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Agenda item

Governance of Council owned companies

For the report and Action Plan recommendations of the Shared Internal Audit Service in relation to the Governance of Council Owned Companies as set out in Appendix A, be noted and referred to the Executive for consideration.

Minutes:

Clarification was given by the Head of Legal that there was no requirement for past remunerated directors of Council owned companies to leave the room as they held no current pecuniary interest.  For non-remunerated directors there was no pecuniary interest to declare and non-pecuniary declarations had been made.  It was noted that Members were covered by the Council Code of Conduct which differed from Company Law where liability may be retained for the period of office even after resignation. 

Councillor Bright had been invited by the Chair to attend the meeting and would remain for the presentation and to answer questions from the Committee before withdrawing for the debate and vote, this had been agreed as a limited dispensation by the Head of Legal.  The Corporate Director recorded that they would observe and not participate in the item.

 

The Head of Legal presented the covering report as co-author, supported by the Head of Shared Internal Audit Service and the representative of BDO which had been commissioned to undertake the audit.  The Committee usually monitors high and medium priority recommendations which were actioned by Officers directly.  This report had actions for the Council and the Council owned companies to consider for implementation.

 

This was the second review of governance arrangements for council owned companies, the first having been completed in 2015.  That report had led to changes in governance, the reservation of powers and creation of lease arrangements.  This review was triggered by a Freedom of Information (FOI) request where the information had been gathered and published impartially.  In line with any governance concern this had been passed to the Shared Internal Audit Service (SIAS) for investigation to ensure independence.  SIAS is a joint service with their Officers being Hertfordshire County Council employees which limits their ability to be influenced and helps ensure independence.  SIAS in turn commissioned BDO as a larger specialist provider with extensive experience in local government and were provided resources as required through the existing internal audit arrangements.

 

The resulting internal audit report would be considered by the Executive, Council and the Elstree Film Studios Ltd (EFS Ltd) board.  The report overall had given a rating of “limited assurance” with some areas being of greater concern leading to 11 high and 11 medium priority recommendations.

It was noted later in the meeting that the SIAS standard definition for limited assurance was “The system of internal control is only partially effective, with important audit findings in key areas. Improvement in the design and/or operation of the control environment is necessary to gain assurance risks are being managed to an acceptable level, and core objectives will be achieved.”

 

The Committee, Members and Officers debated a number of areas:

-       With the concerns raised about expenses, the auditors reported that they had not looked at expense claims for all EFS Ltd Board Members as this was beyond their remit established in the terms of reference.  The focus was on Council appointed directors linked to the original FOI response.  This had been complicated by a lack of a formal expenses policy to judge any finding against.  Normally the process was to have a set of clear guidelines and controls in place which transactions could then be scrutinised against.

-       Clarification was given that the scope of the report had been focussed but this was set in the wider statutory and regulatory framework which covered the governance of companies and council bodies.

-       Officers reported that they had acted on the information which had been received when they had asked EFS Ltd to provide details of correspondence for inclusion in the FOI response.

-       Clarity was sought as to how the Council appointed Non-Executive Directors (NED) were selected.  This was related to the need for greater transparency of the role and how remuneration was set with the possibility that it should be part of the reserved matters for governance arrangements.  The latter would allow remuneration of NEDs to be linked to the recommendations of the Independent Remunerations Panel and be in line with other arrangements.  It would potentially address issues around the number of special responsibility allowances which could be claimed by an individual.

-       It was noted that in the past the NED appointments had been cross party although it was claimed that this had been linked to the skills provided by individuals.  This in turn raised questions as to whether the skills had been utilised appropriately and again highlighted the distinction with executive directors.  The change in the governance to increase the number of independent NED appointments had led to more councillor NEDs and it was questioned whether this could’ve been avoided through the use of weighted votes.

-       As a whole some of the Members felt that the Code of Conduct should apply to all appointments with a clearer definition of the role and limitations of a NED.

-       Concerns were raised about the general controls in place to hold the board to account and the continued appointment where required training had been missed.  It was felt that more detailed reports, including financial information, could be presented to Members under Part 2 (confidential sections) of the meeting.

-       With the number of Council owned companies increasing Members felt that it might be appropriate to have a single Shareholder Panel providing scrutiny in a consistent manner.

-       Members were reassured that there would be a report back to the Council from EFS Ltd and that the Council had a good track record of implementing audit recommendations.

-       The use of venues by political parties was queried with clarification needed around the safeguards to prevent any potential abuses.  It was noted that this was further complicated as any restriction might only apply to future leases due to the potential costs of any retrospective adjustment to terms.

-       The role of employees at EFS Ltd and what could have been done differently was questioned and where responsibility for management controls and systems fell.  Members raised the prospect of questioning the Managing Director directly.

-       The political independence of the report and the auditors undertaking the work, including collecting data and undertaking interviews, was queried.  The Head of SIAS explained that their posts are politically restricted  and a declaration of interests undertaken but that this did not apply to external bodies.  The representative of BDO made clear that although political restriction did not apply to them they were independent and unbiased with a clear code of conduct and ethics.  The Officers noted that the examples used in the report were those already in the public domain as part of the FOI.

 

Prior to leaving the meeting Cllr Bright gave clarification to a direct question that as far as he was aware his wife had been listed as an employee by EFS Ltd as part of their logistics, potentially in the same manner as a Mayor’s wife might be listed.  He had understood that any related expenses would be recharged to him and that responsibility therefore fell to EFS Ltd.  To his knowledge the arrangements in place for directors, for example the use of taxis, was the same as for staff at EFS Ltd and that it was common for logistics to be dealt with by EFS Ltd.

 

Concerns were raised about the failure of Members to declare pecuniary interests and where responsibility for enforcement of training lay.  It was noted that any sanctions would be for the Council to determine and that these were primarily reputational risks where the onus fell on the individual.

 

Having debated the report, including extending the meeting, the Committee moved to recommend the report to the Executive, Council and the Council’s wholly owned companies.  Emphasis was placed on the timely implementation of the recommendations.

 

RESOLVED that the Audit Committee note the report and refer it to the Executive for the timely implementation of the recommendations in the Audit Action Plan by the Council and the Council’s wholly owned companies.

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