“Carillion’s ‘relationship with auditors too comfortable’ “

“Ninety-three per cent of construction industry suppliers think the relationship between the ill-fated firm and its auditors, KPMG, was “too cosy”, according to a poll of construction industry leaders.

A further 57% of respondents believed that reforming the ‘big four’ audit firms – PwC, KPMG, EY and Deloitte – is a necessary step.

The poll, which surveyed more than 50 senior managers across the construction sector, found that 76% believed the Financial Reporting Council was too timid in its challenging of questionable financial information.

Mark Robinson, chief executive of Scape Group, which carried out the poll, said: “We need to be able to have faith in company accounts and the work auditors are carrying out, especially when public sector contracts and people’s livelihoods are at risk.

“Greater oversight and closer management of auditing practices [is needed] in the search to rebuild trust in the industry, but we also need to make sure we are putting in place sensible reforms that do not put increased cost pressures on an industry that is already contending with the cost of materials and reduced access to labour.”

The report from Scape Group also found that 64% of respondents thought that Carillion’s downfall was owing to debt mismanagement, acquisitions and long payment terms, created by a focus on revenue rather than profit.

The Competition & Markets Authority recently suggested that the ‘big four’ separate their audit work from the rest of their consultancy work. This move, CIPFA said, could have implications for local government.

KPMG and the FRC have been contacted for comment.”

https://www.publicfinance.co.uk/news/2019/05/carillions-relationship-auditors-too-comfortable

EDDC external auditors rapped on knuckles – again!

The suggestion when you move home is to change the locks. This lock can’t be changed so maybe an independent locksmith should examine the locks …

“KPMG has been fined £5m and “severely reprimanded” by the financial regulator for a series of failings in its audit of the Co-operative Bank at the height of the financial crisis a decade ago.

Andrew Walker, a partner at the big four accountancy firm who still works there, was fined £125,000 and also severely reprimanded. The Financial Reporting Council (FRC) issued both fines for misconduct that occurred shortly after the Co-op Bank’s disastrous takeover of the Britannia building society in 2009, which ultimately led to the discovery in 2013 of a £1.5bn black hole in the bank’s accounts.

In the second penalty imposed on KPMG in just over a week, it will only pay £4m of the fine as it did not fight the penalty, as well as £500,000 for the FRC’s legal costs. Walker’s fine has been reduced, to £100,000 in the settlement.

The Co-op Bank’s acquisition of Britannia and its risky loan book a decade ago brought the Co-op Bank close to collapse. It ended its 40-year auditing relationship with KPMG in 2014 and appointed EY – another big four firm along with PwC and Deloitte.

KPMG and Walker both admitted that their conduct “fell significantly short” of auditing standards in two areas – valuations of commercial loans acquired from Britannia and the audit of valuations and liabilities under a series of loan notes purchased from Britannia.

The FRC said KPMG and Walker did not obtain enough audit evidence, failed to show “sufficient professional scepticism” and failed to tell Co-op Bank that the disclosure of the expected lives of the loan notes was not adequate.

KPMG said: “We regret that some of our audit work around specific elements of the bank’s fair value adjustments did not meet the appropriate standards. The work in question was conducted almost a decade ago and we have significantly enhanced our procedures and training around the areas in question since then.”

Barry Tootell, the former chief financial officer and chief executive of the Co-op Bank, admitted misconduct in 2016 and was excluded from membership of the Institute of Chartered Accountants in England and Wales for six years. He agreed to pay £20,000 for the FRC’s investigation.

Last week KPMG received a £6m fine and a severe reprimand from the FRC for its audit of an insurance firm, Equity Syndicate Management, more than a decade ago. KPMG’s audits of firms and institutions this year and in 2020 and 2021 will be subject to to an additional review by its internal audit quality team, who will report back to the FRC.”

https://www.theguardian.com/business/2019/may/08/kpmg-severely-reprimanded-for-audit-failings-at-co-op-bank?

Auditor KPMG [EDDC’s Auditors] fined £6m for a botched audit

“Tainted beancounter KPMG has been fined £6million for a botched audit of a car and motorbike insurer.

It failed to spot serious problems at Equity Red Star and should not have given it a clean bill of health, regulators said.

Equity Red Star, part of a conglomerate which insures one in four British motorcycles, lost £194million in 2010 after failing to set aside enough cash to cover payouts for claims.

KPMG should have spotted the problems and raised the alarm, the Financial Reporting Council (FRC) said.

The auditor’s partner Mark Taylor and former partner Anthony Hulse have been fined £100,000 each for their involvement.

And Douglas Morgan, a former director of Equity Red Star, has been banned from the accounting industry for two years.

Although the fines sound large they are dwarfed by KPMG’s UK revenues, which stood at £2.3billion in the last financial year.

Partners earned an average of £601,000 each.

It has been claimed that the penalties for bad behaviour are not big enough to make a difference to how the companies behave.

The FRC is being scrapped and replaced with a new authority following a damning review which found that it was failing to hold auditors to account properly.”

https://www.thisismoney.co.uk/money/markets/article-6977471/Auditor-KPMG-fined-6m-botched-audit-car-motorbike-insurer-Equity-Red-Star.html?ito=rss-flipboard

Major companies could escape “double check” audit

Owl has just one question – why?

“Britain’s competition watchdog is drawing up plans to exclude some major companies from a controversial new rule that would require many businesses to appoint joint auditors.

Sky News has learnt that the Competition and Markets Authority (CMA) has been weighing whether to offer an exemption as part of its heavily scrutinised inquiry into the audit market.

The CMA is expected to publish its final report this week, but has been stung by a backlash from corporate Britain to proposals outlined in December that would force FTSE-100 companies to employ two audit firms.

Sources close to the regulator’s probe say it has floated the idea of offering a “carve-out” from the joint audit rule for “the biggest, most complex companies”.

That could apply to banks such as HSBC Holdings and oil companies including BP and Royal Dutch Shell.

One insider said a crude market capitalisation threshold could apply, with companies worth more than a certain threshold allowed to continue with a single auditor.

The workability of this idea was dismissed by corporate chiefs, however, given the potential impact on companies crossing such a threshold in either direction or on multiple occasions.

It was unclear this weekend whether the exemption would be included in the CMA’s final report, although one source close to the government said the watchdog had appeared to be determined to press ahead with it several weeks ago.

The CMA is also expected to push for a more robust separation of the big four’s audit and non-audit practices than it floated in its preliminary report four months ago.

Its inquiry was launched at the behest of the Department for Business, Energy and Industrial Strategy (BEIS) in the wake of anger about the role of auditors in major corporate scandals at BHS and Carillion.

Accountants have also faced probes into their work on the books of companies such as BT Group, the Co-operative Bank, Ted Baker and Patisserie Holdings. …

https://news.sky.com/story/watchdog-may-exempt-biggest-firms-from-joint-audit-rule-11693962

EDDC external auditors being investigated for their work with failed EDDC HQ builder

“Britain’s audit watchdog said on Thursday it was investigating the audits by Grant Thornton UK of some financial statements of Interserve, the outsourcer that was taken over by lenders last month.

Scrutiny of Britain’s “Big Four” accounting firms has been spurred in the past year by a handful of investigations into listed company’s financial reporting as well as the collapse of Carillion and Poundworld, which led to an inquest in auditing industry standards.

One of the British government’s biggest contractors, and a peer of collapsed infrastructure and outsourcing group Carillion, Interserve was placed in administration in mid-March after shareholders rejected a rescue plan to deal with its debts.

The Financial Reporting Council said it was probing the audit of the company’s financial statements for 2015, 2016 and 2017.

Grant Thornton UK did not immediately respond to a request for comment outside of work hours.

The FRC is already investigating the accounting firm’s audit of cafe chain owner Patisserie’s financial statements for 2015-2017 after the discovery of a black hole in its finances led to the breakup and sale of the group.

The run of bad news has led to calls by lawmakers for the breakup of Britain’s “Big Four” accounting firms Ernst and Young, KPMG, Deloitte and PricewaterhouseCoopers.”

https://uk.reuters.com/article/uk-britain-interserve-investigation/uk-watchdog-investigating-grant-thornton-interserve-audit-idUKKCN1RN0IN

Auditors should not be consultants [ *particularly to the council they audit!]

* after the big disgraced Tory councillor Graham Brown debacle, EDDC’s internal auditors (South West Audit Partnership) were given a consultancy contract to investigate his influence on planning decisions while running his own planning consultancy in East Devon. The report was wishy-washy to say the least, as reported by EDW here:

https://eastdevonwatch.org/2013/11/11/council-anti-corruption-report-slated-by-campaigners/

“Audit firms should be banned from carrying out consultancy services, according to a report of MPs.

The Business, Energy and Industrial Strategy Committee this week released a report into the future of audit, launched after recent accounting scandals at firms including Carillion and Patisserie Valerie.

Among a raft of conclusions, it said that audit firms currently face conflict of interests if they also carry out advisory services, leading to lower quality auditing.

Committee chair Rachel Reeves said: “For the big firms, audits seem too often to be the route to milking the cash-cow of consultancy business.

“The client relationship, and the conflicts of interest which abound, undermine the professional scepticism needed to deliver reliable, high-quality audits.

“Splitting audit from non-audit business would be a big step to boosting the culture of challenge needed to deliver high-quality audits.”

The report said that non-audit profits currently subsidise the pay of audit partners within firms.

“We do not think that this is a healthy state of affairs,” it said.

“Audit partners must not be or feel indebted to non-audit partners.

“That frame of mind can only lead to audit partners being mindful of the interests of the non-audit practice, when we expect them to serve the interests of the firm, its shareholders and the wider public.”

http://www.room151.co.uk/treasury/council-auditors-should-not-be-allowed-to-provide-advisory-services/

“Local bodies poor at securing value for money, says Public Accounts Committee “

“An increasing number of local public bodies are demonstrating “significant weaknesses” in securing value for money, MPs have warned.

Auditors found more than 20% of local authorities, NHS bodies and police and fire authorities in England did not have proper arrangements in place to achieve value for money in 2017-18, the Public Accounts Committee has said.

Central government’s measures to stop this were “limited”, the watchdog added.

NHS bodies, like Clinical Commissioning Groups and hospital trusts, were found to be the worst public bodies for assuring taxpayers’ money is spent effectively, according to the PAC report out today.

Qualified audit opinions – which signify weaknesses in an organisations accounts – were issued to 38% of NHS bodies in the last financial year, compared to 29% in 2015-16, it said.

In 2015-16 18% of non-NHS local bodies were given a qualified audit opinion, compared to 22% in 2017-18.

There were 495 local authorities, local police and local fire bodies subject to external audit, with responsibility for £54bn of net revenue spending in 2017-18. Another 442 local NHS bodies received funding from the Department of Health and Social Care of approximately £100bn.

Only 5% of local bodies had implemented changes to address weaknesses highlighted by auditors last year, according to information obtained by the National Audit Office.

The PAC noted that some bodies were failing to put enough information in the public domain, including reports from external auditors and suggested that central government should “make clear their expectations” for information that should be made public helping citizens hold bodies to account.

“Local bodies should also be taking auditors’ concerns seriously and addressing them promptly, but there appear to be few consequences for those who do not,” the report said.

The committee said that central departments were not doing enough to make sure that local bodies take “prompt corrective action”.

Meg Hillier, chair of the PAC, said: “Taxpayers must be assured that their money is well-spent but in too many cases local bodies cannot properly safeguard value.

“Particularly concerning are NHS bodies such as CCGs and hospital trusts: last year almost two in five did not have adequate arrangements.

“It is vital that local bodies take auditors’ concerns seriously, address them swiftly and ensure meaningful information on performance is made accessible to the public.”

DHSC and the Ministry of Housing, Communities and Local Government have been contacted for comment.”

https://www.publicfinance.co.uk/news/2019/03/local-bodies-poor-securing-value-money-says-pac

“Spending watchdog consults on new Code of Audit Practice for local auditors”

“The National Audit Office has launched a consultation on the development of a new Code of Audit Practice, which sets out what local auditors of relevant local public bodies are required to do to fulfil their statutory responsibilities under the Local Audit and Accountability Act 2014.

The 2014 Act requires that the Code be reviewed, and revisions considered at least every five years. The NAO said the current Code came into force on 1 April 2015, and its maximum five-year lifespan means it now needs to be reviewed and a new Code laid in Parliament in time for it to come in to force no later than 1 April 2020. …

The consultation document which can be viewed here:

Click to access Local-audit-in-England-Code-of-Audit-Practice-Consultation.pdf

supports Stage 1 of the process. …”

https://www.localgovernmentlawyer.co.uk/governance/396-governance-news/40054-spending-watchdog-consults-on-new-code-of-audit-practice-for-local-auditors

Retiring National Audit Office Chief: ministers with no qualifications and “inappropriate bravado when it comes to spending taxpayers’ money”

“The relationship between ministers, accounting officers and civil servants is currently not working, the outgoing auditor general of UK’s spending watchdog has said in his last speech in the role.

Some ministers “see themselves more or less as chief executive officers but without the qualifications”, National Audit Office head Amyas Morse told an event on accountability at the Institute for Government think-tank’s offices this morning.

The comptroller said this meant ministers sometimes made decisions prioritising a project “close to their hearts” – when they should be held accountable but are not – which “has led to the abandonment of good practice”, he said.

The problem rests with the “interaction between ministers, accounting officers and civil servants,” Morse said. “That really needs to be addressed. I don’t think the relationship is where it ought to be at the moment.”

He said he did not see ministers having a say in the appointment of accounting officers as producing a “healthy result”.

Accounting officers can only ensure value for money for the public purse “if they are in a position where they are sufficiently influential to assert the importance of public value”, he added, suggesting they currently do not have this influence.

Morse said the civil service had become much more professional over the past few years, partly through initiatives like the Infrastructure and Projects Authority. The authority is a centre of expertise for delivering infrastructure and major projects.

But he added civil servants, who he noted often feel they need to defend ministerial decisions, required “greater clarity” on how they were was supposed to work alongside those decisions.

Morse talked of the importance of transparency in public life and the “outbreak of secrecy” in government over Brexit.

This secrecy had “slowed down the ability of the civil service to react and may have helped create an element of distrust more widely in parliament,” Morse said.

He suggested there was currently “inappropriate bravado when it comes to spending taxpayers’ money”. He highlighted Crossrail and the probation service’s contracting as examples of where government had recently overspent. “I didn’t have to go far into my in-tray to find those,” he said.

Morse will hand over the reins as auditor general and comptroller to CIPFA fellow Gareth Davies on 1 June.”

https://www.publicfinance.co.uk/news/2019/03/outgoing-nao-chief-questions-ministerial-accountability-over-public-spending1

New audit watchdog will watch audit watchdogs!

Owl says: Alas, it seems the smaller audit companies will remain unaudited!

“The accounting watchdog will be shut down and replaced by a stronger regulator after a government-backed review deemed it a “hangover from a different era”.

Greg Clark, 51, the business secretary, said the government would move ahead with the recommendations of a review of the Financial Reporting Council last year by Sir John Kingman, 49, the chairman of Legal & General.

Sir John said it was “seriously inappropriate” that the FRC, formed in 1990, was funded by a voluntary industry levy and criticised it for hiring executives from the alumni networks of the Big Four firms. Consultation on its 48 recommendations will run until June.

The FRC will be dismantled as part of an effort to restore trust in the audit market after a string of accounting scandals and the failure of large businesses such as Carillion, the outsourcer, and BHS, the department stores chain.

It will be replaced by a new, more powerful watchdog called the Audit, Reporting and Governance Authority that will be accountable to parliament. Arga will be able to issue harsher penalties against companies and auditors after corporate failures and will be able to intervene directly in company accounts. It will be run by a new board, recruitment of which will begin immediately.

Arga will regulate the large firms of Deloitte, PWC, EY and KPMG, as well as supervising their audit work. It will have new powers to force companies and their directors to explain why a company failed and to publish reports on their conduct.

“The new body will build on our status as a great place to do business and will form an important part of strengthened public trust in businesses and the regulations that govern them,” Mr Clark said. He commissioned the Kingman review after the FRC was accused of being too close to the largest firms, too slow to investigate allegations of misconduct and not tough enough in punishing audit failings. …”

Source: Times (pay wall)

” ‘Major shake-up of public audit needed’ “

“A “radical overhaul” of public service audit is needed to give the public confidence over how its money is spent, according to recommendations from a think-tank.

Increasing financial pressures and people’s dissatisfaction with public services means now is the time for a shake-up of audit for central and local government, the authors of a report for the Smith Institute said.

Tax is likely to increase in the future as a result of demographic pressure on areas such as health and social care, and these can only be justified if the public is “confident” its money is being well spent, authors John Tizard and David Walker told the report launch yesterday.

“Fiscal pressure is likely to rise in the short run, depending on the nature of Brexit. It will certainly grow in the long run, as public spending accommodates demographic change: an older population will demand more health and social care and other services,” Spending fairly, spending well said.

It called for the creation of two new government bodies and more responsibilities given to the National Audit Office to improve public audit.

The NAO would take over audit responsibilities for the NHS and local government, the report suggested.

Authors audit commentator Tizard and David Walker, former head of communications at the Audit Commission, urged for the creation of a Public Interest Appraisal Unit, which would evaluate value for money before spending decisions are made. The NAO assesses government spending decisions after they have been made.

They also said the government should set up an Office of the three Es – equity, efficiency and effectiveness. This body would be responsible for looking at which groups benefit and which groups lose out on certain spending decisions. …”

https://www.publicfinance.co.uk/news/2019/02/major-shake-public-audit-needed

Local authorities – cut, cut, bleed dry

Huffington Post has done a long article on the effect of austerity on six councils all over the country – Labour and Conservative.

It ends with this summary:

“The Facts And Figures

Cuts to local authority budgets began in 2010 under the coalition Conservative and Liberal Democrat government, as part of the wider reform agenda to reduce the deficit following the financial crisis of 2008.

But almost a decade on the Local Government Association (LGA) says more and more councils are struggling to balance their books, facing overspends and having to make in-year budget cuts.

Some of the basic facts and figures highlighted by the LGA are;

– Between 2010 and 2020 councils will have lost almost 60p out of every £1 the government provides for services.

– Main government grant funding for local services will be cut by a further £1.3billion (or 36%) in 2019/20.

– It is estimated councils would need an additional £8billion more than they are expected to have in 2024/2025 to deliver the same services as today.

Against this financial backdrop, the LGA says there is an ongoing surge in demand for council services.

Town halls are being asked to take on larger caseloads providing statutory services in adult and children’s services, and housing homeless families.

All of this leaves less money for day-to-day services such as running libraries or filling potholes.

The size of local government staffing has also shrunk significantly over the last 20 years by 629,000 (or 23% of the directly employed council workforce), while central government staffing has increased by 31%.

The LGA has called on the chancellor to tackle this “funding crisis” and says it is working hard to try and bring money back into local government.

Cllr Richard Watts, chair of the LGA’s resources board, said: “Losing a further £1.3billion of central government funding at this time is going to tip many councils over the edge.

“Many local authorities will reach the point where they only have the funds to provide statutory responsibilities and it will be our local communities and economies who will suffer the consequences.

“In his Spring Statement last March, the Chancellor said he would invest in public services if public finances improve as recent forecasts have suggested. It is therefore vital that the government addresses the growing funding gaps facing councils in 2019/20 in the Autumn Budget.”

https://www.huffingtonpost.co.uk/entry/council-leaders-spending-budgets_uk_5c503229e4b0f43e410acaa1?guccounter=1

Bankrupt Tory council gets special treatment and audit bill balloons

Owl wonders how it would have been treated if it had not been a Tory council …

Its audit bill has ballooned:

“In its final audit report released this week, auditor KPMG said delays have been caused by the slow and patchy provision of information by the council and departures of key staff at the authority.

The extra work caused by the delays would more than quadruple its original fee of £71,250, it said.

The report said: “We stated during the audit committee on 26 November 2018 that this had now risen, at that date, to approximately £300,000 in total (i.e. including original scale fee).”

http://www.room151.co.uk/funding/delays-cause-northampton-audit-bill-to-balloon/

and

It is being allowed to raise an extra 2% on council tax without the (legal) need to hold a referendum:

“The council had already proposed raising council tax by 2.99%, the maximum amount it could do before holding a local vote.

The final settlement stated: “For 2019-20, the relevant basic amount of council tax of Northamptonshire County Council is excessive if the authority’s relevant basic amount of council tax for 2019-20 is 5% or more than 5% greater than its relevant basic amount of council tax for 2018-19”. …

When classified as “excessive”, a local authority must hold a referendum on its proposed tax hike.

In November, in a bending of the rules by the government, Northamptonshire was given permission to use £70m of capital receipts to help balance its budget.

The final statement otherwise largely confirmed what was contained in the earlier provisional settlement in December, with core spending power rising by 2.8% in cash terms from £45.1bn in 2018-19 to £46.4bn in 2019-20.

In real terms this is almost a freeze.”

http://www.room151.co.uk/funding/northamptonshire-thrown-a-lifeline-again/

Auditors: what are they FOR?

EDDC’s auditors say they aren’t there to detect fraud:

“The former auditor of the collapsed cake chain Patisserie Valerie has argued that it is not the role of accountants to uncover fraud.

Grant Thornton is under investigation for its audits of the chain that collapsed into administration earlier this month following the discovery of a £40m black hole in its accounts. Patisserie Valerie’s former finance director has been arrested on suspicion of fraud.

David Dunckley, chief executive of Grant Thornton, which was replaced by RSM as the chain’s auditor in mid-January, told MPs on the business, energy and industrial strategy committee that there was an “expectation gap” that “needs to be fixed”.

“We’re not looking for fraud, we’re not looking at the future, we’re not giving a statement that the accounts are correct,” he said, adding that his firm audits 7,000 companies. “We are saying [the accounts are] reasonable, we are looking in the past and we are not set up to look for fraud.”

In a heated exchange with Rachel Reeves, the Labour MP and committee chair, Dunckley reiterated: “If people are colluding and there is a sophisticated fraud that may not be caught by normal audit procedures.”

He said in an ideal world it would be spotted. Reeves replied: “But in a shop that sells tea and cakes, you’d sort of think that might be spotted. It’s not a multinational complex organisation. …”

https://www.theguardian.com/business/2019/jan/30/ex-patisserie-valerie-auditor-says-not-his-role-to-uncover

and it seems, even when they DO detect major fraud, they don’t seem to feel obliged to do anything about it:

“Deloitte has been fined 2.2m ringgitt (£415,000) by Malaysian regulators for failures in its audit of a firm linked to the scandal-ridden state fund, 1MDB.

The Securities Commission Malaysia said Deloitte was reprimanded because it failed to report the irregularities detected in the Sukuk Murabahah Programme, an Islamic bond issued by Bandar Malaysia Sdn Bhd (BMSB).

Deloitte was the statutory auditor for BMSB and its holding company 1Malaysia Development Berhad Real Estate (a subsidiary of state fund 1MDB) for the financial years ending March 2015 and 2016 when the bonds were issued.

The securities regulator said Deloitte’s failure to immediately report irregularities may have a material effect on the ability of BMSB to fulfil its obligations in repaying sukuk holders any amount under the programme.

Imposing a fine of 2.2m ringgit , the regulator said it “finds the breaches committed by Deloitte serious in nature as it has failed to discharge its statutory obligations”.

https://www.theguardian.com/business/2019/jan/30/deloitte-fined-by-malaysia-over-breach-linked-to-1mdb

Auditers warned about council manipulation of funds for commercial ventures

“Auditors have been encouraged to scrutinise council accounts to ensure that balance sheets are not being manipulated in order to justify commercial ventures.

The National Audit Office has released a new guidance note for local government auditors, covering a range of issues thrown up by recent changes in regulation and council practice.

The section on commercialisation has been produced in response to the growth in council commercial activity as a means of dealing with substantial funding reductions, the note said.

“Auditors should be mindful of any incentives to achieve a particular balance sheet position that arise from an authority’s commercial activities when planning their audit work,” the note said.

The note also brought auditors’ attention to the changing nature of investment activity, primarily in commercial property, carried out through asset-backed joint-venture arrangements, rather than traditional debt-backed approaches.

It said: “The scale and nature of authorities’ commercial activity brings both risks to the auditor’s value for money arrangements conclusion and the opinion on the financial statements.

“The former covers the reasonableness of decision making, including the relevant risk assessment, appropriate skills of the authority and the appropriateness of advice.”

Councils need to consider the impact of commercial ventures both on the accounts of any standalone entities, as well as the group accounts, it said.

The note also warned councils that the general power of competence, introduced in the Localism Act 2011, does not give them unlimited powers over their decisions relating to commercial ventures.

It said: “Auditors in considering their value for money arrangements conclusion will need to assure themselves that schemes have been entered into following appropriate legal and financial advice, having regard to Wednesbury principles of reasonableness.

“While the general power of competence has made it easier for authorities to undertake commercial activity, this power does not override the need for authorities to comply where there is already an existing legal duty, for example, compliance with the capital financing regulations.”

Elsewhere,the NAO note encourages auditors to ensure that councils are complying with rules allowing councils to use certain capital receipts on revenue funding.

“With pressure to find revenue funding authorities may incorrectly apply the guidance to apply capital receipts for a revenue purpose contrary to the requirements of the capital financing regulations,” the NAO said.

In March last year, auditor KPMG warned that warned that plans by Northamptonshire County Council to spend £40.9m in capital receipts on transformation projects were “not on any view achievable”.

Auditors,the NAO said, should determine whether councils have complied with the capital receipts flexibility guidance, and review the “reasonableness and realism” of councils’ assumptions.

“Auditors should be alert to the risk that authorities may misapply the flexibility to convert ineligible capital receipts to support their general fund expenditure,” it said.

The NAO note also reiterated the role of the auditor in cases where councils might decide to issue a section 114 notice.

In situations where a section 114 notice could be issued, auditors should seek discussions with the NAO and “engage with the section 151 officer regarding consequent courses of action should the section 151 officer’s actions not be successful in averting an unbalanced budget.”

Stephen Sheen, managing director of local government finance consultancy Ichabod’s Industries, said: “Auditors are required to have regard to the guidance when planning and carrying out their audits.

“This doesn’t mean that they have to agree with it, but they must have considered it in arriving at any position that they take on the relevant issues.”

http://www.room151.co.uk/funding/nao-urges-close-watch-on-commercialisation/

“Spending watchdog urges ministry to address weaknesses in local authority governance”

“The National Audit Office has sounded the alarm about local authority governance and audit for the second time in a week.

In its latest report, Local Authority Governance, the spending watchdog said the government should improve its oversight of the local governance system in the face of increasing financial pressures on councils.

It said councils’ responses to these pressures had “tested local governance arrangements”, as some had pursued large-scale transformations or potentially risky commercial investments that added complexity to governance arrangements.

But spending to support governance fell by 34% in real terms between 2010-11 and 2017-18.

The NAO said external auditors issued qualified conclusions for around 20% of unitary and county councils, and “several authorities did not take appropriate steps to address these issues”.

A NAO survey of auditors found 27% did not agree that their authority’s audit committees provided sufficient assurance about governance arrangements.

Some councils had questioned the contribution of external audit to providing assurance on their governance arrangements, with 51% of chief finance officers wanting to see changes, including a greater focus on the value for money element of the audit.

The NAO said the Ministry for Housing, Communities & Local Government (MHCLG) did not systematically collect data on governance, and so it could not assess whether issues that arose were isolated incidents or symptomatic of failings in aspects of the system.

Ministry intervention at councils was not always made public “meaning its scale and effectiveness is not open to scrutiny or challenge”, the watchdog said.

The report’s recommendations include that the MHCLG should work with local authorities and stakeholders to assess the implications of, and possible responses to, the various governance issues it had Identified.

This would include examining the status of section 151 officers and the efficacy of their statutory reporting arrangements, the effectiveness of audit committees, the effectiveness of overview and scrutiny functions, and the sustainability and future role of internal audit. …”

http://www.localgovernmentlawyer.co.uk/index.php

Many local authorities not providing value for money

“The number of public bodies in England failing to provide value for money is “unacceptably high” and increasing, the public spending watchdog has warned.

Of the nearly 1,000 councils, police, fire and NHS bodies across England, 208 (22%) were found to have “significant weaknesses” in securing value for money in 2017-18, a National Audit Office report out today revealed.

This was higher than the 170 (18%) of public bodies awarded a ‘qualified’ audit conclusion – signifying the significant weaknesses – in 2015-16.

“This increase varies between local government and NHS sectors”, the report found – with NHS bodies seemingly faring worse than other public bodies….

Financial performance issues that can lead to a qualified conclusion, include failure to meet financial targets, such as annual spending limits or delivering planned savings.

The NAO report said: “Qualified conclusions on arrangements to secure value for money locally are both unacceptably high and increasing.”

It continued: “The proportion of local public bodies whose plans for keeping spending within budget are not fit-for-purpose, or who have significant weaknesses in their governance, is too high. This is a risk to public money and undermines confidence in how well local services are managed.” …

The report also suggested that a large proportion of local bodies may not fully understand the purpose of an auditor’s conclusion on arrangements to secure value for money.

Of 61 local public bodies that responded to the NAO, 82% said auditors identified issues they were already aware of, but the NAO stressed that the auditor’s report is to provide public assurance on the adequacy of arrangements in place, not to uncover new issues.

While 95% of respondents said they had plans in place to address issues in the auditor’s report, only 5% said had already dealt with their auditor’s concerns.

Rob Whiteman, CIPFA chief executive, said: “Value for money conclusions should be treated as a cornerstone on which local bodies can show their dedication to transparency and accountability, crucial aspects of good governance in the public sector.

“Local auditors, councillors and directors should exercise their powers to hold executives to account, especially where local bodies are not taking sufficient action to address issues raised.

Meg Hillier, chair of the Public Accounts Committee, said: “It is deeply concerning that local auditors are raising increasing numbers of concerns about local bodies’ arrangements to secure value for money, but these are often not being listened to and there is no consequence for the local bodies themselves.

“With ever stretched public services, citizens deserve to know that there are effective arrangements in place to make sure they are getting value for money.

“Local auditors should be using the full range of their powers and local bodies should be acting on their findings transparently, with departments holding them to account.”

https://www.publicfinance.co.uk/news/2019/01/more-public-bodies-failing-provide-value-money-says-nao

“NHS and councils full of financial problems, says watchdog”

“National Audit Office shocked by state of bodies including police and fire authorities.

The number of NHS and local government bodies with significant financial weaknesses in their ability to give value for money is unacceptably high and increasing, according to Whitehall’s spending watchdog.

The National Audit Office has examined the financial statements from nearly 937 local health authorities, councils, police and local fire bodies which are responsible for about £154bn of net revenue spending every year.

Auditors conclude in a report published on Wednesday that the number of local bodies with significant weaknesses increased from 170 (18%) in 2015-16 to 208 (22%) in 2017-18.

It follows the publication of an International Monetary Fund report in October which found that the UK’s public finances were among the weakest in the world after the 2008 financial crash.

Sir Amyas Morse, the head of the NAO, said he was shocked by the persistent high level of qualified audit reports at local public bodies.

“A qualification is a judgment that something is seriously wrong, but despite these continued warnings, the number of bodies receiving qualifications is trending upwards,” he said.

“Let us hear no cries of: ‘Where were the auditors?’ when things go wrong. The answer will be: ‘They did the job, but you weren’t listening.’

“This is not good enough. Local bodies need to address their weaknesses, and departments across government should ensure they are challenging local bodies to demonstrate how they are responding.”

Each year, local auditors give an opinion on whether local public bodies have produced financial statements which comply with reporting requirements and are error-free, and conclude whether local public bodies have arrangements to manage their business and finances.

Wednesday’s report examined accounts from 495 local authorities, local police and local fire bodies in England; and 442 local local NHS bodies in England, which include clinical commissioning groups, NHS trusts and NHS foundation trusts.

In the NHS, the number receiving qualified accounts rose from 130 (29%) to 168 (38%) across the same period. The number of local government bodies receiving qualified conclusions was 40 (8%) in 2015-16, but 18% of single-tier local authorities and county councils received a qualification in 2017-18.

Meg Hillier, the chair of parliament’s public accounts committee, said: “It is deeply concerning that local auditors are raising increasing numbers of concerns about local bodies’ arrangements to secure value for money, but these are often not being listened to and there is no consequence for the local bodies themselves.

“With ever-stretched public services, citizens deserve to know that there are effective arrangements in place to make sure they are getting value for money.

“Local auditors should be using the full range of their powers and local bodies should be acting on their findings transparently, with departments holding them to account.”

https://www.theguardian.com/society/2019/jan/10/nhs-and-councils-full-of-financial-problems-says-watchdog

Plundering of Knowle assets by councillors? Best value?

It appears that councillors and officers have been given first dibs of Knowle assets, in advance of the move to Honiton and one of them has rather jumped the gun on claiming his prize.

Is this best value or equitable, Owl ponders? As does at least one independent councillor.

Note: Neither of these emails were marked private and/or confidential when acquired by Owl.

From a well-known Conservative councillor:

Subject: Re; Large Table In Members Area

Dear Members and SMT,

Subject: Re; Large Table In Members Area

You will all be aware there has been an auction of council furniture, chattels etc of which I bid for a few bits and pieces.

I bid on behalf of my partner for the very large table in the members area along with the 20 green chairs that we all sit around.

I have been told that I have been successful in my bid so the table along with the 8’ extension is heading back to Exmouth to sit in (address of councillor), Exmouth in its rightful Town (some may say).

The relevance of my informing yourselves is that the rightful date of removal is end of January/ beginning of February when we finally ‘pull out of the Knowle.

I would apologise for the short notice but we have 22 family members to Christmas dinner and would like to pick the table up tomorrow as it appears it is the last day of our offices being open, which of course would mean I couldn’t collect it on Monday, 24th, as we will be closed.

We do have one or two meetings between the New Year and our final pull out but I feel it only right to ask members if indeed anybody felt offended if it was collected tomorrow on our last day.

I will fully respect any position any member may feel regarding it being removed earlier and would kindly request your thoughts.

If indeed it were removed earlier I have spoken to Simon Allchurch who feels we could put a few of the red tables on wheels in the place of the table and there is an array of chairs to use for members in the interim so it doesn’t look bare.

I must again apologise for the short notice but with the closing date being the 19th and all that goes with it at this time of year I would like to think you may grant me a little latitude (or not).

Best wishes and a Happy Xmas to one and all.”

And here is the response from an Independent councillor

“I feel I must reiterate my comment from when this started. Who authorised the ‘private sale’ of Council property to staff and members? Why are we not duty-bound to seek the best price at public auction? No-one answered my questions.

Will we ever know the proceeds of this internal sale for the public record?”

I strongly suspect that members of the public would be shocked to know that councillors have been able to buy items in this way. It is somehow appropriate that 22 family members will sit down to feast at this table, assuming the removal goes ahead.”