The Audit, Risk and Governance Committee met on Monday, 26 January 2026, to review the council's financial statements, audit findings, treasury management activities, and internal audit progress. Key discussions included the approval of the Statement of Accounts for 2024/25, audit reports for the Lancashire County Pension Fund and the council itself, and the proposed Treasury Management Strategy for 2026/27.

Statement of Accounts 2024/25

The committee was asked to consider and approve the Statement of Accounts for the 2024/25 financial year. The external audit of these accounts was complete, with a few minor items to be addressed later. The committee was also requested to authorise the Chair and Chief Finance Officer (CFO) to sign off on matters requiring auditor assurance. This delegation is in place to ensure the statutory deadline for account approval is met, even if minor adjustments are needed after the audit is finalised.

During the discussion, Councillor Mr Joel Michael Tetlow raised several points of clarification. He requested the redundancy figures from April 2025 to date, as the report only covered previous financial years. He also questioned the 9.23% increase in fees for external audit services provided by Grant Thornton, noting that inflation was around 3.5% at the time, and sought an explanation for the additional cost. Finally, he asked for a detailed breakdown of companies and entities in which management or committee members have declared vested interests. The council confirmed that the redundancy figures would be provided and that further details on related parties would be made available.

External Audit - Lancashire County Pension Fund 2024/25

Stuart, representing the external auditors, presented the audit findings report for the Lancashire County Pension Fund for 2024/25. He described the report as very positive and quite a clean report, noting that the audit, conducted between July and September, went smoothly. The report detailed a small number of adjusted and unadjusted misstatements. Adjusted misstatements were made for misclassification and disclosure purposes, while unadjusted misstatements were deemed not material, primarily due to timing differences in the availability of the latest information. The auditors intended to issue an unqualified audit opinion on the accounts and their consistency.

The action plan included recommendations related to IT, common to both the pension fund and the council, and a third recommendation concerning delays in processing member changes by LPPA, the fund's administrator. While most delays were attributed to employers providing late information, some were on LPPA's side, leading to a recommendation from the prior year being kept open to improve these processes.

Councillor Peter Buckley sought clarification on a difference of £46.9 million, which, while not insignificant, represented less than half a percent of the pension fund's total assets of approximately £12 billion. This difference was attributed to timing, as final March figures were not available when draft accounts were prepared in May, leading to the use of December valuations.

Concerns were raised about issues with Oracle Fusion, the pension fund's software, which had a red assessment due to several breaches. Paul Sutcliffe, Head of Service in Digital, explained that measures had been taken to strengthen security, including reviewing privilege roles, segregation of duties, and monitoring generic account usage. Staff had also been retrained on formal access request processes. He confirmed that Oracle Fusion had been upgraded to the latest version and was considered a leading supplier in finance software.

External Audit: LCC Audit Findings Report 2024/25

This agenda item covered the audit findings for Lancashire County Council (LCC) for the 2024/25 financial year. Similar to the pension fund report, the auditors indicated a positive overall outcome, with an intention to issue an unqualified audit opinion. However, discussions highlighted ongoing concerns regarding the council's financial sustainability and the reliance on non-recurring savings.

Councillor Mackenzie Ritson questioned the effectiveness of recommendations that remained unaddressed for a year, asking what the scrutiny committee could learn to ensure implementation. She also raised concerns about financial sustainability, noting a theme of missed savings targets and the use of non-recurring savings being rolled forward. She sought to understand what structural efficiencies were being pursued to achieve genuine savings.

The report also touched upon the future forecast of interest rates, with an expectation of a 3.25% rate by mid-2026, and its implications for investments and borrowing rates. The rate of return on investments held for cash flow purposes was noted as 2.37%, below the benchmark and the SONIA rate of 4.1% during the period.

Treasury Management Activity and Strategy

Significant discussion revolved around the council's treasury management activities, including borrowing and investment strategies. The committee reviewed the current year's activity and the proposed strategy for 2026/27.

Councillor Rick Edwards inquired about the reasoning behind borrowing from numerous different borough councils and other authorities. It was explained that this is a standard borrowing method, often used when the council has cash received in advance of expenditure. These rates are typically favourable and readily accessible. The determination of borrowing sources and interest rates depends on availability, prevailing market rates, and affordability.

A substantial portion of the discussion focused on the council's investment portfolio, particularly corporate and government bonds. Councillor Peter Buckley questioned the strategy, noting that the council was holding £538 million in these bonds. Concerns were raised about the performance of these investments, with specific mention of losses on some bonds and the impact on the overall average interest rate. The timeline of these investments and the strategy behind them were scrutinised, with some councillors expressing alarm at the potential for significant losses and the complexity of the investment arrangements.

The report from Arlen Close, commissioned to identify investment options, indicated that investments were to be held until a business case for their sale existed. The council's approach to borrowing and investment activity for the forthcoming financial year was outlined, with a proposal to not make investments for longer than 12 months.

Concerns were voiced about the phrase broadly compliant used in relation to investments, with a call for clarity on whether investments were strictly compliant or not. The historical context of some investments, dating back to 2019 and 2022, was highlighted, with questions raised about why these were only being audited now and the potential for misrepresentation of compliance. The potential for catastrophic losses was mentioned, with comparisons drawn to the collapse of Barron's Bank due to poor investment decisions.

Internal Audit Progress Report

The Internal Audit Progress Report provided an overview of ongoing and completed audits. Several areas of concern were raised by councillors.

Councillor Mackenzie Ritson expressed disappointment regarding the recruitment, onboarding, and induction audit, specifically noting that probation reviews had not been consistently completed. She questioned the strength of the agreed recommendation, which suggested using Oracle Fusion to trigger reminders, arguing that reminders alone were insufficient and that checks and reporting to executive director level were needed to ensure completion.

Concerns were also raised about children missing in education, with the report indicating a moderate risk. Clarification was sought on whether children attending college on a part-time alternative provision basis were being incorrectly classified as missing in education, potentially skewing the figures.

The audit plan for future periods was discussed, with a request for a list of planned audits for February and March. The committee was informed that the full plan for the next year was being developed, and performance management was being considered as a potential audit topic.

The issue of line managers failing to complete probation monitoring was highlighted as a significant concern, with questions about how high up this failure extended in the organisational hierarchy and whether disciplinary actions were being taken against managers who did not complete the required documentation. It was stated that the failure was across all levels of the organisation.

Procurement Waivers and Non-Compliance

The committee reviewed a report on procurement waivers and instances of non-compliance for 2025-26. It was noted that 14 waivers were approved, with a total value of just under £900,000, and no instances of non-compliance were recorded during the period.

Councillor Graeme Austin raised a question about social value, asking about the council's approach and how it fits into contract value, particularly when waivers might be applied.

Code of Member Conduct - Annual Report of Complaints

The annual report on complaints related to the Code of Member Conduct was presented. A statistic was highlighted showing that the percentage of upheld complaints remained at 22% for both 2024 and 2025, leading to questions about whether this was a coincidence or indicative of a target.

Concerns were raised about the follow-up process for upheld complaints, particularly when actions such as apologies or the removal of offensive posts were not completed within a specified timeframe. It was suggested that such instances should be escalated to the conduct committee. The frequency of the conduct committee's review of these matters was questioned, with a suggestion that this committee should be made aware of councillors who do not adhere to the code.

A proposal was made to include a conclusion column in the report to record the outcome of complaints, and that offensive posts should be removed instantly, with apologies issued within a reasonable timeframe.

Corporate Risk and Opportunity Register – Quarterly Update

The committee received a quarterly update on the Corporate Risk and Opportunity Register. Discussions touched upon financial sustainability and the impact of efficiency reviews. A question was raised about when the risk level had last been as low as it was currently, leading up to a budget.

Urgent Business and Next Meeting

The committee noted that the next meeting was scheduled for Monday, 27 April 2026. There were no items of urgent business raised.

Part II of the agenda, which was not open to the press and public, included updates on the overpayment of salaries, counter financial crime, investigations and whistleblowing, and appendices related to procurement waivers and the corporate risk and opportunity register. These items were considered exempt from publication due to the likely disclosure of sensitive information.