There were no apologies for absence.

There were no disclosures of interest.

The minutes of the meeting held on 19th March 2008 were submitted and signed.

The Council's external auditors issued an annual letter to Members, summarising their work during the past year. The report had been circulated to Members previously and was now presented for formal consideration and endorsement of the action being taken by officers in response.

Gary Hammersley introduced the Letter. He referred specifically to improvements in the Council's direction of travel including major projects such as the Housing Stock Transfer, Leisure Centres and Shared Services Programme. Watford also had improvement in 77% of performance indicators since the previous year which compared very favourably with other districts. CPA rating had improved from "weak" to "good" and plans were in place for sustained improvement.

Debbie Hanson, the District Auditor, added that an unqualified opinion on the accounts and value for money (vfm) had been issued. She drew Members' attention, however, to the score for financial reporting which had dropped from 2 in 2006 to 1 in 2007. This was largely due to the need to improve the processes in place for responding to audit queries and the need to ensure that the accounts were free from material error and misstatements. It was noted that areas for improvement had been picked up in the action plan.

The Director of Finance accepted that this was a fair summary and added that she had had to flag up a number of changes before the accounts could be finalised. Financial reporting had become more difficult but it was important for the Council to achieve a score of 2. She informed Members that Three Rivers DC, who was the other partner in the shared services arrangement, had scored 3 overall in the Use of Resources and Watford could learn from them as long as the transition was resourced properly.

A Member asked whether the Council had the capacity to achieve enough improvements to increase its score. The Director of Finance responded that financial reporting was a technical exercise and officers were aware of what had to be done to meet the standard. She said that it also had to be borne in mind that Watford Council had achieved a lot in other areas this year, whereas authorities who were not doing as much could concentrate on achieving higher scores. It was, however, important that these areas were concentrated on with a view to scores being improved.

The Portfolio Holder for Finance explained why he and the Portfolio Holder for Housing & Human Resources had considered it important to attend the meeting. The requirement was for the Annual Letter to come to the Audit Committee rather than Cabinet.

He went on to ask whether the suggestions for improvement had all been picked up in the Action Plan and also how the Council's financial standing could have decreased bearing in mind the significant capital receipts from the Housing Stock Transfer.

Debbie Hanson confirmed that the Action Plan included the right sort of response in terms of addressing the issues identified. With regard to the Council's financial standing, she explained that this included a whole range of factors including how debt was managed, cost effectiveness and recovery action. Action needed to be evidenced and a lot centred around process. She went on to explain that new processes being introduced in 2008/09 would be looking more at outcomes and outputs; the impact of processes and what was being delivered.

A Member commented that she was disappointed that the Council had been slow in dealing with audit queries and asked whether this was due to staffing issues. The Director of Finance responded that it was partly to do with approaches by staff in post at the time. Also changes in staffing had made it difficult to track down all the paperwork. Better processes were now in place.

The Chair concluded the discussion by thanking Debbie Hanson and Nigel Smith for the work they had done in helping the Council continue to improve and welcomed Martin Grundy from Grant Thornton who would be taking over the audit work from now on.

The Committee received the half year report of requests made under the Freedom of Information Act 2000.

From 1st October to 31st December 2007 the Council had received 22 requests of which all but one were replied to in the required time. From 1st January to 31st March 2008 the Council received 24 requests of which one was not replied to in the required time.

Details of the requests were attached as an appendix to the report.

A Member commented on the range and diversity of the questions and asked
whether some of them were considered to be politically motivated. The Director of Finance responded that the reasons varied; some people considered that they would get a quicker response if they asked a question under FOI as it went into a formal time tracking process. Some were from businesses looking for a lead. The report indicated that a number of requests had also come from organisations such as the Conservative Party and the Tax Payers' Alliance.

A Member asked why the Council did not have the specific information requested in respect of beds for homeless people (ref:10100315). The Portfolio Holder for Housing explained that this information was contained in the Council's Homeless Strategy but the specific information about the type of person was held by the County Council as the relevant agency and it would not be appropriate for the Council to respond.

The Committee asked why it had not been possible to respond to question 1090296 - water consumption. It was explained in the report that a response was still awaited from the Head of Environmental Services and this was being followed up by the CLO.

CIPFA's Code of Practice for Internal Audit required that the Head of Internal Audit must provide an annual report to those charged with governance and that this must :
•Include an opinion on the overall adequacy and effectiveness of the control environment
•Disclose any qualifications to that opinion together with the reasons for the qualification
•Present a summary of the audit work from which the opinion was derived, including reliance placed on work by other assurance bodies
•Draw attention to any issues the Head of Internal Audit judges particularly relevant to the preparation of the Annual Governance Statement
•Compare the work actually undertaken with the work that was planned and summarise the performance of the internal audit function against its performance measures and targets
•Comment on compliance with the CIPFA standards and communicate the results of the Internal Audit quality assurance programme.

The Committee was asked to consider the Annual Report and the Audit Manager's opinion of the adequacy and effectiveness of the Council's control environment.

The Audit Manager introduced the report and commented on the improving trend in controls which he had tried to quantify in Section 7 of the report.

He had concluded that internal controls were operating effectively although he was required to report on qualifications he had in coming to this conclusion. These were set out in Section 3 of the report.

A Member referred to the comment on weak arrangements for controlling changes to business information software and expressed concern that this issue and others listed in this section were not being taken seriously.

The Director of Finance responded that business continuity started from nothing and affected a lot of people and some services had achieved more than others. The BIS issue was more of a refined problem. A meeting was to take place with BIS the following day to finalise change control procedures. Budget monitoring had also been picked up the previous year and was being picked up again. In general, most of the recommendations were being acted upon.

The Portfolio Holder for Finance agreed that most of the recommendations had been resolved and, in accordance with exception reporting arrangements, only those which had not were flagged up. With regard to the point on monthly variations, he said that work needed to be done with individual budget holders and it might be useful to include comments from the Director of Finance or the Portfolio Holder about the mechanisms in place to address these issues.

A Member commented that the payroll issue had been flagged up and resolved as a result of concern expressed by this committee and maybe it was now the turn of BIS to receive some specific attention. She added that it was also important for outturns to be flagged up. The Committee asked for specific information on the BIS situation to be provided for the next meeting.

The Portfolio Holder for Finance commented on the potential risk to the Council of the same person performing both treasury management and bank reconciliation. The Audit Manger assured him that this situation had been rectified and there was now closer supervision.

The Accounts and Audit Regulations 2003 as amended in 2006 required that an annual review of the effectiveness of its system of internal audit was carried out.

The Committee received a report considering the evidence to support the view that it had been effective over the past year. Members were advised that It should be read in conjunction with the Annual Report set out elsewhere on the agenda.

The Chair had agreed that this item could be included as a matter of urgency because the Statement set out in this report would form part of the Statement of Accounts that must be approved by 30th June 2008. Ensuring that it reflected the annual reviews elsewhere on this agenda and was as current as practical before submission had resulted in a delay in circulation. Whilst it could be signed by the Mayor and Managing Director without being considered by this Committee that would not be good practice.

The Committee received a report setting out the Annual Governance Statement that the Council was required to produce annually for inclusion in the Statement of Accounts. Supporting evidence was set out in an Appendix 2 to the report.

Best practice required that Members considered this separately from the accounts.

The Director of Finance introduced the report. The Statement had to be signed off by the Managing Director and the Mayor but bringing it to this Committee and obtaining a Member perspective to add to that of officers was considered good practice.

The Committee received a report providing an overview of Risk Management issues over the past year. It included the current version of the corporate Risk Register and asked Members to agree the approach to risks that were not significant.

The Director of Finance introduced the report and explained the workings of the 4X4 risk management matrix. Members were asked to approve the approach and status of the lower scores.

A Member expressed some concern about a lower scoring risk which could have a low likelihood but high impact. The Buncefield fire was quoted as an example.

The Director of Finance agreed that even low scores had to be considered but if there were too many risks listed in the register it would lose its impact and would not be taken seriously. The process was very judgemental and intended to be used as a guide. It was important to weigh up the amount of effort needed to reduce risks against the likelihood.

The Committee asked whether Councillor Razzaq was still member champion for risk and the Portfolio Holder for Finance agreed to follow this up. He said that the Champion should be a member of this committee.

The Chair had agreed that this report could be dealt with as a matter of urgency. The report had been submitted late due to the pressure in achieving the tight timetable for the closure of the accounts. This had not allowed the Statement of Accounts to be published in line with the Committee agenda deadlines. As the Council was required to have its draft statement agreed by the end of June 2008 this report needed to be considered by this meeting.


The Committee was requested to receive and approve the Council's Final Accounts for the financial year 2007/08, and the statutory Statement of Accounts.
The Director of Finance introduced the report and drew the Committee's attention to the number of changes in presentation which was now more professional in approach. This was echoed by a Member of the Committee who said that the Statement was much more understandable than previously.

The interim Strategic Finance Manager took Members through the Statement highlighting issues of note including the increased level of receipt from the Housing Stock Transfer above initial forecasts, the deficit on the income and expenditure account and the size of the Council's capital programme. He also drew Members' attention to the amount included in the accounts for the provisional Local Authority Business Growth Incentive (LABGI) Grant which the Council had been notified by the Department for Communities and Local Government had been awarded for the years 2006/07 and 2007/08 and was due to be paid to the Council in Summer 2008.

He also explained that the Council's Treasury Management Practices required that the performance of the Council's investment portfolio be reported to Members and that the Committee be asked to note that the receipt of the Housing Stock transfer sum combined with the turmoil in the banking sector in the second half of the 2007/08 year had meant that the percentage of investments held in non specified investments - mainly building societies - had exceeded the 70% target limit but that the position was being managed to bring the percentage down to the specified amount as investments matured.

It was noted that the Audit would commence on 4 August with a report being put to the September meeting. Martin Grundy of Grant Thornton added that some preliminary work had already been undertaken and that there was a good level of engagement.

The Portfolio Holder for Finance asked about the position in relation to the Housing Revenue Account now there was no housing stock.

The interim Strategic Finance Manager explained that, subject to the permission of the Secretary of State, the balance would be transferred to the General Fund, due to take place during 2008/09.

In response to a question from the Chair, he also explained the position in respect of rent arrears.

The Portfolio Holder for Housing & Human Resources pointed out that the amount of £26M quoted as the value of the stock transfer could be misleading as this was a gross figure before deductions. Whilst there was an explanatory note in the covering report, he felt there should be a cross reference to clarify the position.

In response to a further question from a Member of the Committee, the Director of Finance explained the position in respect VAT on repair work being done by the Housing Trust. The timing for receiving monies would depend on progress with the improvement work. A meeting was taking place with the Trust later that week to discuss repairs amongst other matters and an update would be requested. There was provision in the Agreement about how the money would be paid over.

Another Member asked for clarification on the car park reserve and whether it was normal to build up such high reserves. The Director of Finance explained that this was a statutory account and whilst the funds could be used for other things if there was no need to fund parking issues, they had to be transport related. The money did not go back into the General Fund. Charges had not been increased and there had not been any deliberate measures to increase reserves.

The Portfolio Holder for Housing & Human Resources then gave a detailed explanation on how the scheme worked. He said that in 2008/09 money would be taken out of the reserve because not so many penalty notices were being issued and penalty income was lower than it had been for a number of years. The Council did not set targets and had to maximise Pay & Display income. It was a difficult scheme to manage.

A Member asked why property maintenance was £400K less than budgeted. The Director of Finance responded that this was mainly as a result of problems getting work organised and a lack of resources in the Property Section. A framework contract was being set up to facilitate contracting out the work that needed to be done.

The Member also asked about the depreciation of assets with a useful economic life of up to 50 years. It was confirmed that these would eventually be written down in value, subject to future valuation results

In response to another Member question, the Director of Finance gave an explanation of the situation in respect of the Pension Fund Reserve. She said that she wanted to explore whether paying off a lump sum would be a good use of reserves. The lump sum could be used to reduce pension strain (the costs to the Council of employees retiring prior to their normal retirement date) or ongoing employer's contributions. The Director added that Watford's employer contribution rate was higher than other councils and could be contributing to its higher cost base. She would be including more information in the Medium Term Financial Plan.

The Chair asked how the deficit of £370M on the Income and Expenditure Account had arisen. The Interim Strategic Finance Manager explained that this was a record for the whole year of operational items and was similar to the profit and loss account of a private company. It included such items as depreciation and in Watford's case this figure of £370m represented the difference in value of the housing stock on transfer and the capital receipt received on transfer. In accordance with local authority accounting this figure was reversed out of the Income & Expenditure account, as shown in the Statement of Movement on the General Fund Balance, before arriving at the overall change on the General Fund balance for the year which was shown as a surplus of £83,000. The Director of Finance commented that this was a situation peculiar to local authority accounting and was rather confusing but that CIPFA was looking at how the accounts could be presented in a more understandable format.