Agenda and minutes

The Chair noted that the meeting was inquorate due to only six voting committee members being in attendance in person, which did not meet the two-thirds quorum required to approve recommendations.

Given the importance of approving the accounts, the initial option was to have the WMCA Board ratify the minutes at the 13 December 2024 Board meeting, as opposed to waiting until the 3 February 2025 meeting of the Audit, Risk and Assurance Committee (ARAC).  A further option discussed was to convene an Extraordinary ARAC meeting to sign off on the reports, however, it was noted that there was no guarantee of achieving a quorum at the next meeting.

The committee agreed to proceed with reviewing the papers and discussing the matters at hand, awaiting input from Grant Thornton.  The Committee then decided to convene an extraordinary committee meeting for the purposes of considering the accounts in December prior to the next WMCA Board.  

Apologies for absence were received from Councillor Jaspreet Jaspal (Wolverhampton), Councillor Wayne Little (Dudley), Councillor Rose Martin (Walsall) and Councillor Baxter-Payne (Warwickshire).

The substitute who attended the meeting on behalf of Councillor Martin, was Councillor Gurmeet Sohal Singh (Walsall).    

It was noted that the nominated representative from the Worcestershire Non-Constituent Authorities had not responded to any correspondence to date.  This was to be followed up.

The minutes of the meeting held on 30 September 2024 were agreed as a correct record.

Minute No. 24 Independent Transport Review Update  

The Chair noted that following a request from Councillor Fitter at September’s committee meeting, that the Governance Officer had shared the scope of the Independent Transport Review and that at the request of committee members, the Head of Delivery – Building Retrofit was to attend the meeting to provide an update following the Internal Audit Report discussed at September’s meeting on Energy Efficiency: Retrofit.  

Minute No. 27 Strategic Risk Update

In response to the Chair who requested an update regarding the Network Stabilisation Grant that had been discussed at September’s ARAC meeting, the Executive Director of Finance and Business Hub confirmed that sufficient funding had been secured to maintain operations and deliver a balanced budget through to March 2026.  She further noted that written confirmation of approximately £116 million had been received, with potential additional bus revenue funding pending.

Minute No. 27 Strategic Risk Update

The Chair further noted that an update on the progress against the Business Continuity Internal Audit Report would be provided at the February 2025 ARAC meeting.  

The Chair thanked the Governance Services Officer for circulating the 15 November 2025 WMCA Board agenda pack to committee members in advance of the meeting, to enable ARAC members to have sight of the Financial Monitoring Report in order that the committee could keep track of the West Midlands Combined Authority’s (WMCA’s) financial performance throughout the year. 

The Chair confirmed his attendance to the WMCA Board on 15 November 2024 and summarised the key points from the Financial Monitoring Report to note a small surplus of £0.9 million for the first six months, a “windfall” gain in respect of treasury activities of £7.1 million which had been transferred to earmarked reserves, capital spending in YTD was under budget by £16 million and that discussions included the UK Shared Prosperity Fund (UKSPF) and rescheduling of the UK BIC loan of £18.0m to Coventry City Council.

Resolved that: the action list be noted.  

Resolved that: the work programme be reviewed and noted.

The Chair noted that he had attended the 15 November 2024 WMCA Board meeting and that it focused heavily on transport matters, as well as the 11 November 2024 Investment Board meeting.  The Investment Board addressed red-rated projects requiring change requests due to missed deadlines or cost overruns, with useful presentations from Coventry and Solihull on these topics.

The Chair further noted that he was in the final year of his four-year term as the Independent Chair of ARAC, with his term due to end on 30 September 2025.  He noted that he had previously informed the WMCA and discussed the potential benefits of identifying his successor sooner, to allow for a smoother transition, however that he remained open to extending his term slightly to assist with the approval of the 2024-25 accounts if necessary. 

The Head of Financial Management presented the final version of the 2023-24 accounts.  She noted that the audit by Grant Thornton was largely completed without significant issues and that the audit teams had worked well together, though some minor changes to the accounts may still be required with any further changes to be delegated to the Chair. 

The report included the audit findings and the auditor's annual report, reflecting a positive assessment of the financial statements and value for money for the 2023-24 financial year.

The Head of Financial Management noted that changes since July 2024 included minor updates to the narrative report and adjustments due to government changes, such as department name updates.  She further noted that the main addition was the impact of IFRS 16, a new leasing standard effective from April 2024, estimated to affect assets and liabilities by £8.6 million and that the balance sheet had been updated to reflect the final accounts, as well as updates to roles within the WMCA and the executive team structure.

Councillor Lakha referred to Appendix 1, Contents 2 [Narrative Report of the Chief Executive and Members] in regard to the WMCA Executive team and suggested a review of its proportionality compared to other organisations in the region be undertaken in the future.  

Regarding the Mayoral elections, Councillor Lakha queried the accounting for election expenses and in response the Head of Financial Management clarified that the election took place in May 2024 and thus after the year end.  

Representatives from Grant Thornton confirmed the audit of the 2023-24 accounts was nearing completion, with no significant errors found affecting the primary statements. Some control recommendations had been made and accepted by management, with outstanding audit queries being addressed, with an unmodified clean opinion expected by early December.  However, it was noted that the audit could not be certified as complete until the National Audit Office (NAO) finished its audit of the whole of government accounts.

Two significant risk areas were identified: management override of controls and pension valuation.  No issues were found with management override; however some control recommendations were made regarding the journals process.  The audit of the pension liability was nearly complete, pending a letter from the pension fund coordinator expected by the end of November.  Further issues identified during the audit were summarised in the report's appendices.

Grant Thornton's report further included improvement recommendations, indicating that while current arrangements were working, there remained areas for potential enhancement.  No significant weaknesses were identified, and the report was generally positive. 

The discussion from members highlighted the importance of financial sustainability, particularly the level of general and earmarked reserves.  It was noted that the WMCA had made progress in building reserves, with a focus on financial resilience.  The balance sheet showed £6.4 million in general fund balance and £310 million in earmarked reserves, reflecting a cautious approach to financial management.  The need to assess the adequacy of general reserves in the context of overall financial health was emphasised by the committee.  ...  view the full minutes text for item 40.

[Please note this item includes two private appendices]

The committee received a report from the Head of Audit and Information Governance to update on the internal audit work since September 2024 and progress on the 2024-2025 plans.

The Head of Audit and Information Governance confirmed a reasonable assurance opinion for 2023-2024.  The report summarised the 2023-2024 audit results: 17 audits and one advisory piece were completed, with 12% receiving substantial assurance, 71% satisfactory, and 18% limited assurance.  A trend of decreasing substantial opinions and increasing satisfactory opinions was noted, attributed to more detailed audits and a better understanding of the organisation.

The 2024-2025 internal audit plan update included two completed audits and one grant verification.  Two draft reports were under review and the internal audit plan had one minor change due to a decreased risk environment.

The Chair and other members expressed that the trend in audit opinions was not overly concerning and reflected a more robust internal audit function and thanked the Head of Audit and Information Governance and his team for the reports.

Recommended to the WMCA Board:

(1)  The contents of the latest Internal Audit Report Update Report be noted.

(2)  That the Head of Internal Audit Opinion 2023/24 be received and noted.

The Lead Treasury Accountant presented the mid-year report on treasury management activities.  He highlighted that net investments increased by £85 million in the first six months, generating income on investments of £21.9 million due to higher cash balances and elevated interest rates.  This was £7.1m above Budget.  No new borrowing occurred but there was debt restructuring with Phoenix Group and a recommendation was made to create a new reserve for strategic investments to mitigate volatility.

The Chair appreciated the clarity of the report and noted the positive financial outcomes, including an average borrowing rate of 2.65% on borrowings of £588m, whilst generating a return on investments of £868m of circa 4.8% and he further noted that the investments being rolled over were on better terms than those completing.  The Chair also noted the investments with authorities which had issued Section 114 notices, with only one remaining from Birmingham City Council, which was still expected to be paid in full.

The committee acknowledged the positive contribution of treasury management to the authority's financial position.

Recommended to the WMCA Board:

(1)  The Treasury Management Mid-Year Report be noted.

The Chair welcomed the Head of Delivery – Building Retrofit to the meeting to respond to member’s questions raised at September’s meeting of ARAC following an internal audit report of the retrofit programme.

The Head of Delivery - Building Retrofit, provided a verbal update on the retrofit scheme, emphasising the importance of accurate Energy Performance Certificate (EPC) data for effective retrofitting.  He noted that his team was working with local authorities and registered providers in the West Midlands to ensure data accuracy, which was crucial for the SHF Wave 2.1 programme which was a project funded by the Social Housing Decarbonisation Fund (SHDF) with the aim to retrofit just under 2,000 homes by September 2025, with a total project cost of over £60 million.

The Head of Delivery – Building Retrofit addressed concerns raised by the committee at its previous meeting in September regarding the ambitious target of retrofitting 294,000 properties by 2026, explaining that accurate data collection was essential to understand the scope of work needed.  He reassured the committee that the retrofit sector was growing, with efforts to expand the supply chain to meet demand and that monitoring systems were being installed to assess the performance of energy efficiency measures.

The committee appreciated the verbal update.   Councillor Bardsley requested a written summary of the statistics be shared with the committee and Councillor Lakha recommended that the written summary include the number of properties dealt with by individual authorities, to provide a clearer picture of the progress being made. 

Recommended to the WMCA Board:

Resolved that: the verbal update be noted.         

The Director of Law and Governance provided a verbal update of the Independent Transport Review to note that preliminary findings were currently being discussed and that the recommmendations would be made public in due course.

In response to the Chair who queried when the internal audit follow-up review would be finalised, the Head of Internal Audit and Information Governance confirmed that a draft internal audit report on transport had been completed and issued to management.  He noted that the report would provide assurance over governance, financial management and risk management within Transport for West Midlands (TWM), particularly Metro.  The final report, incorporating management comments and agreed actions, would be presented at the 3 February 2025 ARAC meeting.

The Chair gave his thanks for the verbal update and noted it’s importance due to being referenced in Grant Thornton’s external audit report and the need for the successful rollout of the capital programme, especially in transport and housing, which was deemed critical to the WMCA’s success.

Recommended to the WMCA Board:

Resolved that: the verbal update be noted.  

[In accordance with s100(A) of the Local Government Act 1972, the public and press be excluded from the meeting for the following items of business as they are likely to involve the disclosure of exempt information as specified in the paragraphs of the Act.]

The meeting transitioned into a private session and the Head of Audit and Information Governance summarised the two private internal audit reports.

The first audit focused on bus stops and shelters, examining the recharging formula for costs and administrative support.  The audit aimed to ensure that income from departure charges and information for stops and shelters was managed according to policy procedures during the financial period 2023-24.

The Head of Audit and Information Governance noted that the audit provided a reasonable assurance opinion with several recommendations to address weaknesses, such as the timeliness of invoice raising and the validation process of information sources.  He also confirmed income from recharging was circa £0.7m

The second internal audit reviewed was in respect of the UK Shared Prosperity Fund, providing a reasonable assurance opinion but that highlighted concerns about potential underspend by March 2025.  The audit identified weaknesses in control measures, gaps in second-line assurance activities and issues with project business case approvals.

Following comments received from members, discussions also touched on the need for realistic forecasting and reallocation of funds to ensure maximum spend by the deadline.  The gaps in the second line of assurance were queried, involving missing intersections crucial for comprehensive oversight and the recommendation from the committee was to establish and report all quality and compliance sampling promptly and appropriately.

Recommended to WMCA Board:

Resolved that: the reports be noted.