
OWL’S SUMMARY: EDDC HAS NO EFFECTIVE MONITORING OF SECTION 106 PAYMENTS DUE AND OFTEN RELIES ON DEVELOPERS TO TELL THEM WHAT THEY OWE TO THE COUNCIL. THIS IS NOT JUST A PROBLEM FOR THIS FINANCIAL YEAR BUT, ACCORDING TO EXTERNAL AUDITORS, COULD HAVE HAPPENED IN PAST YEARS TOO.
Due to the explosive nature of the report detailed below, it is hardly surprising that the Audit and Governance Committee is meeting in the afternoon on 17 November 2016 at 2 pm, while most people have to be at work. Had it been held in the evening there might well have been some seriously embarrassing problems for the committee. As it is, even the afternoon session is likely to throw up some VERY tough questions.
Only recently added to the EDDC Audit and Governance Committee agenda papers is this little nugget of a report – it is only 21 brief pages and deserves very focused reading. The report is as per the link below:
KPMG: Management of s106 contributions
and boy, what interesting reading it makes!
It seems that a local elector complained to EDDC’s external auditors – KPMG, new to the job this year – that it appeared that management of Section 106 payments (the money due from developers) was, in Owl’s lay-owl opinion, not fit for purpose – as reported in recent East Devon Watch postings:
The elector concerned alleged serious mismanagement of the listing, monitoring and collection of Section 106 money – the payments due from developers as part of their requirement to mitigate any problems that the development might cause and for the provision of green, open and play spaces within and around their developments. This was as a result of a Freedom of Information request to which EDDC responded that it did not have the information the elector required.
BEAR IN MIND THAT DETAILED BELOW ARE SUMS FOR THE LAST FINANCIAL YEAR ONLY AND THE EXTERNAL AUDITOR DID NOT EXAMINE PREVIOUS YEARS.
After a very light-touch investigation by the new auditors KPMG (which simply sampled various agreements in this financial year only rather than forensically analysing them all over a period of several years), they found:
“As at 31 March 2016 the Council had £5.8 million of s106 contributions held on its Balance Sheet. During the 2015/16 financial year it accounted for £1.9 million of s106 receipts.
We found that at the Balance Sheet date there was a gross amount of £636,000 in s106 contributions due to the Council where it had not identified that conditions had been met which triggered liability for payment from the relevant developer.
No invoices had been raised seeking payment and consequently this amount had not been included in the 2015/16 financial statements, meaning the accounts were understated.
When other audit findings are taken into account there was a net understatement of £227,000 in the Council’s financial statements. This is because our financial statements audit work had separately identified that the Council had incorrectly accounted for an amount totalling £409,000 for a different s106 agreement which actually related to another body.
Whilst we have not exercised formal audit powers in response to the objection, our work has indicated that the issues raised by the objector are correct and we have upheld the objection.”
Here are the external auditors findings FOR THIS YEAR ONLY in more detail:
Consequently, when concluding effect of these misstatements on our audit opinion, we were able view the impact at 31 March 2016 as a net understatement to the balances is £227,000. This was reflected in our reporting to the Council’s Audit & Governance Committee in September 2016.
Whilst neither the gross or net misstatement were considered individually material to the financial statements, they are nevertheless significant sums. Given the weaknesses identified in the Council’s controls, it is possible that understatements of a similar scale or even larger could be apparent at any point in time.”
