Agenda item

Report of the Chamberlain

The Committee considered a Report of the Chamberlain concerning the 2017/18 City Fund and Pension Fund Financial Statements.

The Chamberlain opened the discussion by noting that, overall, the statements were positive. The City was well positioned in the short term, however, headwinds, including any negative consequences from a potentially disorderly Brexit in March 2019, and some of the major building projects coming on stream over the next couple of years, could have implications for the City’s medium term financial outlook. Members praised the Report for being readable, well presented, and a significant improvement on previous years.

The Deputy Chamberlain highlighted the first reduction in the pension deficit in 20 years. The City was on track to eliminate its pension deficit in 15 years, officers informed Members that this length of time was considered healthy and “normal” amongst local authorities nationally, some local authorities it was added, were still facing a 20 year plus period.

A Member added that, with the likelihood of interest rates rises over the next few years, there was a distinct possibility that the deficit could turn into a surplus. The Deputy Chamberlain responded that the City’s pension fund was linked to the Bank of England’s “yield curve”, so in effect reasonable rate rises were priced in. If the economic environment shifted more unexpectedly in the medium term, and monetary policy became more aggressive in response, there was the potential to overshoot the curve and that would result in a surplus. The Chairman urged caution in looking too far ahead, the Report under consideration concerned FY17/18 and it was important to keep focused on the near term.  He did however request that the actuary report that goes to the Finance Investment Board should be shared with the Finance Committee, so as to give Members a greater insight into the City’s long-term financial outlook.

Discussion then turned to the Police, the Chairman opened remarks by pointing to real concerns around the robustness of the Police’s financial planning. Despite a high turnover of staff in CoLP, ultimately, their accounts would not have qualified if they had been a standalone organisation, the assurance given to the auditors that the City Corporation as a whole, would stand behind them “saved the day”. This situation was unacceptable, and work must be undertaken to turn this around.

The Chairman raised three next steps that would support these efforts:

·         Internal Audit to provide a better picture of the Police’s finance and greater scrutiny going forward

·         Police authority side to be beefed up – this needed to include a review on how the Police Committee could be strengthened to increase oversight and for lines of communication and data sharing between the Police and the Chamberlain’s department to be significantly enhanced.

·         Cultural issues that were creating obstacles to be tackled head on

The Commissioner opened his remarks by stressing that he understood the significance of the Report and he accepted responsibility for “where we were at the end of FY17/18”. He accepted the tenor of what the auditors said but did not want Members to see the Report and assume that the Police’s finances are in a bad shape, they in fact had come in broadly in budget. The issue is the checks and systems in place were not fit for purpose.

The high turnover of staff had proved very damaging, unusually on four separate occasions candidates for the Police’s Finance team failed their vetting, which left the team understaffed at a critical time.

To help ensure the situation is turned around for the end of FY18/19, a new accountant has been appointed in the Commissioner’s team, the vacancies in the Finance team have been filled and another force have come into to review and spot check CoLPs systems and control - and found no significant concerns. In addition, the Deputy Chamberlain was working with the Police to improve matters.

The Commissioner concluded his opening remarks by emphasising that, in the context of oversight, CoLP were in a different position to other departments, whilst this was not a defence of the failures highlighted by the auditors, it should be recognised that imposing a one-size-fits-all approach would be unsuitable. Whilst there was full recognition that CoLP retaining operational independence was critical, the financial forecasting needs to be significantly improved. Collaborative discussions were ongoing at the senior levels, about the legislative requirements to allow greater clarity and certainty about the relationship between the Police Authority and the CoLP.

The Chairman responded that he was encouraged by the ongoing discussions but highlighted the £3.1m (relating to the IBM contact for Action Fraud) that was marked as a saving in the accounts, this sum has slipped into FY18/19. This typified the lax grasp of the data and helped to create doubts on behalf of Members when the Police asked for new funding. In mitigation, officers responded that the dispute with IBM was ongoing – a resolution was taking a considerable amount of time to reach.

A Member expressed the view that “we are where we are”, the CoLP was a special and unique force that was much closer to its police authority than other police forces across the UK. It was time to look forward, with adequate resources put in place, and with CoLP and the City working together in partnership to turn things around.

Members emphasised that much more needed to be done to get control of the accounts, including paying qualified professionals to work alongside the Commissioner to get on top of these issues. Finance Committee should stress the absolute seriousness it takes this challenge.

The Deputy Chairman summarised that the challenge is not to be in this situation again next year, he welcomed everything that had been said but it was imperative that things were turned around.

The Chairman added that a good deal of consideration was required about the City’s role as the Police Authority. Proposals were due to be presented to Members in the autumn.

A Member asked whether CoLP could return responsibility for Action Fraud to the Home Office, in response officers cautioned that this would be unhelpful in the current climate and the CoLP was determined to make a success of Action Fraud – it was one of the pillars that gave CoLP a significant national footprint.

In response to a query officers confirmed that any surplus in the Police pension fund would go to the Home Office.

The Commissioner responded that he was aware that this was a serious situation and he was certain that it would not be repeated. He reemphasised that the heart of the issue was the failings in CoLP’s financial checks and systems, as opposed to the Police budget being out of control.

The Chamberlain stressed that we should now look ahead, over time, the model could very possibly evolve to incorporate more shared services, whilst retaining the operational independence of CoLP and the Commissioner retaining independent financial advice. The Commissioner responded that he was concerned about the tenor of the discussions at the recent meeting of the Audit and Risk Management Committee – whilst collaboration should be a primary driver for the Police the importance of retaining independence in certain areas was paramount.

The Chairman informed Members that the Town Clerk had sent a note to the Commissioner in the last couple of days, outlining several proposals about the future relationship; a note will be circulated to the Finance Committee in due course specifically focusing on Finance Committee’s function in this context.

Members noted that the sessions had raised a couple of queries which could stray into exemption categories 1, 2 & 3 (information relating to an individual/likely to reveal the identity of an individual and information relating to the financial or business affairs of any particular person or body) under the Local Government Act 1972 and they therefore requested members of the public to temporarily leave the room. A record of the subsequent discussion is included in the non-public section of the minutes.

RESOLVED – that the Committee approved the following:

·         Considered the resolution from the Audit and Risk Management Committee

and, if appropriate, approve the City Fund and Pension Fund Financial

Statements for the year ended 31 March 2018; and

·         Delegate to the Chamberlain, in consultation with the Chairman and Deputy

Chairman of the Finance Committee, approval of any material changes to the

financial statements required before the signing of the audit opinion by BDO -

which is expected to be by the end of July.