four to five years, with disclaimer opinions diminishing each year. The committee agreed that progress reporting on external audit activities throughout 2025 would be beneficial.

Officers advised that the 2023/24 Value for Money audit would be reported at the next meeting, highlighting financial governance improvements. Councillor Jason Cummings, Cabinet Member for Finance, acknowledged the council's loss of public confidence and the preference to complete accounts in full. However, he noted that the backstop allowed the council to discuss current improvements earlier.

The committee requested assurances on staff competency and further information regarding officers' confidence in the 2021/22 accounts. Officers explained that the 2020/21 accounts had been revised, with key issues stemming from 2019/20, and subsequent years were more straightforward. Assurance was also provided by two separate accounting teams working on 2020/21 and 2021/22, with liaison between them. The Oracle system improvements were also in place. Officers expressed concerns about potentially large audit sample sizes for 2024/25 and welcomed the government's consideration of this.

The committee queried how the public audit period would be communicated to residents beyond the council website. Officers agreed to explore public communications, noting the publication of accounts as a positive development, and committed to providing an update at the next meeting. The committee raised concerns about incomplete samples, stating the report offered limited positive assurance. Grant Thornton agreed that the level of assurance was limited.

The committee resolved to note the Audit Findings Report for 2020-21 and the audit progress report and sector update from Grant Thornton.

Scrutiny & Overview Committee Annual Report

Councillor Leila Ben-Hassel, Chair of the Scrutiny and Overview Committee, presented the annual report. She highlighted the committee's focus on the council's finances over the past year, scrutinising the 2023/24 in-year financial position and the development of the 2024/25 budget. Several deep dives were conducted by sub-committees, with transformation also being a key area of focus. The Adult Social Care department was noted for its effective demand management. The committee had also reviewed the council's Equalities Strategy, People and Cultural Transformation strategy, and the Tackling Violence Against Women and Girls Delivery Plan.

Councillor Ben-Hassel noted the council's challenging in-year financial position, with pressure to close the overspend gap and balance the 2025/26 budget. The continued reliance on capitalisation direction was seen as indicative of the council's fragile financial state and raised concerns about service delivery. Looking ahead, the scrutiny function intends to engage earlier in strategic work.

The committee acknowledged the strengthening joint working between the Audit & Governance Committee and Scrutiny, aligning with external auditor recommendations. Councillor Jason Cummings, Cabinet Member for Finance, commended the effective audit and scrutiny structures at Croydon, noting they had been shared as best practice with other local authorities. It was suggested that the Chair of Scrutiny and Overview Committee could attend the Audit & Governance Committee's March 2025 meeting to discuss the 2025/26 work programme, internal audit plan, and risk management strategy. The two chairs intend to meet quarterly.

The committee resolved to note the Annual Report of the Scrutiny & Overview Committee.

Oracle Improvement Programme Update

Alan Layton, Senior Responsible Officer for the Oracle Improvement Programme, introduced the report, noting that demonstrations of new system improvements would be provided. Officers presented demonstrations of the HR, Expenses, and Supplier Self-Registrations modules within Oracle.

The committee thanked officers for the demonstrations. In response to questions, it was confirmed that two-step authentication security was in place for suppliers logging into their accounts. The committee noted risks associated with staff not using the system correctly and queried whether efforts had been made to identify individuals who might circumvent the system. Officers stated the approach was to adopt, not adapt, adhering to Oracle's best practices to leverage built-in security and mechanisms. Customisation was avoided to minimise vulnerabilities.

The committee inquired about the programme's implementation timeline and the availability of a support helpline. They also asked about control arrangements for supplier registration and processes for removing outdated company data. Officers explained that key milestones were detailed in the highlight report, with implementation continuing in waves until December 2025. Progress and compliance would be monitored via KPIs, identifying further training needs. Data cleansing was part of the Procurement and Contract Management Improvement Programme and would be ongoing. The introduction of payment limits for suppliers, aligned with contract values, was intended to manage risks.

Dedicated change managers were leading on staff communications and training. Each module demonstrated was now live, with new functionalities being released approximately every 12 weeks. A lunch and learn session on the HR module had been well-attended. The committee requested ongoing monitoring and reporting on cultural change, particularly regarding appraisals. Officers confirmed that all recruitment processes, including appraisals, would be integrated into Oracle by June 2025. Increased completion rates for return-to-work meetings had already been observed following the implementation of the sickness reporting functionality.

Regarding system reliability, officers stated that improvements ensured no downtime, allowing managers to log staff sickness throughout the month. The alignment of Oracle improvements with the council's Housing transformation work was questioned, as was how the committee could gain assurance on cultural shifts. Officers explained that KPI dashboards were being developed to monitor and report data, demonstrating financial, cultural, and compliance improvements. The committee welcomed this, noting past challenges in data collation.

Councillor Jason Cummings highlighted that Croydon's approach of adopting Oracle's processes, rather than adapting them as Birmingham had, ensured stability and consistency. The committee asked if the risk of user self-assignment of responsibilities, highlighted by the external auditor, had been addressed. Officers confirmed that modelling was underway to ensure appropriate controls for journals, including detection and prevention mechanisms. The Risk Management Cloud module, expected to be implemented by the end of the month, would provide controls for self-approval of journals and could be further developed to track risks.

Regarding the expenses module, officers clarified that an internal audit three years prior had yielded a no assurance opinion due to compliance issues. The Oracle system was designed to accept only non-taxable expenses, with new parameters for internal audit oversight. HR would eventually oversee expense claims. Oracle improvements were integrated with the NEC housing system, with some interfaces still under development and prioritisation.

The committee resolved to note the progress of the Oracle Improvement Programme and the latest system improvements.

Dedicated Schools Grant Deficit Management Plan Update

Shelley Davies, Director of Education, presented the report, stating the council remained on track with its in-year budget. The strategy for supporting children with special educational needs and disabilities focused on early intervention and increasing local provision.

The committee welcomed the progress and inquired about potential risks outside the council's control. Officers identified unpredictable demand from children entering the system, rising costs for out-of-borough independent school placements, and instances where local provision was insufficient. These risks were factored into the plan, with a focus on early intervention and increased local provision. Collaboration with neighbouring authorities helped manage costs for out-of-borough placements. It was noted that the service was ahead of its 2024/25 targets.

Councillor Jason Cummings commended the department's work and mentioned a potential national initiative to use increased SEND funding to mitigate DSG deficits. He advised caution to ensure Croydon was not disadvantaged by its proactive approach. LGA figures indicated a cumulative DSG deficit of £3.2 billion nationally, projected to rise to £5 billion by 2026.

The committee resolved to note the key performance targets under the DfE Safety Valve agreement, the performance of the Deficit Recovery Plan, challenges and risks, the accounting treatment for the DSG deficit, and identified risks.

The meeting concluded at 8:43 pm.