The Audit Committee met to discuss a range of topics, including the Hertfordshire Fire & Rescue Authority's (HFRA) annual statement of assurance, the 2024/25 audit update, the pension fund audit report, treasury management, and risk management. The committee approved the HFRA's Statement of Assurance, and agreed to a risk-focused report on local government reorganisation at its March meeting, while also requesting a review of the SEND risk and a separation of the cyber attack risk.

Here's a more detailed look at the key discussion points:

Hertfordshire Fire and Rescue Authority Annual Statement of Assurance

The committee approved the Hertfordshire Fire and Rescue Authority's Statement of Assurance, pending corrections to some typographical errors on page 26 of the Statement of Assurance 2024-25. The statement provides assurance on financial, governance and operational matters within the fire and rescue service. Key discussion points included:

• Response Times: Councillors raised concerns about response times falling below target on 65 occasions, but were told that many of these failures were only by a matter of seconds. It was noted that the average response time for a first pump appliance was seven minutes and seven seconds, which is considerably below the target time.
• Houses of Multiple Occupation (HMOs): Councillor John Graham asked about the fire service's response to the increasing number of HMOs and the associated risks. He was told that the fire service works closely with district councils and focuses on communal areas in HMOs, and that partnership arrangements are in place to manage the risk.
• Fire Safety Interventions: Councillors asked about a slight fall in the number of fire safety inspections of premises. They were told that this was part of a three-year inspection cycle, and that the service was confident it would deliver the expected number of inspections.
• Staff Sickness: Councillors welcomed a significant drop in sickness levels and acknowledged efforts to support firefighters' mental health, including trauma intervention training.

2024/25 Audit Update

Tim Cutler from KPMG presented an update on the 2024/25 audit, noting good progress and optimism about removing a disclaimer issued the previous year. Key points covered were:

• Build-Back Process: KPMG is in the process of a risk assessment to remove the disclaimer from last year's audit report. Early signs are positive, but a qualification on prior year balances will remain.
• Significant Risks: The significant risks identified in the audit plan were the valuation of land and buildings, management override of controls, and the valuation of post-retirement benefit obligations.
• Valuation of Land and Buildings: A duplicated asset worth £8.8 million was identified and corrected.
• Management Override of Controls: No instances of management override were found during testing.
• Pensions: A revised pension report in July required adjustments to account balances. A query regarding the asset ceiling is ongoing.
• IFRS 16: New disclosures related to leases were correctly included in the accounts.
• Value for Money: No significant risks or weaknesses were identified in financial sustainability, governance, or improving economy, efficiency, and effectiveness.
• Recommendations: Two low-level recommendations were made regarding the review of bank reconciliations and the management of old balances in the ledger.
• Ernst and Young: Councillors expressed frustration with the previous auditors, Ernst and Young (EY), for leaving an untrustworthy balance sheet. They acknowledged a better working relationship with KPMG.
• Build Back Better Assurance: There will be full disclosure of the costs of achieving the removal of the disclaimer when KPMG return to speak to the committee in February.

Councillor Chris Lloyd raised concerns about the amount of old data in the ledger, and the fact that 18 out of 22 staff had not signed their contracts. He also asked when the government whole accounts would be available.

Pension Fund 2024/25 Audit Report

Tim Cutler from KPMG presented the draft audit report for the Pension Fund 2024/25, noting that the disclaimer had been removed in the FY24 audit. The key points were:

• Unmodified Opinion: KPMG are hopeful of a completely unmodified opinion on the pension fund.
• Management Override of Controls: The only significant audit risk is management override of controls.
• Control Weaknesses: Some unapproved journals over the £500k threshold were noted, and a recommendation was made.
• Valuation of Investments: The valuation of investments was a key area of audit focus.
• Corrected Misstatement: A corrected misstatement largely related to timing differences in receiving fund manager evidence.

Councillor Stuart Roberts asked Rob Winterton to clarify what has been done on the risk of the lack of segregation of duties in posting to journals.

Pension Fund Response to the 2024/25 Draft Audit Report

Rob Winterton provided the fund's response to the draft audit report, including:

• Four of the six outstanding items on the report are with KPMG for review.
• A corrected audit misstatement related to an audit difference of £7.8 million due to updated financial statements from investment managers.
• A working paper will be created to address the related party identification deficiency.
• A new process was introduced from 1 April 2025 to address the lack of segregation of duties in posting journals.

Mid Year Report on the Treasury Management Service and Prudential Indicators 2025/26

Kate Iles presented the mid-year report on treasury management, highlighting:

• A diversified investment portfolio with £60 million in liquid funds and £29 million in longer-term strategic pooled funds.
• A capital loss of £1.2 million on strategic pulled funds, an improvement of about £60,000 since March.
• New long-term borrowing undertaken in line with the borrowing strategy.
• Restructuring of the commercial loan portfolio, prepaying £91 million of loans at a redemption cost of £75 million, achieving a discount of £16 million.
• Total borrowing at the end of September was £558 million, with the majority now with the PWLB.
• No breaches of the agreed indicators.

Councillor Trevor Graham asked if the council was near its borrowing ceiling. He was told that the high needs deficit would impact on that, and that the council would reach that ceiling over the next four years.

Councillor Chris Lloyd raised concerns about the government not addressing the SEND deficit.

Risk Management Update

Fiona Timms presented the risk management update, noting a consolidation of corporate risks from 18 to 11. Three risks were identified as not being at their target score: climate change and achieving net zero, large-scale development in Hertfordshire, and sustaining improvements in SEND. Key discussion points included:

• SEND Funding: Councillor Chris Lloyd argued that the risk of financial instability due to insufficient SEND funding should be elevated from a directorate level to a corporate level risk.
• Local Government Reorganisation (LGR): Councillor Roberts asked about the risks associated with LGR, and was told that the concern was its impact on organisational capacity.
• Climate Change: Councillor Watson suggested that the climate change risk should be split into two separate components: resilience to climate change and obligations to carbon neutrality.
• Cyber Attack: Councillor Graham suggested that the risk of cyber attack should be separated out from the general loss of IT risk.

The committee agreed to a risk-focused report on local government reorganisation at its March meeting, and also requested a review of the SEND risk and a separation of the cyber attack risk.

Risk-Focused Report on Health and Safety Corporate Risk

James Ottery presented a risk-focused report on health and safety, noting that the current risk score was at its target of 12. Councillor Chris Lloyd raised concerns about violence in schools and councils, and asked what was being done to support staff on the front line. Councillor Stuart Roberts asked for reassurance that findings from health and safety audits were being appropriately dealt with.

The committee noted the actions and controls being undertaken to mitigate the risk relating to health and safety as far as possible.

Shared Internal Audit Service Report

Aisha reported on the Shared Internal Audit Service, including:

• 50% of planned days and 46% of planned projects delivered.
• Two in-year amendments to the audit plan: an increased budget for the Ombudsman's referrals audit, and the cancellation of a SEN assurance mapping audit.
• No new limited assurance opinions issued.
• Five high priority recommendations followed up, with two implemented and three partially implemented.

Councillor Roberts asked what the one recommendation would be that the team would give the council that they might want some focus on.

SAFS Progress Report

Paula presented the progress report for the Shared Anti-Fraud Service (SAFS), highlighting:

• 10 training sessions delivered.
• Executive reports issued where weaknesses were identified.
• A briefing paper issued on the new offence of failing to prevent fraud.
• An increasing volume of referrals, particularly related to fraudulent applications for school places.
• £592,000 of fraud error and savings identified through the National Fraud Initiative (NFI) exercise.
• Attendance at events to raise awareness of money muling.

Councillor Graham commented on the excellent report and wondered whether more resource would uncover more fraud.

Annual Governance Mid Year Update

Chris Ward presented the annual governance mid year update, noting that three of the ten governance issues raised in the AGS had been resolved, and seven remained outstanding.

The committee noted the mid-year progress updates on the actions to address the significant governance issues identified in the annual governance statement for 24-25.

Future Work Programme

The committee noted the future work programme, including a meeting in February to review the final accounts and a risk-focused report on local government reorganisation in March.