APPENDIX A

PURPOSE OF THE REPORT

To provide Members of the Council with details of the work carried out by the Audit Committee during the year ended 30 April 2026. The report also details how the Audit Committee has fulfilled its Terms of Reference during this period.

BACKGROUND

The Audit Committee is responsible for overseeing the Council’s corporate governance, audit and risk management arrangements. The Committee is also responsible for approving the Statement of Accounts and the Annual Governance Statement. The Committee’s specific powers and duties are set out in Schedule 1 of the Constitution under the Terms of Reference of the Audit Committee. A copy of the Terms of Reference is attached at Annex A for information.

The Audit Committee is a key component of corporate governance and provides an important source of assurance about the organisation’s arrangements for managing risk, maintaining an effective control environment, and reporting on financial and other performance.

The Chartered Institute of Public Finance and Accountancy (CIPFA) has issued guidance to local authorities to help ensure that audit committees are operating effectively[1]. The guidance recommends that audit committees should report annually on how they have discharged their responsibilities.

WORK UNDERTAKEN

The Audit Committee has met twice during the period covered by this report. This has enabled the Committee to monitor the adequacy and effectiveness of the Council’s risk management arrangements, control environment and associated counter fraud arrangements through regular reports from officers and the internal auditors, Veritau. The Committee has also received reports from the external auditors, Forvis Mazars.

The Audit Committee is satisfied that adequate and effective controls have been maintained throughout the period covered by this report.

The specific work undertaken by the Committee is set out below.

External Audit

During the period covered by this report, the Committee received a series of external audit reports relating to North Yorkshire Council (NYC) and the North Yorkshire Pension Fund (NYPF) which provided updates on the status of the 2024/25 audit and planning for the 2025/26 audit.

The Audit Completion Reports provided detailed findings from the 2024/25 audit. Due to national audit guidance and the impact of Local Government Reorganisation, the auditor was unable to obtain sufficient audit assurance over opening balances and usable reserves, primarily due to audit issues in the sector and the impact of Local Government Reorganisation. As a result, a disclaimed audit opinion was issued for 2024/25. Despite this, the auditor reported no significant weaknesses in value for money arrangements and they confirmed that the Council has appropriate arrangements in place, demonstrates strong financial planning, and has effective governance arrangements. The external auditor identified areas for improvement, particularly in capital scheme management, IT controls, asset valuation processes, and the completion of declarations of interest.

The position for the Pension Fund was more positive with an unmodified audit opinion being given. No significant control deficiencies were identified in the 2025/26 year, although some prior-year issues remained outstanding. In an update at the March meeting, it was confirmed that although the external audit opinion on the 2024/25 accounts had been issued, the formal audit certificate could not yet be completed because the auditor still had outstanding responsibilities linked to the Whole of Government Accounts, which is overseen by the National Audit Office.

When discussing the March progress report, the Committee sought assurance on whether the issues leading to the disclaimed opinion had been resolved and whether a clean opinion could be expected for 2025/26. External audit advised that no guarantees could be given, but noted that additional national guidance had been issued and they expressed an aspiration that this would address previous issues relating to usable reserves and opening balances.

The proposed timetable for the 2025/26 audit was presented, including key milestones for planning, fieldwork, and reporting within national backstop deadlines. Officers confirmed that they were content with the timetable, and the Committee noted that work was progressing as planned.

Internal Audit

The Committee received progress reports on the delivery of the 2025/26 Internal Audit programme, noting that good progress was being made against the agreed audit plan, with a range of reviews completed, others nearing completion, and sufficient work expected to support the annual internal audit opinion. Most completed audits provided reasonable or substantial assurance, with actions agreed to address identified control weaknesses. Members raised queries in relation to specific audit areas, including property asset management, information security and the scope of planned harbour audit work, and also sought assurance on the completion of audits currently in progress. Officers confirmed that these would be finalised as part of the 2025/26 programme. Particular attention was given to a limited assurance opinion in relation to Human Resources, where a number of control weaknesses were identified, and officers confirmed that appropriate actions were being implemented to address these. Concern was also expressed regarding the number of overdue audit actions, however officers advised that progress was being made and that the Committee would be kept informed.

The Committee considered the findings of the Internal Audit review into the Scarborough Waterpark project, which examined the decision making process of the former Scarborough Borough Council in approving a loan to support the development. The review identified that the decision was complex and high risk, and although risks were recognised, there were weaknesses in how these were articulated, challenged and mitigated, including insufficient exploration of key commercial risks. In particular, the audit found that some key risks, including the commercial viability of the scheme, were not fully explored, and that due diligence, scrutiny and clarity of officer advice could have been strengthened. The Committee initially considered the matter in exempt session and requested a further report to summarise discussions and identify lessons learned. At its March 2026 meeting, the Committee endorsed the lessons learned, including the need for clearer risk reporting, robust due diligence, effective Member engagement and strong officer challenge in complex commercial arrangements. Members also noted the position of the outstanding loan, which was subsequently confirmed as irrecoverable and to be written off, with provision already made in the accounts. The Committee recommended that the lessons identified be incorporated into the Council’s decision making and commercial practices.

The Committee considered the development and approval of the 2026/27 Internal Audit Work Programme, beginning with a consultation report seeking Members’ views on priorities to inform a risk‑based programme aligned to the Council’s objectives and key risks. Members noted that the programme is developed using an established opinion framework, focusing on key assurance areas such as governance, risk management and internal control, and that it remains flexible to respond to emerging risks during the year. During consultation, Members identified several areas for potential inclusion, including information security, project management (including governance of Council‑owned companies), asset management, the Harrogate Conference Centre, the new finance system and business continuity planning, and officers confirmed that these would be considered alongside existing audit activity.

The Committee subsequently considered and approved the 2026/27 Internal Audit Work Programme, noting that it had been developed following engagement with the Committee and senior officers and structured to support the delivery of the annual internal audit opinion. The programme adopts a flexible approach, with audits prioritised using a “do now, do next, do later” framework to ensure resources are focused on areas of greatest risk and can be adjusted as priorities change. Members also sought assurance on the timing of specific audits and were advised that sequencing reflected both risk and the need to follow up previous audit work. The Committee approved the programme and noted that it would be kept under review throughout the year.

Counter Fraud

The Committee received updates on counter fraud activity during 2025/26, noting the continued work to prevent, detect and investigate fraud across the Council as part of the wider assurance framework. Members noted the significant level of activity undertaken, including a high volume of referrals, all of which are subject to initial triage, with some matters not progressing to investigation or being referred to partner agencies. Investigations were carried out across a range of service areas, supported by proactive work including data matching exercises, awareness campaigns, targeted training and collaboration with external organisations. The Committee noted that this work had led to financial savings and contributed to protecting public funds, and also discussed how outcomes of investigations are publicised where appropriate to act as a deterrent.

The Committee also considered the Counter Fraud Framework report, which set out the results of the annual fraud risk assessment, the proposed counter fraud work plan for 2026/27 and updates to the Council’s whistleblowing policy. Members noted that the Council’s approach focuses on identifying the main fraud risks and directing activity towards preventing, detecting and investigating those risks. Discussion highlighted specific risk areas, including social care and blue badge fraud, with officers confirming that activity in some areas is intelligence‑led and supplemented by targeted exercises. The Committee approved the 2026/27 counter fraud work plan and the updated Whistleblowing Policy, and noted that counter fraud activity continues to play an important role in protecting public funds and supporting the Council’s control environment.

Financial Statements

The Committee received the Statement of Final Accounts (SOFA) for 2024/25, which set out the Council’s financial position for the year and incorporated the accounts of the North Yorkshire Pension Fund. Members noted the work undertaken to finalise the accounts, including amendments arising from the external audit process and additional work relating to the harbour accounts following the Whitby Harbour court judgement. It was reported that, while significant adjustments had been made to harbour reserves based on available evidence, appropriate assurance had been applied to ensure the accounts present a true and fair view of the Council’s financial position.

Members also noted the national context of local audit backstop arrangements and the likely issue of a disclaimed audit opinion due to audit timing constraints, rather than concerns over the Council’s financial position. The Committee further authorised the signing of the Letters of Representation provided to the external auditor as part of the audit process and approved the SOFA, subject to no further material changes arising from the audit. At its March 2026 meeting, the Committee subsequently noted that the accounts had been finalised with no material amendments, signed by the Chair and Corporate Director – Resources under the delegated authority, and published on 24 February 2026 in line with statutory deadlines, together with the signed Statement of Responsibilities.

Risk Management

Over the period, the Committee received annual reviews of the effectiveness of governance arrangements and Directorate Risk Registers for the Health and Adult Services, Community Development, and Resources and Central Services directorates.

Across all three directorates, it was confirmed that governance arrangements are operating effectively and are aligned with the Council’s Local Code of Corporate Governance. The Committee was advised that no significant governance failures had been identified during the year and that robust frameworks are in place to support risk management, performance, and financial oversight.

In Health and Adult Services, key risks include ongoing financial pressures, stability of the care market, management of waiting lists, workforce recruitment and retention, and partnership working with the NHS. These are subject to regular monitoring and mitigation through established governance structures. The Committee also acknowledged the positive outcome of the Care Quality Commission review and recognised the Directorate’s effective management of ongoing service pressures.

In the Community Development directorate, the Committee noted progress in consolidating services following Local Government Reorganisation and the continued delivery of a wide range of complex functions. Key risks include compliance with housing regulation, delivery of the Local Plan, management of the capital programme, financial pressures, and delivery of major regeneration schemes.

For Resources and Central Services, the directorate’s central role in maintaining the Council’s overall governance framework was highlighted. Key risks included information governance and cyber security, customer service delivery, and the delivery of the Council’s transformation portfolio, reflecting ongoing external threats, increasing demand, and organisational change.

The Committee also received the annual Risk Management progress report, which provided an overview of risk management activity across the Council and the development of the Corporate Risk Register. Members noted how directorate and service level risks are reviewed and escalated to form the Corporate Risk Register, ensuring a consistent and aligned approach to risk management across the organisation. The report highlighted key changes to the Council’s risk profile during the year, including the addition of a new risk relating to the children’s care market and improvements in areas such as climate change and the SEND high needs budget. The Committee also noted the positive outcome of the 2025 internal audit of risk management, which provided substantial assurance, and the introduction of risk management training within the Member induction programme to strengthen understanding across the Council.

The Committee received the Business Continuity annual report, which outlined the Council’s statutory responsibilities and provided an overview of progress in strengthening business continuity arrangements. Members were advised that compliance levels continue to improve, with high completion rates for Business Impact Analyses and ongoing work to finalise Incident Management Plans across all services. The report highlighted activity to strengthen assurance over business continuity arrangements within key delivery partners, as well as work to better define critical activities, dependencies and recovery priorities. The Committee also noted the programme of training and exercising, including cyber incident scenarios designed to test organisational resilience. A summary of incidents during the year demonstrated the range of events requiring business continuity responses. Members emphasised the importance of preparedness for cyber-related scenarios, including potential ransom situations, and officers confirmed that this would be considered as part of ongoing work.

As well as the above reports, the Committee also had a training session on data governance, information management and cyber security. The session provided an overview of the Council’s approach to managing information risk, including the roles of data governance, information security and cyber operations, and highlighted the importance of technology resilience, assurance and compliance. Members were also briefed on real-world cyber incidents, the Council’s governance arrangements, and the role of the Audit Committee in providing oversight and assurance on these risks within the wider corporate governance and risk management framework.

Corporate Governance

Corporate governance encompasses the framework of systems, controls and processes by which the Council is directed and managed, and the Audit Committee is responsible for providing oversight and assurance on their effectiveness.

Over the period, the Committee received an update on the Procurement and Contract Management Service, highlighting its role in managing c.£800m of annual third-party spend. The report outlined key achievements including delivery of procurement-led savings of £11.6m since April 2023, strengthened contract management, and improved visibility of procurement activity. Members were advised that financial pressures and market conditions continue to limit opportunities for direct savings, increasing the focus on contract management and efficiency. It was reported that the service is progressing work to support SMEs and VCSEs, enhance social value, and implement the Procurement Act 2023.

The Committee received a report seeking approval of the final accounts of the Charter Trustees for Harrogate and Scarborough for the 2024/25 financial year. At its December meeting, the Committee reviewed the accounts, however subsequent advice confirmed that the new Town Councils should be the bodies formally signing off the accounts. As a result, the accounts had been removed from the North Yorkshire Council website, and the Town Councils had been informed of the revised position.

The Committee received a mid-year update on progress in addressing the significant governance and business challenges identified in the 2024/25 Annual Governance Statement. The report provided assurance that actions are being implemented to strengthen the Council’s governance framework, and updates were provided across four key areas: information governance and security, transformation and savings delivery, capital project management, and data and systems. Members sought assurance on progress in delivering transformation and savings, with officers reporting that good progress had been made, particularly in comparison with other authorities following Local Government Reorganisation.

The Committee considered a report reviewing its Terms of Reference and overall effectiveness, in line with best practice guidance and governance requirements. Minor amendments to the Terms of Reference were agreed, with Members noting that these ensure the Committee remains aligned with current expectations and continues to operate effectively. It was also noted that a recent self-assessment had been undertaken earlier in the year, with no significant issues identified. Members agreed that no further review was necessary at this time.

The Committee received the Annual Partnership Governance Report, which provided an overview of the Council’s partnership arrangements and assurance that appropriate governance arrangements are in place. The report focused on the Council’s most significant partnerships, where it has a material strategic, statutory or financial role. Members were advised that no partnerships were assessed as high or very high risk and no governance failures were identified during the year. Ongoing monitoring arrangements were outlined, including directorate-led oversight and the use of governance risk assessments to ensure partnerships remain aligned with Council priorities and deliver value for money. The Committee raised queries regarding performance monitoring and the overall number and effectiveness of partnerships and officers confirmed that arrangements continue to be kept under review.

Financial Management

The Committee considered a report on accounting policies for 2025/26, which outlined changes arising from the updated Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice and their implications for the Council’s Statement of Final Accounts. Members noted that the principal change related to the requirement to apply annual indexation to property categories not subject to full revaluation, reflecting developments in valuation methodology, although it was reported that the impact on the Council would be minimal as this approach was already broadly followed in practice. The Committee also noted potential future changes to accounting policies from 2026/27 onwards, including proposals relating to financial reporting and pension fund accounting, as well as the timetable for preparation, audit and approval of the 2025/26 Statement of Accounts.

The Committee also reviewed the Treasury Management and Capital Strategies for 2026/27, providing an opportunity to scrutinise the Council’s approach to managing its borrowing, investments and capital programme following approval through the budget‑setting process. The strategies set out how the Council ensures that its capital expenditure is prudent, affordable and sustainable, and how treasury management activities prioritise security and liquidity ahead of return. Members noted that the Council is currently maintaining an under‑borrowed position, using internal resources such as cash balances and reserves to finance capital expenditure, with no new external borrowing undertaken during the year. While prudential borrowing remains available, officers confirmed there are no immediate plans to increase borrowing due to associated revenue costs. The Committee also recognised the challenges of longer‑term financial forecasting in the context of wider economic uncertainty, noting the importance of maintaining a flexible and forward‑looking approach to managing financial risk and investment decisions.

Other

The Committee received several public questions and statements during the year, primarily relating to the Council’s Statement of Accounts and historic decisions. Questions on the Statement of Accounts focused in particular on the treatment of harbour finances following the High Court judgement, including whether associated adjustments were considered material, the classification and calculation of harbour reserves, and whether separate statutory accounts should be prepared for harbour operations. Responses from officers confirmed the Council’s position on materiality, accounting treatment and compliance with statutory requirements.

Additional questions and a public statement raised broader concerns regarding historic commercial decisions taken by the former Scarborough Borough Council, including the Scarborough Waterpark project and other property and investment decisions. In response, officers emphasised that these matters pre-dated the creation of North Yorkshire Council and highlighted that lessons learned from the Waterpark review were considered sufficient to inform future decision making, with no further investigation proposed.

During the period, the Committee continued to benefit from the attendance and participation of its independent co-opted members, Vicky Buckley, David Marsh and David Portlock. I would like to extend my thanks to them for their contribution to the work of the Committee and their diligence, enthusiasm and support during the period.

The Committee remains satisfied that its Terms of Reference are appropriate and no changes are required at this time.

Councillor Cliff Lunn

Chair of the Audit Committee

ANNEX 1

Terms of Reference

1. In respect of Internal Audit

· to ensure that the Council’sarrangements for InternalAudit comply with the CIPFA Code of Practice for the Governance of Internal Audit

· to approve the Internal AuditCharter, Annual AuditPlan and performance criteria for the Internal Audit Service.

· to review summaryfindings and the main issues arising from internal auditreports and seek assurance that management action has been taken where necessary.

· to review the effectiveness of the anti-fraud and corruption arrangements throughout the Council.

· to meet in private with the Head of Internal Audit at least annually and to enquire about any restrictions on internal audit’sscope, access, authorityor resources that may limit its ability to carry out its responsibilities effectively

· consider the annual report from the Head of InternalAudit.

· to obtain assurancethat the work of internal audit conforms to the GlobalInternal Audit Standards (UK Public Sector).

2. In respectof External Audit

· to ensure the independence of ExternalAudit is maintained.

· to review the annual audit plan and monitor its delivery.

3. To review,and recommend to the Executive, changes to Procurement and Contract, Finance and Property Procedure Rules.

4. In respect of financial statements

For both the Counciland the North Yorkshire Pension Fund

· to approvethe respective annual Statements of Final Accounts.

· to receive and review the Annual AuditLetters and associated documents issued by the External Auditor.

· to review changes in accounting policy.

5. In respectof Corporate Governance

· to assessthe effectiveness of the Council’sCorporate Governance arrangements.

· to review progresson the implementation of Corporate Governance arrangements throughout the Council.

· to approve AnnualGovernance Statements for both the Council and the North Yorkshire Pension Fund.

· to liaise, as necessary, with the Standards and Governance Committee on any matter(s) relating to the Codes of Conduct for both Members and Officers.

· to work with the Standards and Governance Committee to promotegood ethical standards within the Council.

· to review the arrangements in place for ensuring good governance in the Council’s key partnerships and owned companies.

[1] CIPFA – Audit Committees: Practical Guidance for Local Authorities and Police (2022 edition)