The Audit and Corporate Governance Committee were scheduled to meet to discuss the 2024/25 audit update from KPMG, treasury management performance, a strategic risk update and a governance risk and control update. The committee was also scheduled to review the KPMG audit plan, which included significant risks relating to the valuation of land and buildings, investment property, post retirement benefit obligations, and expenditure recognition. Also included for discussion was the fraud risk from management override of controls.

KPMG 2024/25 Audit Update

KPMG were scheduled to present their audit plan for the year ending 31 March 2025. Emma Larcombe, Director at KPMG, was due to lead the engagement, taking over from Andrew Cardoza. The audit is governed by the Local Audit and Accountability Act 2014 and is compliant with the NAO's 2024/25 Code of Audit Practice.

The report pack noted that amendments were made to the Accounts and Audit Regulations which allowed auditors to give disclaimed opinions over any open, incomplete audits up to the period ending 31 March 2023, and that KPMG issued a disclaimed audit opinion for 2023/24 on 27 February 2025. The report pack stated that the impact of the above means that for the financial year 2024/25 elements of the opening balances and 2023/24 comparatives are still impacted by previous disclaimers and as such their audit opinion is likely to be modified in relation to this matter.

The report pack stated that the significant challenges from the previous audit included:

• Quality of the accounts
• Significant delays
• Quality of audit evidence

KPMG's report pack included their planned scope, including materiality levels. They determined materiality for the consolidated financial statements at a level which could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements, using a benchmark of 1.5% of expenditure.

The report pack also included a summary of significant risks, higher assessed risks and other audit risks. These included:

• Valuation of land and buildings
• Valuation of investment property
• Management override of controls
• Valuation of post retirement benefit obligations
• Fraud risk from expenditure recognition
• Preparation of group accounts
• Adoption of IFRS 16¹
• Recoverability of investments

KPMG's report pack stated that the Code requires that where assets are subject to revaluation, their year end carrying value should reflect the appropriate current value at that date, and that South Cambridgeshire District Council has adopted a rolling revaluation model which sees all land and buildings revalued over a five-year cycle. They planned to critically assess the independence, objectivity and expertise of Wilks, Head and Eve LLP, the valuers used in developing the valuation of the Council's properties at 31 March 2025.

KPMG's report pack stated that the Code defines an investment property as one that is used solely to earn rentals or for capital appreciation or both, and that there is a risk that investment properties are not being held at fair value, as is required by the Code. They planned to critically assess the independence, objectivity and expertise of Wilks, Head and Eve LLP, the valuers used in developing the valuation of the Group's investment property at 31 March 2025.

KPMG's report pack stated that the valuation of the post retirement benefit obligations involves the selection of appropriate actuarial assumptions, most notably the discount rate applied to the scheme liabilities, inflation rates and mortality rates, and that the selection of these assumptions is inherently subjective and small changes in the assumptions and estimates used to value the Council's pension liability could have a significant effect on the financial position of the Council. They planned to perform inquiries of the accounting actuaries to assess the methodology and key assumptions made, including actual figures where estimates have been used by the actuaries, such as the rate of return on pension fund assets.

KPMG's report pack stated that the Council has a statutory duty to balance their annual budget, and that where a Council/entity does not meet its budget this creates pressure on the Council's usable reserves and this in term provides a pressure on the following year's budget. They considered this would be most likely to occur through understating accruals, for example to push back expenditure to 2025/26 to mitigate financial pressures. They planned to evaluate the design and implementation of controls for developing manual expenditure accruals at the end of the year to verify that they have been completely and accurately recorded.

KPMG's report pack stated that the Council has adopted IFRS 16 as per CIPFA's Code of Practice on Local Authority Accounting in the United Kingdom (2024/25) with an implementation date of 1 April 2024, and that they anticipated challenges in the first year of implementation including completeness of lease listing used in transition computations, inadequate lease disclosures as per IFRS 16, and inaccurate computation of lease liabilities and right of use assets. They planned to obtain the full listings of leases and reconcile to the general ledger, and review a sample of the lease agreements to determine the terms of the leases and confirm correct classification.

KPMG's report pack stated that the Council have made a number of investments to its subsidiaries and partnerships, as well as into other third parties, and that for the past two financial periods, it has been noted that not all of the investments have been appropriately disclosed within the Council's financial statements. They planned to understand the processes the Council has in place to assess investments held for impairment, and obtain and review the signed investment agreements and related amendments, if applicable, to determine the expected maturity date of the considerations.

Treasury Management Performance

The Audit and Corporate Governance Committee were scheduled to consider and review the Treasury Management activity and performance for the first quarter to 30 June 2025.

The report outlined the performance against the Council's approved Treasury Management Strategy for the first quarter of 2025/26, including performance against the approved Prudential Indicators for Treasury Management.

The report stated that treasury risk management at the Council is conducted within the framework of the Chartered Institute of Public Finance and Accountancy's Treasury Management in the Public Services: Code of Practice 2017 Edition (the CIPFA Code), which requires the Council to approve a Treasury Management Strategy before the start of each financial year, review performance during the year, and to approve an annual report after the end of each financial year.

The report stated that as at 30 June 2025, the Council held £161.0 million in invested funds (nominal basis), representing income received in advance of expenditure plus balances and reserves held, and that the Council's investment balances during 2025/26, for the period to 30 June 2025, have averaged £161.7 million.

The report stated that the Council's objective when investing money is to strike an appropriate balance between risk and return, minimising the risk of incurring losses from defaults and the risk of receiving low investment income, and that to achieve these objectives, the Council maintains a diversified investment portfolio. The majority of funds are placed in fixed term deposits with Local Authorities which returned 4.52% and with Ermine Street Housing, yielding 4.09%.

The report stated that as at 30 June 2025, the Council had short-term local authority borrowing of £33 million, and borrowing from the PWLB² consists of £205.123 million of loans for HRA self-financing, £17 million for new house building schemes and £20 million for the General Fund.

The report stated that the Finance Business Team monitor and report on the Capital Financing budget on a regular basis, and that interest payments for the year are expected to be lower than originally estimated due to several reasons including cash balances in the first quarter being higher than forecast reducing the immediate need for new borrowing.

The report stated that the Council has provided loans to several external organisations to support service delivery in the district and to help increase the supply of housing, including Ermine Street Housing, South Cambridgeshire Investment Partnership (SCIP), and Cambridge Leisure and Ice Centre (CLIC).

The report included an economic update from the Council's treasury advisers, MUFG Corporate Markets, which stated that the Bank of England Base Rate began the financial year at 4.50%, and that during the first quarter, one rate cut was made, reducing the rate to 4.25%.

Six-Monthly Strategic Risk Report

The Audit and Corporate Governance Committee were scheduled to review the current Strategic Risk Register.

The report stated that the Council's Strategic Risk Register is reported to Audit and Corporate Governance Committee bi-annually, as a means of ensuring that the approach to managing, reporting and mitigation of strategic risks is appropriate.

The report stated that in line with the Council's Risk Strategy, risks are scored using a method where an impact score and a likelihood score are multiplied to obtain a total score.

The report stated that the Council's current Strategic Residual Risk profile is currently as follows (based on Total Residual Risk scores):

• Red is any strategic risk with a rating of 16-25 high risk
• Amber is any strategic risk with a rating of 11-15 significant risk
• Yellow is any strategic risk with a rating of 6-10 medium risk
• Green is any strategic risk with a rating of 1-5 low risk

The report included a summary of changes to the Strategic Risk Register since previous review by Audit and Corporate Governance Committee in March 2025, and the Strategic Risk Register itself.

The Strategic Risk Register included the following risks:

• Non-compliance with housing legislation
• Increased economic pressures
• 5 Year Land Supply
• Increased need for temporary accommodation
• Changeable housing market impacting on SCIP
• Demand for refugee housing outstrips supply
• Delivery of Local Plan
• Cyber security breach
• Extreme weather events
• Failure to deliver Northstowe community buildings
• Failure to reduce SCDC carbon emissions
• Local Government Reorganisation
• Organisational review and operating model delivery
• Unstructured use of Artificial Intelligence (AI)
• Modern Slavery
• Key systems failure
• IT infrastructure failure
• Failure of information governance
• Weather damage to SCDC buildings
• Failure to produce the statement of accounts
• Terrorism or security breach
• Technical skills shortage
• Failure to deliver infrastructure
• Cost of living crisis (residents)
• Organisational Culture
• Partnership working
• Ermine Street Housing investment returns
• Mears Contract fails to deliver

Governance Risk and Control Update

The Audit and Corporate Governance Committee was scheduled to note a report providing an update on topical news items which contribute to the Committee understanding of Corporate Governance Matters.

The report included a comprehensive summary of internal audit work contributing to the Annual Governance Statement (AGS), consolidating quarterly reports and updates presented to the Committee throughout the year, offering a clear and transparent overview of assurance activity.

The report stated that the internal audit work and assurance mapping enables the Chief Audit Executive to form an opinion on the internal control environment, governance and risk management arrangements, and that there is currently a Reasonable level of assurance overall, which is similar level to the previous period.

The report stated that the team is implementing the new Global Internal Audit Standards and the supporting UK Public Sector Application Note, effective from 1 April 2025, and that following a readiness assessment, they are updating their documents and processes to reflect UK local government requirements.

The report included a summary of reviews completed in the last quarter:

• HRA - Tenant Satisfaction Measures - Data Quality
• National Register Refusals, Revocations, and Suspensions (NR3S – Follow up)
• ESH – Fire Safety Compliance (Follow Up)

The report included a summary of reviews in progress:

• Corporate Plan Objectives
• Procurement - Declarations of Interest
• Counter Fraud - Failure to prevent
• Counter Fraud - Whistleblowing
• Business Transformation - Project Management Framework
• Accounts Receivable
• Grant assurance - Homes for Ukraine
• HRA - Safety - Damp and Mould
• HR - Learning & Development
• Payroll - Core controls
• Bank Reconciliation - Recurring Payments
• Grant assurance - Disabled Facility Grant
• Carbon management - Data Quality
• Information Governance - GDPR
• Risk Management Strategy

The report included a counter fraud and corruption update, stating that the Council participates in a national data matching service known as the National Fraud Initiative (NFI), which is run by the Cabinet Office, and that data is extracted from Council systems for processing and matching.