The Audit Committee meeting on Wednesday, 10 December 2025, focused on the council's financial audit results and the statement of accounts. Key discussions revolved around the progress towards an unqualified audit opinion, the challenges in addressing identified control weaknesses, and the timeline for rectifying these issues. The committee also reviewed the audit of the Pension Fund accounts.

Auditor's Annual Report and Audit Results

The committee received an update from EY, the council's external auditors, regarding the provisional audit results for the year ended 31 March 2025. While some progress has been made, auditors indicated that they were unable to complete all planned procedures, particularly concerning fraud and significant risks. Several misstatements were identified, including issues related to debtors, creditors, and bad debt provisions, though none were individually material. A significant concern raised was the number of open control points, with 18 identified, four of which were rated as high priority. These recommendations focus on improving assurance processes, documentation, training, and the timely action on open recommendations.

A key takeaway from the auditors was the council's position relative to the National Audit Office's timetable for achieving unqualified opinions. The projected timeline suggests the council is behind schedule, with an unqualified opinion not anticipated until the 2029-2030 financial year. This timeline highlights the need for the council to focus on building capacity, strengthening governance, and embedding robust financial controls.

Councillor Marc Francis expressed disappointment with the projected timeline, noting that despite assurances of quarterly improvements, the council appears to be falling behind. He questioned the optimism presented in some council statements, particularly in contrast to the auditors' findings.

Abdul Rizak-Kassim, acknowledging the significant journey the council has undertaken in addressing a backlog of accounts, highlighted the improvement made but conceded it was not at the desired scale. He introduced Stephen Hughes, a strategic advisor brought in to assist with implementing audit recommendations and building capacity. Hughes outlined a plan to address audit critiques, emphasizing an evidence-led approach and the need for proper resourcing to implement recommendations effectively. He confirmed that progress reports would be presented to the Audit Committee.

Statement of Accounts 2024/25

The committee reviewed the 2024/25 Statement of Accounts. Councillor Marc Francis supported the inclusion of budgeting scenario options in the public domain, allowing for transparency on the range of positions considered and the executive's preferred direction. He also raised questions regarding the transfer of monies from the London Legacy Development Corporation (LLDC), requesting a note on the questions asked by the capital strategy board overseeing these transfers and the specific projects they were allocated to. Despite these points, Councillor Francis stated he was content with and supported the Statement of Accounts.

The committee approved the Statement of Accounts.

Annual Governance Statement

A contentious issue arose regarding the approval of the Annual Governance Statement. While historically approved by the Audit Committee, guidance from the Standards for Internal Audit (SfIA) suggests it should be approved by the committee or recommended for approval to the full council. The committee discussed the implications of this guidance and the changes made to the statement based on council feedback. A proposed amendment was to update the statement regarding disclaimed audit opinions, reflecting the outcomes of the current meeting.

Pension Fund Audit Results

The committee also received the audit results for the Tower Hamlets Pension Fund for the year ended 31 March 2025. EY anticipates issuing a disclaimer of opinion on these accounts due to prior-year disclaimers and the impact on opening balances. While procedures have been completed, and improvements noted in the responses from the pension fund team, there were identified misstatements, particularly concerning timing differences in the valuation of level three pooled investments. Management decided not to amend the accounts for this specific uncorrected misstatement, and the committee was asked to consider and rationalise why it was not corrected.

A significant issue discussed was the membership data quality, which impacted both the pension fund and the main council accounts, dating back to 2016. A data cleanse project is underway, expected to be completed by the end of January, to ensure accurate data for the upcoming triennial valuation in March 2025. This data quality issue has prevented testing of the IS-26 disclosures, which are based on the triennial evaluation.

Councillor Ahmodur Khan inquired about the relationship between the pension fund audit and the overall council audit, noting that issues in the actuarial valuation could lead to qualifications in both. It was explained that if the pension fund accounts were qualified due to actuarial valuation issues, the council's accounts would likely also be qualified as the same figures are reported under different accounting standards (IS-26 for the pension fund and IS-19 for the council). The rectification program for data quality issues is progressing, and if successful, may allow for a modified opinion in the 2026-2027 financial year.

The committee thanked EY for their presentations and the detailed information provided. The next meeting of the Audit Committee is scheduled for Thursday, 29 January 2026.