The Audit and Standards Committee met to discuss the external audit, the National Fraud Initiative, the internal audit plan, and a proposed addition to the scheme of delegation. The committee agreed to support the proposed addition to the scheme of delegation, which will allow the Director of Finance and Resources to authorise definitive map modification orders when directed by the Secretary of State for Environment, Food and Rural Affairs. The committee also heard updates on the progress of the external and internal audits, and the National Fraud Initiative.

External Audit Update

Robert Fenton, external audit manager from KPMG, provided an update on the audit of financial statements and value for money. He said that good progress had been made on auditing the income and expenditure statement, but there was still work to be done on the balance sheet, including PPE, assets, land and buildings, pension obligations, debtors and creditors. He added that KPMG would provide another verbal update in November and bring their draft auditor's annual report, with detailed commentary around their value for money risk assessment, with a view to providing a final audit findings report in February 2026.

Richard Lee from KPMG gave a training session on the scope of the external audit, covering the firm's main areas of responsibility. He noted that the financial statements can be daunting, with well over 100 pages, and that the external audit process has been in a state of turmoil, with opinions not being issued on the financial statements for quite a few years. He said that KPMG was trying to navigate a variety of challenges and bring the committee up to speed.

Lee explained that the purpose of the audit is to give a true and fair view of the authority's financial position and ensure that the accounts are in line with the CIPFA Code of Practice¹. He added that KPMG checks that the narrative statement is consistent with the financial statements. Fenton stated that the gross expenditure of the authority is £1.5 billion for 2024-25, and that KPMG sets a materiality level which they deem to be appropriate for the users of the accounts. Lee said that the materiality threshold is £30 million, meaning that if something was £20 million wrong, KPMG would record it, but it would not change whether or not he would sign the accounts off. He added that the committee's responsibility is to take assurance that the accounts are materially correct.

Fenton identified the valuation of land and buildings and the valuation of post-retirement pension obligations as significant risks, due to the inherent estimation, uncertainty, judgement and assumptions involved.

Lee spoke about the audit delays experienced in the sector, saying that there had been specific challenges in the accounts, such as unclear guidance around how to value different layers of roads, as well as capacity constraints within the audit profession and a perfect storm of issues that arose, coinciding with Covid and the lockdowns. He said that the government, accounts regulators, CIPFA, the National Audit Office and the firms had worked out a programme to resolve the issue, called the backstop process.

Lee said that KPMG issued the 2023-24 accounts in February 2025, disclaiming those accounts. He added that he expects to issue a disclaimer opinion this year and probably next year as well, before maybe moving towards a qualified opinion and then hopefully full assurance in future years. He explained that a disclaimer means that KPMG has not got enough assurance to be able to sign off the financial statements.

Lee stated that the ledger is hard work from an audit perspective, making it difficult to get the audit complete by the backstop position. He added that KPMG is very keen to try and get back to where they should be in terms of the audit cycle, and that it is a collaborative process.

Councillor Andrew Clissett asked whether the council was going to go into local government reorganisation without a clean set of accounts. Lee responded that it could be a situation, but that KPMG's aspiration is to build back enough assurance to be able to issue clean opinions as soon as possible.

Councillor Alex Farrell, Deputy Leader of the Opposition and Shadow Portfolio Holder for Local Government Reorganisation and Devolution, said that it felt like it was not a shared risk, and that if KPMG did not hit a clean audit by the time local government reorganisation happens, the risk all sits with the council. Rachel Spain said that the council is as committed as KPMG to getting to that clean opinion for the accounts.

Councillor Thomas Baker asked about the challenges of getting information from the ledger. Fenton responded that the biggest challenge has been around journals, and specifically looking at the journal transactions and how they match. He said that due to sub-ledger systems that operate within the wider Integra system, it has become a bit of a challenge in terms of the matching exercise.

National Fraud Initiative 2024 Update

The committee received an update on the National Fraud Initiative (NFI), a national data matching exercise where data sets are extracted from public and private sector organisations and matched to highlight fraud and error.

It was reported that in October 2024, the council extracted the data needed and sent it securely to the Cabinet Office. In December 2024 and January 2025, the results came back. It was noted that many of the matches are fine, but the exercise provides an opportunity to ensure records are up to date, and occasionally fraud and error is found.

Councillor Neil Parton noted that the amount of savings was £1,837, while the cost of participation was over £3,930, and asked whether it was really worth doing, and how many hours of labour were allocated to finding this £1,800. It was clarified that this is work in progress and the figure is likely to change. It was also noted that the council is mandated to participate in the NFI. Councillor Parton suggested that the council should be careful that they are not just doing work because someone tells them to, and that he would put the NFI on his list of efficiencies that the council may not need to be doing.

Councillor Matthew Wallens asked how the council could get tougher on chasing results so they can recover more money. He also asked why blue badges and bus passes are not cancelled immediately once the death of an individual has been confirmed. He suggested building a direct data link with the DWP to stop misuse immediately. He also asked about conflicts of interest with staff, and why quicker action was not being taken to resolve them.

Councillor Jon Pendleton asked how the council is using AI and data analytics to prevent future fraud.

Internal Audit Plan 2025-26 Progress Update

The committee received an update on the Internal Audit Plan 2025-26, which provides a flavour of the internal audit work carried out to date, along with any amendments to the plan since it was approved in April 2025.

It was reported that the council is required to have an effective internal audit which reviews the overall effectiveness of the risk management, control and governance processes.

Since April 2025, six additional pieces of work have been requested, and as a result, five pieces of work have been cancelled. It was stated that these cancellations will not impair the ability to inform and make the annual audit opinion for 2025-26.

It was reported that during 2024-25 and the first part of 2025-26, the service was running with some vacancies, but that three senior auditors have been appointed during the summer, with two having already started on 1 September and another starting in mid-November.

It was noted that the council has two key performance measures: the delivery of the audit plan and feedback from auditees. It was reported that 29% of the systems audit work and compliance audit work has been commenced so far.

In terms of counter-fraud activities, it was reported that the council has issued a number of communications to schools and across the corporate centre, concentrating on purchase cards. The council is also about to conduct a fraud survey across all staff.

Proactive fraud activities have included a data matching exercise looking at the TELUS Once records, which records deceased persons, and checking that against active care provisions. This led to a recovery of just short of £4,000 relating to a care home that the council was paying for a deceased resident. The council has also carried out work in relation to purchase cards, using AI to do some fuzzy data matching on luxury brands.

Continuous controls monitoring has identified eight duplicate invoice payments totalling just short of £8,500, and three purchase card transactions are being investigated.

Since the last meeting, there have been 12 allegations of fraud. One was referred by the purchasing card team, who identified some unusual transactions relating to one purchase card holder. It turned out that the cash withdrawals were held in a tin that was taken home for safekeeping whilst there were renovation works being done at a children's home. The money has subsequently been returned.

The council also undertakes internal audit work for South Staffordshire Council and Newcastle-under-Lyme Borough Council, generating income of around £250,000 per annum.

Client satisfaction surveys have all returned a score equal to good or exceeding good. There are currently no high priority audit recommendations that are outstanding. There are 47 overdue recommendations, eight of which are medium priority and 39 of which are low priority.

Proposed Addition to the Scheme of Delegation

The committee considered a request for an addition to the scheme of delegation for the Director of Finance and Resources to authorise the making of a definitive map modification order when directed to do so by the Secretary of State for Environment, Food and Rural Affairs following an appeal by the applicant against a decision of the county council not to make the order.

The council has a duty to determine applications made under section 53 of the Wildlife and Countryside Act 1981 to modify the definitive map of public rights of way when there is evidence that an error exists. Where the council refuses to make a definitive map modification order, the applicant has a right of appeal. The appeal will be heard by an inspector of the Planning Inspectorate on behalf of the Secretary of State, who has the power to either dismiss the appeal or to allow the appeal and direct the council to make a modification order.

The committee agreed to support the proposal, which will now be referred to full council with the recommendation that it be approved.

Forward Plan

The committee considered the forward plan for the Audit and Standards Committee. Councillor Simon Tagg, Shadow Portfolio Holder for Strategic Highways, noted that there is a planned internal audit included in the 2024-26 internal plan and audit review on highways expenditure, and that as there is an ongoing investigation in the service, there is a request that the investigation is concluded before the audit is undertaken. It was agreed that the findings of the investigation would be presented to the committee when it is concluded.

Councillor Tagg also requested time to discuss his experience in Burntwood, and suggested that there should be an external audit of the highways contract rather than an internal audit. It was agreed that the terms of reference for the planned audit review on the highways contract would be brought to the committee.