Accountants accused of “feasting on Carillion carcass”

“MPs have accused the “big four” accountancy firms of “feasting on what was soon to become a carcass” as it emerged they banked £72m for work linked to collapsed government contractor Carillion in the years leading up to its financial failure.

Less than a fortnight before Carillion’s auditor KPMG is due to face questions from MPs on two select committees, the accountant and rivals Deloitte, EY and PricewaterhouseCoopers (PwC) submitted evidence to the inquiry.

Responses to questions from the committees revealed that the quartet of firms issued bills worth £71.6m over 10 years from 2008 for work for Carillion, its pension scheme and its government contracts.

Details of accountants’ fees emerged as more than 4,400 former Carillion staff working in prison maintenance, as well as catering and cleaning on military bases were told that they will keep their jobs.

The total number of jobs saved has now reached 6,668, more than a third of Carillion’s 19,500-strong workforce. But nearly 1,000 people have already been made redundant, while a further 11,800 staff still face an uncerttain conditions….”

https://www.theguardian.com/business/2018/feb/12/carillion-jobs-prison-defence-staff

PFI company? Don’t bother with pensions for workers – put directors first

“Carillion “wriggled out” of payments into its company pension schemes as its troubles grew, while it carried on paying shareholder dividends and bosses’ bonuses, say MPs.

The Work and Pensions Committee is questioning the way pension investments were managed at the collapsed outsourcing giant.

The schemes overall are in deficit.

But last year contributions to the pension funds were deferred until 2019, to help shore up the firm’s finances.

The committee has published a letter from Robin Ellison, chairman of trustees of Carillion’s pension scheme, giving an account of the last few years and suggesting they have been left with a funding shortfall of around £990m.

The letter shows that pension trustees were “kept in the dark” about the state of Carillion’s finances until late last year, the committee argues, and that dividends and bonuses were paid out at the expense of pension fund contributions.

On Monday, the Financial Reporting Council, the UK’s accountancy watchdog, said it would launch an investigation into KPMG’s audit of Carillion’s financial results between 2014 and 2016 as well as the work it carried out during 2017.

The FRC said the probe would “consider whether the auditor has breached any relevant requirements, in particular the ethical and technical standards for auditors”.

It will examine KPMG’s audit work on areas including estimates and recognition of revenue on significant contracts and accounting for pensions.

KPMG said it believed that “we conducted our role as Carillion’s auditor appropriately and responsibly”, adding that it would co-operate fully with the FRC’s investigation.” …

http://www.bbc.co.uk/news/business-42853895

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

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

Tell EDDC what you want Section 106 money spent on so they can ignore you and spend it on what they want!

That is, of course, if they can be bothered to collect the money ( at least £200,000 due but not invoiced when external auditors KPMG did a spot check recently:)

“New document sets out what contributions will be required for roads, affordable housing, schools and play areas

Residents are being invited to have their say on how East Devon District Council (EDDC) will require developers to pay towards infrastructure such as roads, affordable housing, schools and play areas in the future.

The new Planning Obligations Supplementary Planning Document sets out what contributions will be required for, when they will be required and how much they are likely to be.

EDDC deputy leader Councillor Andrew Moulding said: “The document applies to a large range of people from major housebuilders to individual house owners who may want to develop part of their garden.”

To comment, email localplan@eastdevon.gov.uk by January 16.

http://www.exmouthjournal.co.uk/news/east_devon_residents_invited_to_have_a_say_on_how_developer_cash_is_spent_1_4819414

Those relocation numbers STILL don’t add up (bigly) EDDC!

25 March 2015 extraordinary Meeting regarding Relocation:

Councillor Moulding emphasised the cost savings that would be achieved and highlighted key figures:

• The Knowle Site offer price agreed is £7-8m • Exmouth Town Hall modernisation will cost in the region of £1m • New Offices at Honiton will cost in the region of £7m • The Council will secure relocation in total for under £10m’

So it’s a £669,000 increase, not £408,000.

A 69% increase in costs in less than two years, without a brick being laid!

Exmouth regeneration costs – 6 times bigger than Exeter bus station!

It appears that Exeter City Council has spent “more than £500,000” on fees for its £26m bus station and leisure centre development and is getting some stick for this:

http://www.exeterexpressandecho.co.uk/council-have-spent-over-590-000-on-st-sidwell-s-point-and-exeter-bus-station-already/story-29947204-detail/story.html

What’s the fuss? EDDC has already said its costs for Exmouth regeneration (officially supposed to be developer-led and funded) will be AT LEAST £3.2 million.

Should someone be patting Exeter City Council on the back and perhaps giving EDDC some stick? And perhaps querying why the Exmouth Regeneration Board (Chair: Councillor Philip Skinner) and EDDC’s Cabinet doesn’t seem to have a handle on the expenditure.

Maybe another elector should be contacting external auditor KPMG as that seemed to get some action on the S106 crisis.

Section 106 scandal: New controls and a surprising revelation from CEO Mark Williams

S106 Funds and EDDC Audit & Governance Committee – report from an attendee:

On Thursday November 17th the Audit & Governance Committee of EDDC voted to make several changes to the Council’s finance systems which will now ensure that s106 payments will go to the local community amenities for which they are intended.

S106 payments are agreements under the Town and Country Planning Act 1990, often referred to as ‘developer contributions’ whereby developers agree to make financial contribution to the community infrastructure when they build property. These contributions are usually used to provide amenities such as playground equipment or other local projects, and usually decided with local councillors in the town or parish councils.

The recommendations to make changes in the way EDDC manages and monitors the s106 monies comes from auditors KPMG who received an objection from a local elector. KPMG mounted a financial investigation into the elector’s complaint and concluded that the council’s control systems had the following weaknesses:

1. An absence of summarised financial information to facilitate the monitoring of s106 contributions

2. Lack of challenge or enforcement of the developers’ legal obligation to provide information

3. Lack of understanding of financial and accounting implications of triggers being met and the communication between Planning and Finance over this.

EDDC Chief Executive Officer Mark Williams, at one point in the discussion, disclosed that he watches some s106 debts grow (because interest at 4%+ base rate is applied) rather than collect them when due so that the council can gain more money.

No one challenged or questioned the ethics of this as a strategy for dealing with the funds that could have gone sooner to the communities for which it is intended (or whether developers could be benefitting by delaying payments). Neither was it established whether that interest earned is applied to the s106 amenities for the community or left in the council’s general reserves.

EDDC Monitoring Officer Henry Gordon Lennox, referring to the £730,000 he had previously disclosed (through a Freedom of Information query) was owed in 2014/15 and 2015/16 for s 106 payments, interjected that the £730,000 owing had included a mistaken overstatement of £409,000. The current status of the other £321,000 was not established during the committee discussion however.

The auditors, in upholding the objection to the accounts, made Priority One recommendations to address each area of weakness because these are fundamental and material to EDDC’s systems of financial controls. The committee resolved that these should be implemented by set dates and KPMG will follow up in their next audit.

Councillors of various political parties during the discussion on this item thanked the elector for having raised the lid on this issue. Now that the previously weak system has had “a light shone on it” and addressed, the Audit & Governance Committee will be able to require regular reports on s106 monies owed and collected. They will be able to ensure that the funds are being directed to and spent on the amenities in towns and parish council communities projects for which they are intended.

Is a cost over-run of £1.1 million or £10 million more serious than a Section 106 loss of £250,000?

Owl asks because an elector successfully petitioned EDDC’s external auditor over Section 106 discrepancies. A sample found a wrongly-attributed bill of some £400,000 and an uncollected sum of around £250,000. As a result, the auditors have requested many changes in procedures:

Click to access item-12-management-of-s106-contributions-report.pdf

Now we hear at Cabinet this week that, in two years, development costs for Exmouth seafront have risen from £1.5 million to £3.2 million. Yet Cabinet apparently found this totally acceptable and, without detailed figures, nodded it through with no explanation of:

– what did the £1.5 million cover

and

– what does the extra £1.6 million cover.

Added to this, the projected cost of HQ relocation has risen from cost-neutral (zero due to sale of Knowle HQ for around £7 million) it is now said to be nearly £10 million – or at least that was figure a few months ago.

These are eye-watering numbers yet majority party councillors and auditors (internal and external) appear unconcerned.

Some scrutiny (internal and external) needed here, Owl thinks.

EDDC 2015/2016 accounts still not signed off by external auditors

Report from external auditors KPMG (page 10 of agenda papers). The auditors original statement was that they hoped to have concluded the outstanding matter by the end of October 2016. This has obviously not been possible.

We received an objection to the Authority’s financial statements from a local elector. We are currently concluding the outcome of our work on the matters raised and, until this is completed, we are unable to issue our certificate. Once issued, the certificate will confirm that we have concluded the audit for 2015/16 in accordance with the requirements of the Local Audit & Accountability Act 2014 and the Code of Audit Practice.
We will report separately on the outcome of the objection to the Authority’s Audit & Governance Committee.”

The matter is now pushed on to the next Audit and Governance Committees on 5 January 2017. (page 42 of agenda):

Click to access 171116combined-a-and-gagenda.pdf