Agenda item

Mr Scholes opened this item by stating that it was obvious that there had been a heavy involvement of lawyers in Butlers’ responses.  Mr Smyth supported Mr Scholes view, the Committee had not been told very much and paraphrasing the responses Butlers were the ‘postman’ in the process which Mr Smyth disagreed with.

Mr Gough stated that what was missing from Butlers’ document was their role in credit risk advice.

Mrs Dean asked whether the Committee would have the opportunity to hear the views of the Finance Department on Butlers’ responses, some of the points made by Butlers needed to be clarified, particularly the claim that emailing staff was the normal method of communication. 

Ms McMullan agreed to provide as many answers as possible at this stage to the Committee.

Mrs Dean queried the process used by Butlers to advise the Council that there had been a change in the credit rating agency, i.e. an email sent to an individual whom Butlers were instructed to communicate with.  Mrs Dean queried whether that was factually correct and whether that was the normal method of communication between Butlers and the County Council.  Ms McMullan confirmed that what she hadn’t been able to find the original document which clarified to whom emails should go to on that basis, the relationship with Butlers went back a number of years; Mr Vickers might be in a better position to answer that point.  The relationship with Butlers seemed to be that information was emailed to the treasury member of staff, but Mr Vickers was on the telephone to Butlers on an almost daily basis.

Mr Simmonds raised the issue of the meeting with Butlers which took place a day before the email was sent, he queried why there was such a change over 24hours, that was a key issue.

Ms McMullan confirmed that there was evidence that the quarterly meetings with Butlers included reviewing where the Council was in terms of its policy and strategy, and also on the agenda every time was those organisations on the counterparty list.  The expectation around the advice was to be told whether there were any issues around those organisations on the counterparty list, there was no debate around any Icelandic banks either at the meeting in late September or in previous meetings.

Mr Hotson asked Mr Chard where the Cabinet was in taking those issues forward, it was clear that systems were going to have to be reviewed in house, clear notes of meetings for example, were essential.  There should be Member involvement in approving, or not approving, the recommendations made by Cabinet on this issue.  Mr Chard responded by saying that he welcomed the engagement of the Council with PWC, most of the recommendations of the PWC report had been implemented and there was an Economic Management Group meeting on Thursday.  The PWC report highlighted outsourcing or skilling up in-house, there was also a third option which was to ensure that internal staff were adequately trained, with extra external advice – that option would be shared with the cross party Economic Management Group (EMG) as a way forward.  Treasury Management was a big issue for the Council and it was right that advice was taken from external sources such as the PWC report and debated it in the cross party EMG.  Mr Chard’s personal view was that internal staff should be adequately trained and extra expertise brought in to ensure that KCC could continue this low risk strategy that the Council has had up until now.

Mrs Dean, as a member of the EMG, questioned its status, the status of its recommendations and explained that it needed to be formalised with clear terms of reference and a clear agenda.  Mrs Dean also raised the issue of member training for those on the group, and she hoped that those discussions could take place on a cross party basis either before or at the next meeting.

Mr Chard stated that the EMG had been set up for the right reasons, in terms of getting a cross party consensus and debate about how to do treasury management, and to ensure that members of the group understood the risk and reward elements. The EMG had been helpful; they had made observations and comments which had been followed up.  Mr Chard’s understanding of the designation was that it was an informal member group that would make recommendations to the Leader of the Council.  Mrs Dean confirmed that she did not disagree with the setting up of the group, just that it needed to be formalised, for instance there could be clear overlaps with Audit and Governance. 

Mrs Dean asked a question in relation to the management comments on the PWC report that ‘while the report suggests a consideration of additional outsourcing of the treasury function, instead a new specialist post will be created….’  This seemed to contradict Mr Chard’s earlier comments.  Ms McMullan agreed with Mrs Dean’s comments on the EMG, and further discussion needed to be had on how it was moved forward, taking into consideration the Budget IMG (Informal Member Group) and Audit and Governance and that would form a major item on the agenda for Thursday’s meeting.  In terms of the PWC recommendations, the management response was written in December, and further research had now been undertaken on options and alternative sources of advice.  A detailed OJEC (Official Journal of the European Community) process was undertaken to procure the external specialist treasury advisers. Mrs Dean confirmed that she was pleased that the status of the EMG was to be tightened up.  Regarding the procurement of the contract it was apparent that the original specification was not carried through to the final tender.  Ms McMullan explained that she did not recall PWC questioning the Finance department on that sequence of events, and it was not her wish to answer for Mr Vickers.  Ms McMullan’s understanding was that a thorough process had been followed; working with Districts, but within the options available to councils it was a case of ‘getting what you’re given’.  In part of Butlers’ responses they were indicating that they were now able to give some additional information and that was something that the Council would look at.

Mr Smyth commented on the EMG not having any particular status, there had been a suggestion that this might be a function of the Budget IMG – if that were to be the way forward thought would have to be given to managing the business of that IMG which was expanding.  Mr Smyth wanted to assure Mrs Dean that thought was being given to the function of the EMG.

 Mr Gough stated that his understanding from Butlers’ responses was that they didn’t give credit risk assessments beyond acting as an aggregator for what was out there already.  Ms McMullan agreed with Mr Gough, and referred to the previous point of what constituted ‘advice’. 

Mr Simmonds expressed his view that the Budget IMG might form a useful basis for the EMG, it should be formalised.  He commented that it was important to correct the record that there was an effective Treasury Management function before these events.  Mr Simmonds referred to the report on Ireland from Butlers which indicates that they did do specific reports.

The Chairman reminded the Committee that Butlers were not present at the meeting to defend themselves.

Mrs Dean expressed her amazement that an authority such as KCC which is making huge investments ends up paying an organisation £20k for advice on treasury management, and subsequently the Council was being told by PWC that it was not requiring enough of the advisers, but the Council was saying that there was not an organisation that could offer the advice required.  Mrs Dean stated that many people who were in the position of advising commercial institutions about how to invest had withdrawn from Local Authority (LA) advice contracts because LAs were reluctant to pay enough for the advice.

Ms McMullan commented that while it was a small contract in cost terms a full OJEC process was undertaken to procure the contract.  There was no magicr answer, there was always going to be risk.  There was a gap in the market and there were hopes that more organisations would come into the market.  Mr Chard added that there was a wide cross section of organisations at creditor meetings.  122 Local Authorities had been caught in Iceland, including the Audit Commission, private sector and the banks. 

RESOLVED that:

(1)   The Committee thanked Butlers for the written information in response to its questions but expresses extreme disappointment that Butlers refused two opportunities to be present at the Committee meeting to respond to the further questions that members wanted to ask arising from their consideration of the written answers. 

(2)   The Committee ask the Cabinet to carry out an urgent review of the status of the Economic Management Group in terms of the Council's constitution.  In particular the Committee would ask the following issues to be addressed:

a.      whether the group should become a formal committee or sub committee of the Council and if so under which Committee it should sit.

b.      the proposed terms of reference for the body and in particular whether it is proposed that the body will have any formal decision making powers and if so within what parameters

c.      that the issue of membership of the Committee and member training be considered and acted upon

d.      that the body should not seek to duplicate the role of the Governance and Audit Committee.

(3)   That the Director of Finance be asked to confirm the revisions to the procedure in relation to the receipt of emails from Butlers.