Agenda item

The Sub-Committee considered a joint report of the Chief Officer and Consortium Treasurer, which reported key findings from the external audit of the 2024-25 financial statements. A copy of the report marked ‘Agenda Item 7’ is filed with these minutes.

The Chairman welcomed Mr. Tor Stringfellow, Williamson & Croft, external auditor, to the meeting.

Arising from discussion, the following points were made:

i.          In response to a Member’s query from Cllr. H. Butler regarding the absence of timescales for rebate testing recommendations, it was explained that rebate testing formed part of a continuous improvement process aimed at minimising income leakage within the rebate framework. A range of controls had been implemented, including the use of the procurement platform Tussell to monitor supplier spend, monthly revenue recognition meetings to track changes in supplier spend, and contractual provisions allowed for supplier audits in cases of unusual activity. No fixed timeline had been set, as the process was ongoing and designed to evolve.

ii.          A question arose regarding the reported £3.5 million decrease in cash. Officers clarified that this was primarily due to the funding of the warehouse extension, which had cost £6.7 million over two years and had been financed from ESPO’s internal reserves. The expenditure had impacted cash reserves, but efforts were underway to rebuild reserves for future investments in sustaining ESPOs growth and ensuring sufficient funds were available for the dividend payment scheduled for December 2025.

iii.          A Member raised concerns about the frequent use of the term “not material” in the report and asked where the line was drawn on materiality. It was explained that materiality for ESPO was calculated as 1% of turnover, which equated to approximately £1 million. Items below 5% of that materiality threshold were considered trivial and typically did not require further audit assessment or were captured as part of random sampling assessments.

iv.          A sample of £783,000 in trade debtors had been tested, revealing £46,000 in discrepancies. This was extrapolated to an estimated error of £339,730. Given ESPO’s turnover of £119 million, the extrapolated error was deemed immaterial.

v.          In response to a question, it was confirmed that Optima Energy did not perform rebate value validations. Members suggested that it might fall under the remit of Tussell, data specialists to implement.

vi.          A Member sought clarification on ESPO’s financial arrangements regarding cash flow exposure, noting that funds were collected from members and paid to Total Gas and Power for energy services. Officers confirmed that ESPO provided both framework and fully managed energy services, primarily to councils. It was explained that while customers bore the market risk, ESPO experienced seasonal cash flow pressures, particularly in winter. ESPO paid suppliers before receiving customer payments, creating a temporary gap. To manage this, ESPO had established a calculated minimum working capital requirement of £6.4 million to ensure adequate coverage.

vii.          A Member raised concerns regarding a 9% decrease in income, particularly in gas revenue. Officers confirmed the reduction was primarily due to a decline in market gas prices following the previous year's surge linked to the war in Ukraine. As gas cost prices fell, customer revenue decreased accordingly. Also highlighted was a contraction in the educational supplies market, as reported by the British Educational Suppliers Association, which further impacted catalogue revenue. However, ESPO had begun offsetting these declines by investing in growth and development areas.

viii.          A Member requested an update on the implementation of new data procedures for tracking rebates and stressed the importance of having robust systems to ensure future data integrity. Officers confirmed that the Head of Commercial was reviewing implementation timelines, noting that numerous actions had been taken over recent years to reduce framework income leakage. Although no specific dates were provided it was emphasised that it was a continuous improvement process, with leakage now significantly reduced. Transparency had improved using the Tussell platform, which helped identify an additional £130k in rebates.

The motion was moved by Cllr. Wyatt and seconded by Cllr. Bridgwood.

RESOLVED:

That the external audit of the financial statements 2024-25 be noted.