Tower Hamlets Council continues to face persistent weaknesses in its internal controls, according to the latest findings from external auditors Ernst & Young (EY).
The Audit Committee was informed that while progress has been made in addressing issues raised by auditors, many significant weaknesses remain unchanged from the previous year. EY noted that actions taken by the council were often implemented too late in the financial year to demonstrate effectiveness for a sufficient period.
Stephen Reid, Partner at EY, highlighted that four statutory recommendations from the previous year remain outstanding. These are being addressed through a substantial work plan
as part of the Council's Value for Money Response Mobilisation Plan
. This plan consolidates findings into four workstreams and establishes sponsorship and SRO ownership, with progress reported through the One Corporate Team/Internal Assurance Board and reviewed at the Performance and Compliance Panel. The Audit Committee retains a central role in overseeing progress against these recommendations. Specific actions are detailed within the Progress Update on Action Plan Delivery in Response to External Recommendations Q2 2026/27
report, which is broken down by workstream, including Financial Management & Accountability
, Maintain a sound system of internal control and arrangements to manage risks effectively
, Contract Management and Procurement
, and Process for Conducting Internal Investigation
. While all four statutory recommendations remained open at the September 2026 reporting point, the report states that significant progress has been made
and the programme is increasingly focused on demonstrating that strengthened controls operate consistently, services take ownership and changes are embedded in everyday practice.
A new risk concerning financial sustainability has also been identified. The primary drivers behind this risk include concerns regarding the Council's medium-term financial planning and pressures
. Specifically, the Interim Value for Money Report
highlights a significant net overspend of £14.7 million was forecast in the first quarter
of 2025/26, 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. Furthermore, significant concerns about the achievability of planned reserve replenishment and the reasonableness of the financial trajectory set out in the Medium Term Financial Strategy (MTFS)
have been raised, alongside a sustained weakening of the Council's financial resilience.
The revised Minimum Revenue Provision (MRP) policy was also scrutinised, with EY concluding it did not represent a prudent approach, deferring costs to future years and increasing the burden on future budgets.
The council's medium-term financial planning and budget setting processes are under scrutiny, with significant overspends forecast early in the financial year. For instance, the 2025/26 budget saw a £14.7 million net overspend reported in the first quarter, necessitating a £5.7 million draw on reserves. The significant overspends are attributed to several factors: the Council reported a significant gross overspend of £45.7 million (net overspend of £14.7 million)
in its Q1 Budget Monitoring Report for 2025/26, primarily driven by significant overspends in Housing and Regeneration of £20.8 million and Health and Adult Social Care of £23.7 million.
Similar concerns were raised for the 2026/27 budget, with a forecast net overspend of £19.2 million by Period 2, including a net drawdown of reserves of £11.1 million. These overspends are occurring despite the Council setting balanced budgets, indicating issues with budget-setting assumptions, financial forecasting, and budgetary control arrangements.
EY also expressed significant concerns about the achievability of planned reserve replenishment and the reasonableness of the financial trajectory set out in the Medium Term Financial Strategy (MTFS). The MTFS 2026-29 assumes significant growth in the Risk Reserve over the planning period, including increases of £20 million in 2026/27, a further £20 million in 2027/28 and a further £10 million in 2028/29.
However, the report notes that by Period 2 the forecast increase in the Risk Reserve had already reduced materially.
Furthermore, the forecast reserves position presented within the Budget Monitoring Report does not incorporate the forecast net overspend of £19.2 million reported within the same document, which may increase further during the year.
Therefore, the forecast reserves trajectory is dependent upon the successful delivery of planned savings, the containment of in-year spending pressures and the achievement of planned reserve replenishment, all of which are subject to significant uncertainty.
The continued depletion of reserves reduces the council's financial resilience and limits its capacity to respond to future financial shocks.
Significant weaknesses were also identified in statutory financial reporting, risk management, contract management and procurement, the effectiveness of the internal audit function, audit committee effectiveness, and the capacity of the 'Golden Triangle' (Chief Executive, Monitoring Officer, and Section 151 Officer) to respond to the council's challenges.
Specific shortcomings identified in the effectiveness of the internal audit function include that the 2025/26 Head of Internal Audit Opinion provided Limited Assurance
, highlighting continuing weaknesses in the design and operation of key controls and concerns regarding the pace of implementation of management actions and recommendations.
There has been continued leadership transition within the function
, creating uncertainty over the sustainability of improvements.
The self-assessment against Global Internal Audit Standards concluded Generally Conforming
, but a number of improvement actions identified
including commissioning an External Quality Assessment. External auditors do not consider the self-assessment in isolation to provide sufficient evidence that the significant weakness has been addressed.
Regarding audit committee effectiveness, a significant weakness identified
in 2023/24 and 2024/25 remains in 2025/26. Improvements were not sufficiently embedded during 2025/26 to demonstrate that effective arrangements operated for a sufficient proportion of the year.
It remains too early to assess the effectiveness of the revised arrangements
following changes to membership and the appointment of an independent Chair. The external review by the LGA is scheduled for October 2026.
The capacity of the 'Golden Triangle' to respond to the scale and complexity of the challenges facing the Council
is identified as a Significant weakness
. The primary challenge stems from instability within the Section 151 Officer role
, which remains subject to interim arrangements and has been held by four different individuals, in permanent, temporary and interim capacities, within an 18-month period.
While continuity has improved in the Chief Executive and Monitoring Officer roles, the continuing reliance on interim arrangements within the Section 151 Officer role, together with wider turnover and interim appointments across senior management, continues to place pressure on the capacity, resilience and effectiveness of the statutory leadership team.
The council anticipates achieving an unqualified audit opinion by 2028/29, a timeline that EY suggests might be closer to 2029/30 given the current pace of progress.
In response, council officers acknowledged the challenges and highlighted ongoing efforts to strengthen financial controls, including investing in additional personnel and external support for the finance team. They also noted improvements in the timeliness of financial statement preparation and the development of a multi-year improvement programme for statutory financial reporting.
