The Hertfordshire County Council Audit Committee met on Thursday 5 June 2025 to discuss the draft audit plans for the council and pension fund, local government reorganisation, and the annual assurance statement and internal audit annual report. The committee noted the KPMG audit plans, endorsed the approach for further engagement on local government reorganisation, and approved the annual assurance statement and internal audit annual report.

2024/25 Draft Audit Plans for Hertfordshire County Council and the Pension Fund

Tim Cutler, Partner at KPMG, and John Blewett, Manager at KPMG, presented the draft audit plans for Hertfordshire County Council and the Hertfordshire Pension Fund. Mr. Cutler reminded the committee of KPMG's role as external auditors, which includes providing a true and fair opinion on the council's financial statements and a value for money conclusion.

John Blewett outlined the significant risks identified for the financial statements, including the valuation of land and buildings, the risk of management override of controls, and the valuation of the pensions liability. He also mentioned other audit risks related to expenditure recognition and the adoption of IFRS 16, a new accounting standard for leases.

Councillor Graham raised concerns about the disclaimer on the accounts and the statutory override of the overspend on special educational needs and disabilities (SEND) provision, which ends in March 2026. Mr. Cutler explained that KPMG is working to remove the disclaimer and is awaiting guidance from the Financial Reporting Council (FRC) to underpin their methodology. Stephen Pillsworth clarified that the statutory override allows councils to ignore the deficit on their balance sheets, but this is becoming increasingly unsustainable.

Councillor Bell asked about the materiality threshold for reporting misstatements, and Mr. Blewett explained that anything above £2.6 million would be reported to the audit committee. Mr. Cutler assured the committee that any instances of fraud would be flagged immediately, regardless of the amount.

Councillor Roberts sought reassurance that KPMG takes a positive and helpful approach to the audit, and Mr. Cutler confirmed that they aim to work constructively with management to achieve transparency.

Catherine Green asked about the degree to which KPMG employs its own actuaries to look at the pension scheme. Mr. Cutler explained that KPMG uses its own actuaries to review the work of the pension fund actuary and set a range of acceptable assumptions.

Mr. Cutler noted that the government's plan to cut the number of investment pension pools from eight to six could have future ramifications for the audit or the fund.

The committee noted and commented upon the KPMG audit plans for the council and pension fund accounts.

Local Government Reorganisation in Hertfordshire

Alex James, Head of Corporate Strategy and Policy, provided an update on the work being undertaken on local government reform in the county. Mr. James explained that all two-tier areas received a statutory invitation to develop proposals for a single tier of local government. Hertfordshire councils jointly submitted an interim plan outlining four possible options: a single unitary, two unitaries, three unitaries, and four unitaries.

The government's feedback emphasised the need for councils to commit to a single option, demonstrate financial resilience, prioritise public services, and engage with local communities. Mr. James noted that the risk relating to local government reorganisation is currently rated as red/severe on the council's risk register.

Councillor Crystal asked whether the committee would have a role in overseeing the financial models being developed. Mr. Pillsworth suggested that the committee's focus should be on understanding the approach to developing the models and engaging with all 11 councils.

Councillor Bell asked whether the groups looking at the reorganisation had considered which unitary option would provide the best value for money. Mr. Pillsworth responded that the starting point was to determine the best way to deliver services in each model, and then model the costs around them.

Councillor Graham asked how the audit committee would evolve as the reorganisation progresses. Councillor John Hale, Chair of the Audit Committee, stated that he would discuss with the chair of the overview and scrutiny committee to ensure there was no overlapping of work.

The committee noted the update and endorsed the proposed approach for further engagement on this issue.

Hertfordshire County Council – 2024/25 Annual Assurance Statement and Internal Audit Annual Report

Darren Williams presented the council’s annual assurance statement and internal audit annual report. Mr. Williams stated that the overall opinion was one of reasonable assurance, concluding that the council has sound systems of governance, risk management and control, with some issues of non-compliance or scope for improvement.

Mr. Williams confirmed that there were no restrictions or limitations that would have impacted their work during 2024-25. Mr. Pillsworth confirmed this was the case.

Mr. Williams summarised the outcomes of the audit plan, noting that 60% of audits came out at substantial or reasonable assurance. Five audits received limited assurance: purchase cards, the council's responsibilities as lead local flood authority, social media, Herts Home Safety Service, and direct payments in terms of support services.

Councillor Crystal asked why some audits were cancelled and how they would be taken up. Mr. Williams explained that audits are cancelled when there are valid reasons, such as changes in project direction or delays in strategy approval, and always following a discussion with management and approval from the relevant executive director.

Councillor Graham asked to what degree KPMG takes account of the internal audit document in doing their audit work. Mr. Cutler responded that they do read it and meet with internal audit to discuss their work, but it is more for risk assessment purposes.

Councillor Hale asked about the significant issues raised in the last external review five years ago. Mr. Williams responded that the last external quality assessment was in 2021 and the outcome was partially conforms due to the audit charter.

Councillor Hale asked for assurance that the projects yet to be completed would be at 100% by the July meeting. Mr. Williams committed to attempting to get any drafts that are currently issued to final report in advance of the committee.

The committee noted and agreed to the recommendations set out in the report.

Future Work Programme

Councillor Hale noted the future work programme for the committee, including the annual governance statement, draft statement of accounts, treasury management annual report, annual whistleblowing report, and various reports from the Shared Anti-Fraud Service (SAFS) and the Shared Internal Audit Service (SIAS). He also mentioned the risk management update and the opportunity for the committee to identify areas of risk for a focus report. Mr. Pillsworth added that the draft statement of accounts would be circulated to the audit committee well ahead of the July meeting.