Tower Hamlets Council continues to face significant audit concerns, with external auditors Ernst & Young (EY) identifying persistent weaknesses in the council's financial sustainability, internal controls, and contract management.
An Audit Committee meeting held on Thursday, 24 September 2026, reviewed EY's interim value for money report for the year ended 31 March 2026. The report highlighted that while progress has been made in many areas, four statutory recommendations and six significant weaknesses remain outstanding.
Stephen Reid, Partner at EY, presented the findings, noting that ten significant weaknesses had been identified in the previous year, with four statutory recommendations still outstanding. A new risk concerning financial sustainability was also identified.
EY expressed significant concerns about the Council's medium-term financial planning and pressures. Despite setting a balanced budget for 2025/26, a net overspend of £14.7 million was forecast in the first quarter, necessitating a £5.7 million draw on reserves. This followed a similar pattern in 2024/25, raising concerns about the robustness of budget-setting assumptions and financial forecasting. The 2026/27 budget also showed an early forecast net overspend of £19.2 million.
The council anticipates achieving an unqualified audit opinion by 2028/29, a timeline that EY suggested might extend to 2029/30 given the current pace of progress. The meeting information projects that the Council anticipates achieving an unqualified audit opinion by 2028/29. While specific consequences for not achieving this by the projected timeline are not explicitly detailed, the ongoing lack of an unqualified audit opinion implies continued weaknesses in financial reporting and internal controls. This could lead to a lack of trust from stakeholders, potential difficulties in securing funding, and continued scrutiny from external bodies like EY and government departments, as evidenced by the ongoing Best Value intervention.
Significant weaknesses were also identified in the Council's arrangements for reliable and timely statutory financial reporting, and in its arrangements to manage risks effectively and maintain a sound system of internal control. EY noted pervasive weaknesses in the control environment, with many actions implemented late in the year or still in progress. The persistent weaknesses in the council's internal controls and control environment are attributed to improvements not being sufficiently embedded during 2025/26 to demonstrate effective arrangements operating for a sufficient proportion of the year. This is further evidenced by the 2025/26 Head of Internal Audit Opinion providing Limited Assurance, highlighting continuing weaknesses in key controls and concerns about the pace of implementing management actions and recommendations. The Council's own assessment in the 2025/26 Annual Governance Statement acknowledges a four-to-five-year improvement journey and identifies 21 areas requiring improvement, indicating the pervasive nature of the weaknesses.
The council's difficulties in reliable and timely statutory financial reporting stem from significant control deficiencies that prevented the timely provision of sufficient and appropriate audit evidence. This has led to a disclaimed audit opinion for several years. While improvements have been made, such as investing in additional personnel and external support, and publishing financial statements on time, significant challenges remain. These include an audit approach that limits the scope to prioritize the balance sheet, meaning significant areas of the financial statements are not subject to audit procedures. Additionally, draft financial statements were presented with identified issues relating to prior-year balances that required further work, and management did not undertake sufficient procedures to fully restate these balances prior to publication.
Contract management and procurement were also flagged as areas of significant weakness, with continuing issues despite progress in training and monitoring tools. Despite progress, significant weaknesses remain in contract management and procurement. Internal audit reports identified continuing weaknesses in procurement, contract management, and payment controls. Reviews of capital programmes in Housing and Regeneration and Children's Services received Limited Assurance opinions, highlighting issues in contract monitoring, budget oversight, compliance with procedures, and controls to prevent duplicate or inappropriate payments. Many key actions were implemented late in 2025/26 or remain in progress, and the planned restructuring of the Corporate Procurement Team has been paused.
Beyond the identified overspends, the specific risks associated with the council's financial sustainability include concerns about the achievability of planned reserve replenishment and the reasonableness of the financial trajectory set out in the Medium Term Financial Strategy (MTFS). There is a sustained weakening of the Council's financial resilience, a reduced reserves-to-net-revenue-spend ratio, and limited resilience to absorb further financial shocks due to the continued depletion of reserves.
The effectiveness of the internal audit function and the Audit Committee itself were also identified as significant weaknesses. For the Internal Audit function to be considered effective, the Council needs to critically assess its assurance level, commission a further independent external review with a broader scope, and strengthen leadership. For the Audit Committee to be considered effective, improvements are needed in member training to ensure a full understanding of its terms of reference and equip members with the necessary skills for scrutiny, a review of committee membership to ensure independence and relevant skills, annual reporting to Full Council, and strengthened oversight of recommendations, actively challenging officers on pace and timelines.
The Council has made progress in addressing the four statutory recommendations from EY. For Arrangements for reliable and timely statutory financial reporting,
the Council has implemented a revised Corporate Finance structure, secured additional capacity and expertise through Grant Thornton, and adopted an audit approach focusing on the balance sheet. For Sound System of Internal Control,
significant progress has been made in clearing audit recommendations, with all limited assurance recommendations from 2023/24 and 2024/25 now closed. A new Internal Audit Strategy is being developed. For Procurement & Contract Management,
the Council has updated its Procurement Strategy, strengthened the contract register, and implemented new dashboards for monitoring contract values. For Effectiveness of the Council's process for conducting internal investigations,
an external review of the Investigations Team is ongoing, and a new whistleblowing triaging, logging, and investigation procedure has been developed.
Further details can be found in the Agenda Pack for the Audit Committee meeting.