To receive an update on the ISA260.

Andrew Vallance, Head of Finance, informed the Committee that they had considered the draft ISA260 at the last meeting, with the final version being presented to the Committee now. It was anticipated that the accounts would receive an unqualified opinion and there were a number of actions ongoing as part of the CIPFA action plan, which was regularly considered by the Corporate Overview and Scrutiny Panel. The pension fund action plan had been presented to the Berkshire Pension Fund Committee.

Jonathan Gooding, Deloitte, said that there were two parts to the ISA260, the accounts of the council and the accounts for the pension fund. Deloitte were now in the last stages of the audit, with the representation letter to be completed and they were working through the remaining objections to the accounts. Once this was completed, the accounts would be in a position to be signed off. The report provided the Committee with an update on the matters that were still outstanding. Jonathan Gooding anticipated that an unqualified opinion would be issued on the accounts. The significant audit risk that had been identified was around the management override of controls and a material uncertainty had been identified in the property company’s valuation.

On the pension fund, Jonathan Gooding explained that the pension fund accounts were largely complete and an unqualified opinion was also anticipated to be issued on the pension fund accounts. The significant risk that was focussed on was the management override of controls, with a number of control recommendations being issued as part of the report. Deloitte had investigated the overnight loan made by the pension fund and noted an absence of authority which was regarded as a governance weakness. This had been reported to the pension regulator by the local authority.

Andrew Hill had registered to speak on the item. Mr Hill said that at the last meeting of the Committee, in February 2021, he had asked directly about the £1.2 million overnight loan and asked whether it was a materially significant event. Mr Hill asked what had changed between the meeting in February, where a conclusive answer was not given and the meeting tonight, where poor governance around the administration of the loan had been identified. There was a duty on a wide range of people to make a report to the pension regulator and Mr Hill believed that this report could have been produced sooner. Mr Hill noted that in a previous report from Deloitte, they had discovered a £35 million problem with the pension assets and that conflicts of interest had not been reported at an Investment Management Group. Mr Hill asked at the time if these were materially significant events and asked if they would be looked at in more detail. Mr Hill believed that there should be complete transparency.

Adele Taylor, Executive Director of Resources, said that on the pension fund transaction, officers had confirmed at the last meeting that it was still being investigated with the conclusion of the investigation only being confirmed in the last couple of weeks. Adele Taylor explained that she had written to the pension regulator, the transaction was possible but there was no written evidence that the loan had been approved. There was evidence of an agreement but this was during a discussion at a meeting. The circumstances around the loan were a governance weakness which is why it had now been reported to the pension regulator. Adele Taylor confirmed that the transaction was not illegal but there was poor governance in how the transaction had been undertaken.

Jonathan Gooding said it was important to note not just the size of the item in question but the circumstances around it. Therefore, it was considered a significant matter. Regarding the audit adjustments, there were control weaknesses but again circumstances around them needed to be considered. Actions were being responded to.

Councillor Bond asked what would happen with the pension regulator and assumed that the transaction had been noted and that would then be concluded, unless something similar was to happen in future years. He asked for some further information on the loan.

Jonathan Gooding explained that the transaction would be unlawful in the private sector but the pension fund regulations were different. However, there was an expectation that approval would be gained from trustees before a transaction of this nature was made.

Councillor Sharpe asked which elements of the ISA260 did the Committee particularly need to be aware of or worried about.

Jonathan Gooding said the most important part was the control recommendations that had been made and the response to these recommendations from the local authority. He also drew attention to the points made in the value for money conclusion.

Councillor L Jones asked if the issue around planning finances was due to decisions and planning around the budget.

Jonathan Gooding explained that Deloitte were not purely focussed on the outcomes, they were also interested in the process and checking whether the appropriate and correct process had been followed when approving the budget. The qualification would go away in future years if improvements had been made following recommendations made by Deloitte.

Councillor Bond noted that there were six questions on page 28 of the report and asked if the Committee would have the opportunity to see the answers to those questions. He pointed out a small detail, that the pension fund advisory panel minutes had been mentioned but it met as part of the pension fund committee and therefore did not have its own separate minutes.

Jonathan Gooding said that the error on the pension fund committee minutes would be corrected. Deloitte had drafted their responses to the questions but they still needed to be reviewed. Jonathan Gooding said that he would expect them to be completed before the next Committee meeting at the end of July 2021.

Councillor L Jones suggested that it would have been useful to have a summary of the report for each section to help aid the Committees understanding.

RESOLVED UNANIMOUSLY: That the Audit and Governance Committee noted the report and:

i)             Noted the ISA260 for RBWM in Appendix 1.

ii)            Noted the ISA260 for the Berkshire Pension Fund in Appendix 2.

iii)           Noted and considered the draft action plan for RBWM in Appendix 3.

iv)           Noted and considered the draft action plan for the Berkshire Pension Fund in Appendix 4.