Long read but very meaty. Basically, auditors can be rogues, too. Well, fancy that!
Category Archives: Audit (EDDC)
KPMG stops providing MPs with free researchers
“KPMG has quietly abandoned a longstanding practice of making donations in kind to MPs and political parties by providing researchers to help in formulating policy and legislation.
The decision by the accounting giant, which has been criticised for its role as auditor to the collapsed construction giant Carillion, comes after figures released by the Electoral Commission in March showed that donations by the big four auditors tumbled by 91% during the 2017 election campaign compared to that of 2015. …
Donations in kind from KPMG, PricewaterhouseCoopers and Deloitte were widespread in the 15 years running up to the 2015 election, with KPMG making £198,093 worth of donations in kind in 2015, falling to £40,575in 2017.
The practice has been criticised by outsiders, who argue that it helps secure long-term political influence, although the firms say they are politically neutral. Prem Sikka, a professor of accounting at the University of Sheffield, said: “The firms don’t make donations. The money is an investment to secure desirable outcomes.”
He cited as an example the abolition of the Audit Commission under the coalition government, which allowed the big four firms into the £100m-a-year local government market for the first time from 2015.
However, such political donations have tumbled after the Labour leader, Jeremy Corbyn, decided to abandon them. Secondments have traditionally been provided to opposition parties, sometimes in considerable numbers, because they do not have the same access to the civil service as government.
… Instead, political donations by the big four firms have become increasingly concentrated on paying former ministers to speak at corporate events. George Osborne, the former chancellor who now edits the Evening Standard, reported in April 2017 that he expected to be paid £65,901 for giving a speech to PwC in Ireland; Nick Clegg, the former deputy prime minister, received £18,000 in December 2016 for giving a speech to PwC. Ken Clarke received £11,500 in fees for giving speeches to KPMG in Leeds and Manchester in May 2016 while Michael Gove collected £5,000 from PwC in December 2016 and £4,000 from Ernst & Young in May 2017, again for speeches.
The big four came under fire earlier this month as part of a highly critical report by MPs on the business and work and pensions committees on the collapse of the construction giant Carillion. Rachel Reeves, the business select chair, said they had a “parasitical relationship” with companies, getting paid even if they went under and called for the Competition and Markets Authority to look at breaking them up “to increase competition and deal with conflicts of interest”. …”
Council auditors forced to audit!
Nowhere in this report is the question asked: how come internal and external auditors failed to spot this before it was too late?
“Auditors say that the quality and transparency of financial reporting at Northamptonshire County Council has prevented effective decision making.
In its interim audit report for the 2017–18 financial year, KPMG says that finance reports to the council’s cabinet are a barrier to proper financial governance.
The report follows intense scrutiny of the council’s financial problems which led to the issuing of a section 114 notice earlier in the year followed by the appointment of commissioners by central government to run the council.
KPMG said: “We reviewed the authority’s financial reports submitted to cabinet in 2017–18.
“We note that the reports are unclear and lack details, including in the accompanying appendices.”
In particular, it said, the council reports a forecast outturn variance of nil, despite this being the position after accounting for one-off measures.
This, it said, clouds the authority’s underlying performance.
“The full position can only be ascertained by piecing detailed outturns of individual directorates; even so, the inconsistency in reporting within each individual directorates makes this a very difficult exercise,” the report said.
KPMG said the budget report does not provide members with a clear view of the variances and overspends within each directorate.
“The narrative is often vague and written in dense management speak; the style does not promote clarity of reporting. This style of reporting is consistent across all directorates,” its report concluded.
The auditors criticised the authority for describing slippages in its savings plans as “budget delivery pressures”, language they said was “vague and does not truly reflect the issue”.
The report went on to criticise inconsistencies within budget books submitted by budget holders to the finance business partner teams.
These books, it said, allow the authority to keep track of expenditure and challenge overspends and underspends as necessary.
KPMG said: “In some cases it was clear that variances to the budget have been investigated as the budget books contained comments to support this.
“These variances were reported in the quarterly finance reports. In other cases there was very little detail in the budget books to support large variances, and in some cases these variances were not reported in the quarterly finance reports.” …
Q: who audits the auditors? A: their pals
“The chief accountancy watchdog has hired lawyers to keep evidence confidential that might throw light on its contentious decision in 2013 not to investigate KPMG’s audit of HBOS.
Four of the auditor’s former partners were serving on the Financial Reporting Council’s conduct committee when it decided not to investigate their former firm’s role in the bank’s collapse. Another committee member had advised KPMG previously.
The FRC, which last week emphasised the importance of transparency in its workings, has appointed Fieldfisher, a law firm, to fight a tribunal appeal aimed at winning access to documents and emails under the Freedom of Information Act.
The regulator is under pressure to improve its investigatory processes after several corporate collapses where the auditors failed to spot problems. Last week Greg Clark, the business secretary, promised an independent investigation into the regulator.
Some concerned investors say that the FRC is soft on auditors because it has been “captured” by the accounting profession, with its board and decision-making committees liberally sprinkled with former Big Four accountants.
MPs described the regulator’s initial decision not to investigate KPMG as “a serious mistake”. Poor accounting and accounting rules have been cited as one reason why no one understood how bad the bank’s problems were until it was too late. The bank was rescued by Lloyds TSB with £20 billion of backing from taxpayers. Later £53 billion of its loans went sour as the extent of its reckless approach to creditors became clear.
The FRC belatedly investigated, only to find the auditor not guilty of any serious failings — triggering more astonishment from some MPs.
Margot Gibbs, a researcher originally backed by Greenpeace, is appealing against a decision by the Information Commissioner in November in order to establish how individual members of the conduct committee voted and whether there was any lobbying between KPMG partners and their former colleagues and advisers on the committee.
She also wants to challenge the FRC claim that, despite being a public body, it is largely exempt from the Freedom of Information Act. The watchdog and the business department, its sponsoring ministry, have been fighting the public sector classification for 14 years.
The former KPMG partners on the ten-member conduct committee were Paul George, a partner until 1999, Sean Collins, one until 2009, Joanna Osborne, a partner until 2011, and John Kellas, one until 2004. In addition, Richard Fleck, its chairman, is a consultant with Herbert Smith, which used to advise KPMG.
The minutes of the meeting show that Ms Osborne and Mr Collins left when KPMG was discussed, according to a report into the affair published by the FRC in November last year. Mr Kellas stayed but “did not participate”. The report did not say what Mr George and Mr Fleck did, nor how anyone voted.
The FRC confirmed that it had appointed lawyers. “We took this approach, ie explaining why the request was out of scope and referring Ms Gibbs instead to information we had published in connection with her request, for consistency of treatment and fairness with all other FOI requesters whose requests are out of scope.”
Fines by the FRC last year were their highest ever at almost £15 million.
KPMG has been auditor to several leading British companies that have failed or come to close to failing, including Co-operative Bank, Carillion and Conviviality, the group behind Wine Rack and Bargain Booze.
The tribunal is due to hear the case on April 27.”
Source: The Times, paywall
“Survey reveals another section 114 notice [council insolvency] expected within a year”
Some councils are taking on riskier investments with consequent higher returns to maximise income – risky indeed in the current uncertain financial climate. As with those councils that bought (non-local) shopping centres as investments … which will need very savvy auditors to monitor …
“Three quarters of senior finance officers expect at least one other council to issue a section 114 notice in the next 12 months, according to a Room151 survey.
Last month, Northamptonshire County Council’s director of finance issued a 114 notice imposing immediate spending controls on the authority.
Room151’s Local Government Finance & Treasury Current Affairs Survey, sponsored by investment manager CCLA, found that more than half of respondents expect one or two more notices in the next year.
Presenting the findings to Room151’s LATIF north conference in Manchester this week, John Kelly, client director at CCLA, said that a further 20% expect between three and five further section 114s, with 3.5% expecting between five and 10.
However, when asked about their own council, 56% of treasury officers said they were either confident, or very confident, of financial sustainability.
Kelly said this result “doesn’t suggest there is any panic or any need to get unduly worried at present”.
Elsewhere in the research, 36% of those surveyed said that they had begun to invest in higher yielding instruments, due to the current funding squeeze, compared to 30% who said there had been no impact. …”
http://www.room151.co.uk/treasury/survey-reveals-another-section-114-notice-expected-within-a-year/
Carillion auditors paid £40m to provide apparently “false reassurance to investors” says Parliamentary Committee
The auditors rely on calling Carillion’s dicey contracts “optimistic”!!!
“The £40 million that KPMG and Deloitte were paid as the external and internal auditors of Carillion respectively has been described as a “colossal waste of money” by MPs.
At a testy hearing of the work and pensions and business joint select committee, the reputations of audit partners at the two international accountancy firms were shredded as incredulous MPs wondered why they had not dug deeper when alarm bells seemed to be ringing around the construction contractor.
MPs heard evidence from Michelle Hinchliffe, head of audit at KPMG, Peter Meehan, the KPMG partner who audited Carillion, and Michael Jones, who led Deloitte’s internal audit service at the contractor. KPMG was paid £29 million over 19 years by Carillion, and Deloitte £11 million over an unknown period. Rachel Reeves, co-chairwoman of the committee, said: “These audits appear to be a colossal waste of time and money, fit only to provide false assurance to investors, workers and the public.”
Ms Reeves criticised Mr Meehan and Mr Jones after their respective admissions that Mr Meehan had failed to visit at-risk Carillion projects and Deloitte had missed quarterly meetings with the Carillion board’s audit committee.
“Carillion staff and investors could see the problems at the company but those responsible — auditors, regulators, and, ultimately, the directors — did nothing to stop Carillion being driven off a cliff,” she said.
Mr Meehan told MPs that for the 2014 and 2015 audits he had visited the construction project in Qatar that the former chief executive Richard Howson blamed for Carillion’s collapse. Mr Meehan did not make any subsequent visits despite knowing of the importance of the contract. Carillion claimed that it was left with £200 million of unpaid bills in Qatar. Mr Meehan repeatedly stated that despite Mr Howson’s assertions, the Qatar contract had only become a serious issue in the months after the 2016 accounts were signed off in March last year and leading up to the major profit warning of last July, which laid bare the crisis at Carillion. The auditor conceded that Qatar had been flagged as an “amber warning” at a meeting in the February before the sign-off of those accounts.
On another contract, the £350 million construction of the Royal Liverpool Hospital, Mr Meehan admitted that although he had been on previous fact-finding site visits, he had not returned despite internal revelations of major on-site issues in November 2016. He finally made a visit to the hospital last month, four days before Carillion went bust. He contested claims that Carillion’s accounting had become aggressive but said that he had told Carillion board directors that their accounting on some of the “riskier contracts” had become “optimistic”. His concerns were overruled. Despite this, he said he remained happy to sign off the accounts.
Mr Meehan said he had become aware of the enormity of the issues in Qatar in May last year, at which point “we knew a writedown was coming”.
That writedown and those on Royal Liverpool, the Midland Metropolitan in Birmingham and the £700 million Aberdeen bypass were taken on July 10, at which point Mr Howson was removed from his post. Mr Meehan said a review of contracts at that point found that in previous internal reviews, managers had been more pessimistic about the likely outcome for the contracts than the position that was reported.
The auditor said confusion was such in the Carillion boardroom that on the night before the July profit warning, directors were debating whether the writedown should be £695 million or £845 million.”
Source: The Times (pay wall)
240 councils have taken out high-risk “toxic” loans
“A cash-strapped council which has banned all new spending is currently repaying £150m in “toxic” loans.
Northamptonshire County Council has invoked the ban on expenditure as it faces a £21m overspend for 2017-18. It said it would cost more than a quarter of a billion pounds to immediately repay the LOBO – or Lender Option Borrower Option – loans, described by critics as “risky”.
A council spokesman said “interest rate risk is inherent” in all borrowing.
The county council has a total of 19 LOBO loans, which are unregulated and typically spread over 40 to 70 years. They were used to meet expenditure on highways, infrastructure, schools and other such assets.
The authority said said it would cost £256m to repay them straight away.
Critics say the repayments would be better spent on under threat services such as bus subsidies and Trading Standards. Joel Benjamin, from campaign group Debt Resistance UK, called the loans “toxic”. He said the county council has “fallen victim to a lethal cocktail of cuts”, poorly run shared-services and “high interest, risky LOBO borrowing.” Financial expert Abhishek Sachdev said LOBOs “contained huge quantifiable risk at the outset”.
Mr Sachdev, who gave evidence about LOBOs to the Communities & Local Government Select Committee in 2015, added: “There is a reason why none of our large PLC corporate clients would ever enter into such a loan.”
Freedom of Information requests by Debt Resistance UK show around 1,000 LOBO loans have been taken out across 240 local authorities.
The figures show these have a face value of £15bn, while Mr Sachdev estimated it would cost about £26bn to exit them straight away.”
http://www.bbc.co.uk/news/uk-england-northamptonshire-42977061
“Grenfell fire: KPMG quits inquiry amid conflict of interest furore”
“… The accountancy firm audits the Royal Borough of Kensington and Chelsea, where the tower is located.
It also audits Rydon Construction, which refurbished the tower in 2015, and Celotex, which manufactured insulation material used in the tower. …”
http://www.bbc.co.uk/news/business-42598976
Owl says: if conflicts of interest were taken as seriously in Devon, we would have many fewer councillors, almost no quangos and DEFINITELY no Local Enterprise Partnership!
So, guess who EDDC’s new external auditors will be
Yep, former auditors Grant Thornton – the ones who found no problems following the expulsion from the local Tory party and subsequent resignation of disgraced ex-councillor Graham Brown after the front page sting in the Daily Telegraph.
And too late to send any representations about it.
“Having carried out their procurement exercise and decided on the scale of work to be allocated to each of the winning bidders, PSAA notified the Chief Finance Officer and Chief Executive that it was consulting on the appointment of Grant Thornton LLP as being successful in winning a contract and their appointed to EDDC for the 5 years from 2018/19, the appointment starting on 1 April 2018. Any representations to the proposal would need to be received by 22nd September 2017, as there was no reason to object to this appointment no representation was made.”
Ex-EDDC regeneration officer and Exeter City Council CEO gets award
“Exeter City Council’s dedication to supporting business and economy has resulted in its chief executive being named as one of the 2017 Faces of Growth.
Karime Hassan is one of seven people to appear on the list, compiled by accounting and consultancy firm Grant Thornton. …”
http://www.devonlive.com/news/devon-news/exeter-city-council-chief-executive-739798
Grant Thornton award. Former external auditor to East Devon and Exeter City Council until new EU regulations forced some councils to change auditors a couple of years ago.
Karime Hassan: he grew East Devon as regeneration chief, he’s growing Exeter as Chief Executive, he will grow Greater Exeter as its lead officer.
Aren’t we lucky …
A retired auditor explains how councils can “push back” on auditors’ demands
“… In all of the instances I have dealt with, there have been at least two reasonable positions that could be taken, one of which involves less disruption to the draft accounts than proposed by the auditor. In such circumstances, you would expect the auditors to be finding themselves a comfortable seat on the fence, from where to take in the admirable views available on both sides. Not standing on one side throwing stones. …
… Threats of audit qualification are usually fairly empty. They rely on the auditor being able to summarise their case against the authority succinctly, definitively and with quantification in the audit report and on the matter in hand being truly material (ie, that it might influence a decision to be taken by a user of the accounts). Most of the firms will also require qualified audit reports to be approved by a senior technical panel, so they are not at the discretion of the individual auditor.
Many accountants will at this point settle for what they judge the easier option and make the changes demanded. But there can be greater advantage in pushing back, asking the auditors to:
explain why your approach is not acceptable, rather than just different from theirs
provide comprehensive technical support for any counterarguments they put
be clear that the issue might have a properly material impact.
Sometimes the view of the auditor will need to be accommodated. But on many occasions issues are resolved simply by persuading the auditor to appreciate the authority’s approach to an area where there is room for differences of opinion.
So, two key messages. Auditors: retain your independence by avoiding dogmatic demands and engaging directly with what the authority has done. Accountants: don’t believe that an argument is necessarily stronger because it comes with the promise of a clean audit opinion.”
http://www.room151.co.uk/blogs/stephen-sheen-troubles-with-the-auditor-maybe-its-not-you/
The erosion of democracy to serve the cult of celebrity and business
From an article about how Boris Johnsom frittered away nearly a billion pounds on projects that came to nothing while he was London mayor – echoes of the East Devon Business Forum, the Local Enterprise Partnership, Greater Exeter …
“… Still, Johnson merely highlights a number of problems. He shows what happens when our celebrity culture, in which he has a starring role, fuses with an era of denuded press and desiccated politics. This is the age of the administrative monarch. We are encouraged to place power and trust in individuals of purported unparalleled wisdom, vision and probity. Mayors, metro mayors, police commissioners, superheads; we outsource to individuals, increasing their power in the belief they will get things done, unencumbered by faint hearts and red tape.
By this thinking, democratic checks and balances are a bother. There can, in this political calibration, be some light-touch monitoring, but the monarch must have all the power. True democracy can be such a millstone.
This is a philosophy tilted towards business in its many lucrative interactions with the public sector, for it sends a message that the special individual talents of the market do not need the democratic or collective checks and balances that might save us from folly. We saw this in the framing of the London mayoralty, where the initial hope was that a Richard Branson or a Greg Dyke would seize the sceptre. That didn’t work out. Instead of an industry titan, the befuddled lawmakers ended up with Ken Livingstone, the very antithesis of their hopes, and then Johnson.
But the thinking endures that true progress needs turbo-empowered individuals in whom we endow complete trust, as we might for a pilot or a brain surgeon, because their knowledge and drive and networking prowess surpasses our understanding. Theresa May sought that sort of unquestioning trust when she implored us not to worry our pretty little heads and to give her complete and personal authority to do as she pleased in Brussels. The country eventually called her out on that, but isn’t it time to question that philosophy everywhere?
Isn’t it time to reassess the extent to which we have loosened the regulatory structures? The Tory-led coalition scrapped the audit commission and with it a level of scrutiny that once gave the reckless pause. The Standards Board for England, responsible for monitoring ethical standards in local government, was doused in ministerial petrol and thrown on to the same so-called bonfire of the quangos.
At the same time, the right or expectation that local councillors, representing their communities, should sit on the boards of organisations in receipt of public funds – such as schools, housing associations and private firms delivering communal services – has been steadily eroded.
Our system is a largely a centralised one, but still the canny determined mayor can disengage the handbrake knowing that no one can, in real time, reapply it. Voters can assert their authority at some point on the journey, but it may be some way down the road. By that point the vehicle, recklessly driven, may have crashed. And by the time the authorities arrive, the driver may well have legged it.
So these leaders may never be held to account. Maybe they have already left office. The heat turns down, the world moves on. The protection of celebrity deflects the glare. Isn’t that what’s happened in the case of the garden bridge and all of the wasteful, ill-conceived Johnsonian follies?
But isn’t it also – in terms of the public’s apparent inability to bring poor and reckless administrators to account – what’s happened in universities up and down the country? Vice-chancellors on grotesquely bloated salaries charge £9,000-plus tuition fees without any improvement in the offer to students. And in notorious academy schools, deified super-heads have taken advantage of huge pay cheques and light public supervision to provide pupils with a substandard education.
We have grown scornful of the mundanities of democracy. The celebrity-as-saviour populist version excites. But the dull, traditional, sometimes tortuous structures – with checks and balances and inquests and punishments – existed for a reason. With them grand projects took longer, consensus was required, and foolhardy stewardship carried risks. But without them we spend millions on the dream of a flowery bridge while services atrophy, food banks flourish, and the designers of that outrage move onwards and upwards.”
https://www.theguardian.com/commentisfree/2017/aug/22/boris-johnson-940-million-system-to-blame
London’s (abandoned) Garden Bridge – lessons for EDDC?
” … Launched as a privately sponsored gift to the city, Joanna Lumley’s “tiara for the Thames” had soon gobbled up £60m of public cash and the promise of an extra £3.5m a year for evermore. It was quickly revealed to be more a corporate events space than public crossing, a planted branding opportunity just 200 metres from an existing bridge, where groups would have to register and visitors would be tracked via their mobile phones. It was relentlessly exposed to be the product of the “chumocracy”, flouting all the usual rules of procurement. The miracle is that it ever got so far, and that so much public money has already been flushed into the Thames.
The blame lies firmly with former mayor Boris Johnson, the one actor in this sorry saga who refused to comply with Margaret Hodge’s recent inquiry into the project. Her investigation found multiple failings from the start, from the Garden Bridge Trust’s shaky business case (which put a lot of faith in the lucrative potential of selling T-shirts and pens), to a tendering process that was “not open, fair or competitive”, to confusion as to what the project was even for, concluding that the bridge should be scrapped before it burned through any more cash. And it all comes back to Boris. …
It was Johnson who took up his childhood chum Lumley’s idea for the sylvan crossing (which was initially conceived as a memorial to Princess Diana and pitched to Ken Livingstone, who had the good sense to say no) and had it bulldozed through the system with flagrant disregard for due process. Hodge’s report found that his deputy mayor for transport, Isabel Dedring, and Transport for London’s director of planning, Richard de Cani, saw to it that the choice of Lumley’s team of Thomas Heatherwick and engineering giant Arup was a foregone conclusion. The team was allowed to revise their bid while their competitors were not, the scoring was found to be irregular, while de Cani admitted that he alone judged the bids.
In a move that raised concerns over conflict of interest, both Dedring and de Cani now enjoy senior positions at Arup, where most of the £37.4m of public funding spent to date has been funnelled; TfL and the department for transport have both denied any such conflict and Arup gave assurances to Hodge which she accepted.
Hodge also raised concerns over the private interests of the garden bridge trustees, who appeared to have business interests on both sides of the river where the bridge was due to land. The project’s business case spoke of a 5% increase in the value of property and a 30% increase in revenues for retail units, revealing the green tiara as a cynical garnish for raising land values in these central London areas – which the trust preposterously described as being “in need of regeneration”.
As the champion of novelty infrastructure projects, Johnson saw in the garden bridge his chance for another trinket to furnish his mantelpiece of ill-conceived urban ornaments. It would be a fitting addition to the empty Emirates Air Line cable car, his fleet of overheating Heatherwick-designed buses and the lunatic tangle of the ArcelorMittal Orbit sculpture in the Olympic Park. They are all projects characterised by the promise of private sponsorship that have ended up draining the public purse, standing as costly monuments to Johnson’s self-promotion.
By refusing the guarantee of further public funding for the garden bridge, Khan has effectively pulled the plug: since major private donors have pulled out, the project has a £70m funding gap and its planning permission expires in December. But he must go further and hold those responsible to account; we must insist that the lake of public cash already drained into consultants’ fees and building full-scale prototypes is repaid.
“It has the potential to be the slowest way to cross the river, with intimate moments and a lingering scale,” rhapsodised Thomas Heatherwick when I first met him to see his garden bridge plans in June 2014. He added with a twinkle in his eye: “It feels like we’re trying to pull off a big crime.” The conclusion of this long drawn-out public heist should be that crime doesn’t pay.”
Council fraud: never get complacent or assume auditors know what they are doing
Here are three examples, accessed within 5 minutes on Google.
EX-PLYMOUTH:
“A former Plymouth council official has been arrested as part of a long-running fraud investigation.
Geoff Driver, treasurer and chamberlain at Plymouth City Council in the early 1990s and now Conservative leader of Lancashire County Council (LCC), was held as police probe financial irregularities at LCC. …”
CHESHIRE EAST:
“A SECOND member of Cheshire East Council’s senior management has been suspended as a result of an internal disciplinary investigation.
Bill Norman, the council’s director of legal services and monitoring officer, has been absent from his post since April and has now been officially suspended.
The decision follows the suspension of council CEO Mike Suarez on April 27.
A CEC spokesman said: “The Investigation and Disciplinary Committee reconvened on Friday, July 14, 2017. The committee is considering allegations relating to the conduct of senior officers.”
ABERDEEN:
“A councillor has been suspended from certain duties for six months.
Sandy Duncan, who represents Turriff and District, contacted Aberdeenshire colleagues who were due to consider a planning application for a wind turbine from a firm he was partner in.
He was found to have breached the code of conduct for councillors.
The Standards Commission for Scotland found he had acted inappropriately by using council facilities having been expressly warned not to do so.”
http://www.bbc.co.uk/news/uk-scotland-north-east-orkney-shetland-40366506
Owl’s naughty metropolitan cousin
Just to prove that Owl is really quite serfistucated and nice and not at all vile as Swire has intimated, take a look at the blog of one of its cousins in Bristol – where problems are eerily similar to those dealt with by Owl but where said cousin is somewhat more less polite:
Amateur auditors find problems at Lambeth Council
“A group of local activists has claimed to unearth evidence of large-scale financial mismanagement at the London Borough of Lambeth.
Lambeth Peoples’ Audit comprised 10 residents who combed through the borough’s accounts for 2015-16 looking also at contracts, invoices and correspondence.
It said its findings included that the council had overpaid builders for work on council estates, including one case where contractors were paid more than double the number of repairs performed and another in which an average of £4,000 was paid for kitchen replacements priced under ‘decent homes’ contracts at £2-3,000.
The group also said it had evidence of possible price fixing in a case where all four tenders on a £1.3m project bid within 7% of each other.
Lambeth sold three pieces of land to private developer Pocket Living at a discount of at least £1m without any competitive tender, the group claimed.
Other cases the group uncovered included the cost of town hall refurbishment having risen from £50m to £104m and secrecy over a deal in which Greenwich Leisure took over two libraries.
It also said there was lack of adequate spending controls in the council, examples of which include more than £8m of invoices for housing repairs not available to Lambeth’s finance department and “industrial scale” disregard of rules on competitive tendering. …”
EDDC Audit and Governance: new auditors find much to comment on
A little late, as the meeting is tomorrow, but anyone with a spare couple of hours (!) might want to spend it poring over the agenda of the Audit and Governance Committee.
A rather thorough going over after their appointment as auditors has seen KPMG out EDDC under the microscope.
Too many to list here, it has identified numerous financial and procedural weaknesses.
For quick reference the agenda is here:
Click to access 290617agcombined-agenda.pdf
and Owl found the following pages most interesting:
Pages 84-88 detailing financial weaknesses
Page 103 on weaknesses in contract Standing Orders and procurement procedures
Appendix A Risk Review – page 86
Click to access 290617bpauditgovernanceoperationalrisk.pdf
which contains this intriguing comment:
“Risk: [Identified as medium BOLD type is Owl’s]
Incapacitation of all staff for protracted period re Elections
In the event that all election staff were absent for a prolonged period the Council would fail to complete the canvass, fail to publish a revised register and fail to produce accurate data and registers for elections. In the event that the Electoral Services Officer/Manager was absent for a prolonged period it is unlikely that existing staff resources would accept managerial responsibilities.”
and finally – another coruscating reminder of the Section 106 scandal
Click to access item-12-management-of-s106-contributions-report.pdf
What is going on at Honiton Town Council (and the Beehive)?
THREE more resignations since yesterday’s shock resignation of the Mayor only minutes after she had been elected:
“Honiton Town Council has been dealt a double blow after two more councillors quit the authority.
Former mayor Peter Halse and Luke Harvey-Ingram tendered their resignation today, meaning one fifth of the council has quit in the last 48 hours.
Yesterday evening, the council was rocked after new mayor Ashley Delasalle attacked the authority before dramatically resigning on the spot and leaving the meeting.
Her exit was followed by David Perkins quitting as a member, the council-appointed director of Honiton Community Complex Ltd and temporary responsible financial officer.
His resigned after councillors voted to remove him from a committee investigating the finances around the Beehive build.”
http://www.midweekherald.co.uk/news/two-more-honiton-town-councillors-resign-1-5009960
The Beehive community centre has been surrounded by controversy since its inception, when it was given a massive amount of money by EDDC (unlike most other similar centres in other towns) and got into much financial difficulty from the start, see here:
https://eastdevonwatch.org/2015/02/10/honiton-beehive-problems-started-long-ago/
and here:
and here:
https://eastdevonwatch.org/2014/06/17/matters-of-financial-high-risk/
and a previous resignation here:
Knowle site value plummets to £3.22 – £6.8 million depending on affordable housing requirement
It is interesting that all scenarios put to the Scrutiny, Audit and Governance and Overview Committee take no account of depreciation on the Honiton HQ.
The committees might want to request the attendance of internal and current external auditors KPMG at their joint meeting, as the relocation finance paper was, for some reason, compiled by former external auditors Grant Thornton.
Click to access 180417-a-and-g-and-s-and-overview-agenda-combined.pdf
page 10
“Revolution in council lending could tackle irresponsible borrowing”
“Most coverage of local government finances falls into two categories of story. The first concerns the egregious rewards paid to “town hall fat cats” for often mediocre performance. The other concerns “savage cuts” being made to this or that service due to a reduction in central government grants.
There is truth in both of these. What has not gone reported so much is that a genuine revolution in local government finance is under way.
The traditional model of financing, in which grants are doled out by central government, is gradually being replaced by a system in which councils, collectively, are self-funding and individual councils bear more risk as a result of their own spending and revenue-raising decisions.
Some of these reforms have already attracted attention, chiefly the changes to business rates, over which individual councils will have greater, but still limited, autonomy in future.
Another big change coming has attracted surprisingly little attention. The UK Municipal Bonds Agency (UKMBA) was launched in 2014 with the aim of helping councils to finance their spending. The agency, a public limited company owned by 57 local authorities and the Local Government Association, aims to issue bonds with maturities of between ten and twenty years. Because it is backed by a number of councils who have pooled their borrowing requirements, the theory is that it should be able to create “benchmark” size issues for which there should be greater demand from institutional investors. And because more than one party is responsible for repayment of the bond and servicing the interest payable on it, a “joint and several guarantee” in the jargon, in theory the bonds should be less risky to investors. That should also, in theory, lower borrowing costs for councils.
The idea is common elsewhere. Kommune Kredit has been operating in Denmark for more than a century, while BNG in the Netherlands has been going since 1914. Kommunalbanken has been funding local authorities in Norway for 90 years; other such funding agencies exist in Canada, New Zealand and Switzerland, among others.
One of the key aims of UKMBA is to allow local authorities to borrow more cheaply than the existing lender of choice, the Public Works Loan Board (PWLB), a 224-year-old body that currently accounts for about three quarters of local authority borrowing. Traditionally, the board has charged 20 basis points above the prevailing gilt rate but in October 2010, in an attempt to discourage borrowing by local authorities, the coalition government raised this to a 100 basis points premium.
The board now, in most cases, lends to local authorities at 80 basis points over the gilt rate. It was when the cost of borrowing from the board was increased that leading figures in the local government world began to talk about an alternative finance provider.
Aidan Brady, the former Deutsche Bank chief operating officer who is chief executive of the UKMBA, is on record as saying: “Clearly, we have to beat the Public Works Loan Board [in terms of offering a cheaper rate], that’s as simple as it gets.”
The irony is that just as the new agency is about to offer some proper competition to the board disquiet is growing about the extent to which local authorities have been borrowing from the latter.
The Sunday Times reported last weekend that a number of local authorities had gone on a “£1.3 billion binge” of buying commercial property with the aim of using rental incomes from those assets to supplement spending or reduce the extent of budget cuts they would otherwise be making. The danger is that these authorities have exposed themselves and future generations of council tax payers to swings in the commercial property market. Traditional property market buyers have been astonished at the prices paid for assets such as some sub-prime shopping centres, grumbling that local authorities are distorting the market.
This has been made possible over recent years because by linking the PWLB loan rate to the gilt rate and allowing the latter to be depressed by the Bank of England’s asset purchase scheme the government has created a “carry trade” opportunity for local authorities in which they can borrow at about 2 per cent and invest the proceeds in an asset yielding between 6 per cent and 8 per cent.
None of this has made the job of the fledgling UKMBA any easier. The agency was reported as long ago as June last year to have signed up nine local authorities to participate in the first debt issue, which was expected by the end of 2016, with a panel of eight banks, including three to act as “lead runners”, in place to run it. But no issues have yet taken place. Market sources suggest that this is because the agency is still waiting on one more council to sign off on its participation.
This ramp-up in local authority activity could be because the PWLB, which is currently an arm of the Debt Management Office — the Treasury agency that issues gilts and manages the national debt, is about to be absorbed into the Treasury, which may lead to more control being exerted on its future lending. That was certainly suggested in a government statement last year noting that transferring the PWLB back into the Treasury would “secure greater accountability to ministers and enhance the efficiency and effectiveness of central government lending to local authorities”.
In other words, local authorities are borrowing now, while they can. The sooner they are subjected to either greater Treasury scrutiny on the one hand or the superior credit checks being promised by the UKMBA on the other, the better.“
The Times Comment (paywall)
East Devon Watch 