The Audit and Risk Committee meeting on 18 February 2026 focused on the external audits of the Council's and Pension Fund's accounts for the 2024/25 and 2023/24 financial years. Grant Thornton, the external auditor, presented their findings, highlighting a disclaimer of opinion for both the Council and the Pension Fund for the 2023/24 financial year due to significant limitations in obtaining sufficient audit evidence, particularly concerning opening balances and historic issues. For the 2024/25 accounts, while audit fieldwork was substantially completed, a disclaimer of opinion is still anticipated for the Council due to outstanding procedures and historic issues, but a more positive outlook is noted for the Pension Fund, with the possibility of moving away from a disclaimer opinion in the next financial year.

Audit of Council and Pension Fund Accounts for 2024/25 and 2023/24

Grant Thornton presented their audit findings for the 2024/25 and 2023/24 financial years. A significant outcome for both the Council and the Pension Fund for the 2023/24 financial year is a disclaimer of opinion. This means the auditors were unable to obtain sufficient appropriate audit evidence to form an opinion on the financial statements. This situation is largely attributed to the ongoing impact of historic unaudited accounts and the statutory backstop legislation, which imposes deadlines for issuing audit opinions.

For the Council's 2023/24 accounts, the auditors noted that while management has made efforts to improve financial reporting and controls, the lack of assurance over opening balances and the inability to complete all planned audit procedures due to time constraints and historic issues mean a disclaimer of opinion is unavoidable. This situation is compounded by the fact that the predecessor auditor had also issued disclaimed opinions for previous years (2019/20 to 2022/23).

Similarly, for the London Borough of Barking and Dagenham Pension Fund's 2023/24 accounts, a disclaimer of opinion is anticipated. This is due to the legacy of prior years' disclaimed audits, challenges in obtaining complete membership data, and limitations in auditing opening balances. However, the auditors noted that significant efforts have been made during the 2024/25 audit cycle to rebuild assurance over in-year transactions and closing balances, which provides a more positive outlook for the 2025/26 audit, potentially allowing for a move away from a disclaimed opinion.

The audit also highlighted several specific areas requiring attention:

Council Accounts (2024/25)

• IFRS 16 Leases: The implementation of IFRS 16, which requires leases to be recognised on the balance sheet, was noted as incomplete. Significant misclassifications were identified regarding right-of-use assets and lease liabilities, with an estimated understatement of £331 million in right-of-use assets. PFI schemes also had not been fully assessed under IFRS 16. Management acknowledged these issues and stated adjustments would be made, but auditors could not confirm their completion due to timing constraints.
• Expenditure Completeness: Testing identified two instances where expenditure above the £10,000 de minimis threshold was not recognised in the correct financial year. While these were considered isolated, the inability to complete further testing due to time constraints meant a full evaluation of the potential impact was not possible.
• Valuation of Assets: Significant risks were identified concerning the valuation of Land and Buildings, Council Dwellings, Investment Properties, Surplus Assets, and the Net Pension Fund Liability. Due to time constraints and delays in receiving evidence, auditors were unable to complete the full scope of planned audit procedures for these areas, preventing an overall conclusion.
• Group Accounts: The audit of group accounts was significantly impacted by delays in subsidiaries finalising their accounts and the Council's inability to provide complete working papers. This prevented full audit procedures and means assurance cannot be provided over the group accounts.
• Minimum Revenue Provision (MRP): Issues were identified regarding the Council's MRP policy and its application, with concerns about the timing of MRP commencement and the use of capital receipts. While management believes its approach is prudent, auditors noted potential non-compliance with statutory guidance.
• Grant Income: A social care grant of £3.6 million was misclassified as non-specific funding, and presentation errors were noted in the capital grants disclosure.

Pension Fund Accounts (2023/24)

• Membership Data: Significant discrepancies were found in membership data, with members counted multiple times. While management corrected draft figures based on summary reports, differences remained between revised data and detailed listings, and historical data for the triennial valuation also showed issues. Auditors were unable to verify the accuracy and completeness of membership data.
• Level 3 Investments: A variance of £16.2 million was identified between the accounts and the custodian report due to inconsistencies in valuations. While management agreed to adjust the accounts, further work was needed to confirm the allocation of this adjustment. Disclosure misstatements regarding derivatives and timing differences between custodian and fund manager reports were also noted.
• Actuarial Present Value of Promised Retirement Benefits: Auditors were unable to complete all planned procedures due to delays in receiving information and confirmations, preventing a conclusion on this significant estimate.
• Treasury Management: The predecessor auditor's reports highlighted concerns regarding unlawful transactions between the Authority and the Pension Fund concerning loans. While these arrangements have ceased and the loan repaid, the matter is reflected in the audit opinion.

Value for Money (VfM) Arrangements

Grant Thornton's Auditor's Annual Report highlighted significant weaknesses in the Council's arrangements for financial sustainability and governance.

Financial Sustainability

• Key Finding: The Council's transformation programme is not fully established, and a fully funded transformation plan has not yet been agreed. This is impacting the Council's ability to address projected funding gaps and rebuild adequate reserves.
• Key Recommendation: The Council must urgently finalise and agree a credible plan for transformation to achieve long-term financial sustainability, including rebuilding adequate reserves and aligning with a revised corporate plan.
• Improvement Recommendation: The Council should monitor the effectiveness of actions to control the High Needs Block DSG budget and take urgent further action if necessary to avoid further overspends and achieve a sustainable medium-term plan.

Governance

• Key Finding: Significant weaknesses were identified in the governance of the Council's subsidiary companies, leading to fragmented oversight, lack of strategic approach to investments, and ineffective challenge of poor performance. This has impacted financial sustainability and service delivery.
• Key Recommendation: The Council must review governance arrangements for its companies to improve decision-making timeliness, strengthen scrutiny, clarify accountabilities, and ensure the Audit and Standards Committee is fully sighted on risks.
• Improvement Recommendation: The Council should develop a Growth and Regeneration Strategy, review its companies' alignment with Council objectives, and improve the clarity and reporting of KPIs and performance management.
• Significant Weakness Identified: The Council's Finance Team has insufficient capacity and capability, leading to delays in financial statement finalisation and issues with group accounts.
• Key Recommendation: The Council must urgently fill key vacancies, address knowledge gaps (particularly in IFRS 16), implement succession planning for key finance roles, and embed the new finance team structure to ensure sustainable improvements.

Improving Economy, Efficiency and Effectiveness

• Key Finding: The Council is non-compliant with aspects of the Procurement Act 2023 and lacks strategic procurement capability. Contract management is also identified as an area for improvement, with deficiencies in the contract register and inconsistent risk assessment.
• Key Recommendation: The Council must approve a Procurement Strategy aligned to the corporate plan, review the Procurement Board's terms of reference for strategic oversight, rectify contract register deficiencies, address the root causes of waiver usage, review and strengthen the central procurement team's capacity, and ensure Internal Audit verifies compliance with the Procurement Act 2023.
• Improvement Recommendation: The Council should consider how different strategies can work together for financial sustainability and improve the reporting of subsidiary company performance.

The audit also noted that the Pension Fund has made progress in strengthening its financial reporting and controls, with a positive outlook for achieving an unmodified audit opinion in the next financial year, subject to continued implementation of improvements. However, issues with membership data and historic loan arrangements were noted.