Auditors presented their much delayed report in to the 2017/18 Accounts to Northamptonshire
County Council’s Audit Committee this week.
I described it as a catalogue of mistakes and concerns although in
fairness most of the problems in the council’s finances it raised were already known
about and many had been discussed many times before although it is good to have
all the issues pointed out in black and white.
The huge 172
page report which will have cost over £815,000 when the final bill is in dealt
with many of the financial mismanagement issues that thrust NCC into the national
and international headlines and they became the first ever council to effectively
become bankrupt and the focus of a government inspection which in turn has led
to the proposed abolition along with all the other local Borough and District Councils
in Northamptonshire to be replaced to two brand new unitary councils for both
the North and West parts of the county who will take on all the roles and responsibilities
of the existing councils.
Some of the
highlights of the report which deal with some of the most controversial aspects
of the council’s financial dealings are quoted below:
Capital Flexibilities and Capital Programme:
there was generally very
little evidence and supporting documentation provided to us to support the
Authority’s overall use of capital receipts to fund transformational spending.
Evidence now exists which
shows that projects previously presented to audit as time limited one-off
projects are in actuality on-going costs which would be required to be incurred
by the Authority. They therefore, in our view, do not meet the necessary
criteria to be funded via capital receipts.
the consequence of this financial
position is that the Authority now reports a negative general fund position as of
…A further £4.5 million
of S106 funding has been utilised in 2017/18. Following our review and
subsequent discussions with Officers, the Authority confirmed it no longer
wished to pursue the recognition of such revenue from Section 106 monies to
fund general expenditure.
… this will contribute to
the Authority’s negative general fund balance as of 31 March 2018.
Section 38 monies:
he Authority confirmed
it no longer wished to pursue the recognition of
£2.8 million of S38 monies utilised in year to fund general expenditure…. this will contribute to
the Authority’s negative general fund balance as of 31 March 2018.
e are unable to state
that in 2017/18 Northamptonshire County Council had proper arrangements to ensure
it took properly informed decisions and deployed resources to achieve planned and
sustainable outcomes for taxpayers and local people. We therefore expect to issue
an adverse 2017/18 value for money opinion.
Cost Savings Plans:
he Authority utilised
£21.0 million of capital receipts in 2016/17 to fund transformational spending.
These projects were designed to achieve £16.3 million of savings in year,
however, only £8.1 million (50%) was delivered with many projects not
delivering any savings at all. In total £7 million (33% of total projects) was
spent on transformational projects that have not delivered any savings in
2016/17 nor 2017/18.
Plans and Capital Flexibilities:
As part of our review we
noted that there was generally very little evidence and supporting
documentation provided to us to support the Authority’s overall use of Capital
Flexibilities for transformational spending.
There was a lack of
robust governance over the entire process. For some projects, business cases
had not been developed…
At the time of our work,
no such evidence could be provided to us to show the
Authority had undertaken
work to understand why certain projects had failed to deliver projected
savings. As a result, there is a risk that the Authority does not learn from its
The Authority confirmed
that the Strategic Risk Register has not been reviewed or revised by the
Authority’s Management Team since the last Audit Committee. As a result, all of
the actions within the Risk Register remained outstanding…
… Therefore for the
financial year 2017/18 we are unable to gain assurance that risk registers are
robustly collated, monitored and reported.
As of 2017/18, the
Corporate Risk Register was not supported by sufficient and appropriate
evidence, and it could therefore not be used to enable Cabinet to make appropriate
decisions. [although in their presentation to the committee the auditors acknowledged
this may have changed].
The exit of the previous
permanent Chief Executive was a decision taken by the former Leader in
consultation with Cabinet
We noted that an element
of pay, as for other ‘exit packages’ include holiday entitlement not taken. We
were unable to gain assurance over this calculation as there is no central
tracking or authorisation of annual leave taken during the year against
individual’s entitlements, and therefore no auditable trail of evidence to confirm
what the holiday balance for any employee is at any point in time.
Council had a long running underlying structural deficit of over £100 million
up to the financial year ending 31 March 2018.
of draft accounts:
We received an updated
version of the accounts on 11 June 2019. We were told that these had been thoroughly
quality checked before being passed on for audit purposes. We immediately began
our checking again, however, on 17 June 2019, whilst we were part-way through
our final procedures, the Authority informed us that there were still errors
and omissions within this version, and that a new, revised version would be
provided for audit purposes. We received this on 18 June 2019.
Following the Cabinet
decision to proceed with the transaction in February 2018, it was stated a the
valuation had been undertaken into OAS as part of the Authority’s due diligence
work leading to the sale and leaseback. We requested as part of our audit
evidence, and eventually in July 2018 it was confirmed by the Authority to KPMG
that no such valuation had been commissioned by the Authority, and the last
valuation of One Angel Square had been obtained on 22 May 2017, the date at
which OAS first became operational. Regardless of whether One Angel Square was
due to be sold during the year, the Authority should have obtained a new
valuation as of 31 March 2018 to ensure it was correctly reflected in the
financial statements after becoming operational in May 2017.
… As a result, we
requested that the Authority should obtain a new valuation as of 31 March 2018
for the purposes of year end accounting. This was provided to us on 7 August 2018
and valued One Angel Square at £41.6 million on an Existing Use Value basis.
During the course of the
audit, it came to our attention that the Authority’s valuers had been engaged
to provide a further subsequent valuation of the same property as of 16 April
2018 on a fair value basis. This was a significantly lower valuation, being
£32.4 million, despite being only 16 days later.
… Following this, the
Authority’s valuer reviewed its approach and provided a further revised valuation
as of 31 March 2018, taking into account this new information which had come to
light. This was under the Existing Use Value basis. The valuation was £37.4
million, a £4.2 million decrease to the value within the draft 2017/18
Capital Flexibilities and Capital
Financial Peer Review report (published September 2017) states that the “Council’s
future financial plans appear to be built with a very optimistic bias as to
what can be achieved in general savings and by transformation through the ‘Next
Generation Council’ model”. Since then, the Council has paused its
transformation efforts through the NGC model and has begun making arrangements
to bring its service delivery companies back in-house. None of the initiatives
per the Final Budget 2018/19 and Medium Term Plan to 2021/22 involve the NGC
model. There is a risk that these capital receipts may be applied to expenditure
that is no longer transformational or designed to generate future savings.
In total £7 million (33%
of total projects) was spent on transformational projects that have not delivered
any savings in 2016/17 or 2017/18.
Adult Staff Costs:
£702,000 spent, no savings delivered in 2016/17 or 2017/18;
Place Highways and
Transport Transformation Projects: £636,000 spent, no savings delivered in
2016/17 or 2017/18;
Managing Agent: £495,000
spent, no savings delivered in 2016/17 or 2017/18;
Race to the Top
Programme: £257,000 spent, no savings delivered in 2016/17 or 2017/18; and
£253,000 spent, no savings delivered in 2016/17 or 2017/18
discussions with Officers, the Authority has confirmed it no longer deems
£16.959 million of expenditure to meet the definition of transformational spend
as required by the guidance in order to be funded via capital receipts. Example
projects included in the initial transformational spending, but agreed with
Officers to not meet the criteria as set down in the guidance and therefore
will now be removed and funded as general expenditure include:
Social Care Agency
Support Time Apportionment: £1,064,219
Place Highways and
Transport Projects: £695,737
Customer Services Web
Chief Executive and
Directors Time Apportionment: £408,928
This was despite
previous confirmations from the Section 151 Officer (S151) and his Officers that
these were genuine transformation programmes, which had been through proper governance
processes and met the requirements as laid down in the guidance issued from the
Department for Communities and Local Government. We had reported the risks
associated with this during the course of our 2016/17 audit, as well as our
2017/18 audit plan, interim report and progress reports. We held numerous
meetings with the Authority in advance of the audit, regarding the level of evidence
required to justify this expenditure. However, when we came to audit this,
there was no evidence provided that these schemes were supported by robust
documentation either for internal monitoring purposes or audit purposes. As
such, it was considered by us that these were never truly transformational
In our view, it is clear
whilst the Flexible Use of Capital Receipts provides an opportunity for Local
Authorities to fund genuine investment in transforming services without any
impact on revenue, Northamptonshire County Council took this too an extreme to
the point of being imprudent due to the financial position it found itself, in.
As a result, this
expenditure will need to be funded via general funding.
override of controls:
require us to communicate the fraud risk from management override
of controls as
significant because management is typically in a unique position to perpetrate fraud
because of its ability to manipulate accounting records and prepare fraudulent
financial statements by overriding controls that otherwise appear to be
In the prior year, we
raised concerns over income recognition in relation to the Public Health Grant,
some of which did not appear to be in scope allowed by the terms of the Grant.
In response, the Authority had stated that it intends to review its mechanism
for recharges, but has not accepted our recommendation that the Authority
should obtain independent external assurance to demonstrate compliance with the
terms of the Grant. Since then, Public Health England has confirmed that it is
currently investigating the Authority’s use of this Grant.
Public Health Grant:
On 15 June 2018, Public
Health England wrote to the Authority to confirm that it had completed its
investigation and concluded that the sum of £8.038 million (£3.49 million for 2015/16,
£3.763 million for 2016/17, and £0.784 million for 2017/18) of ring-fenced
public health grant funding was used to support activities that did not meet
the grant conditions. Public Health England requested a response from the
Authority on how this amount was to be reinvested.
As previously reported
in our External Audit Report 2016/17, the Authority utilised £9 million of
Section 106 funding within its 2016/17 accounts, as approved by Cabinet on 16
May 2017 under “income prioritisation”.
… the Authority was unable
to provide sufficient and appropriate audit evidence to demonstrate it had
complied with Counsel’s advice. Specifically, the Authority did not review the
terms and conditions of each individual S106 contribution, and it had not assessed
whether they met the criteria provided by Counsel which would allow a more general
utilisation of the funds. This disregarded important legal advice relating to
the use of specific funding for general purposes, and resulted in a material
audit adjustment. Following further discussions with Officers, the Authority
confirmed it no longer wished to pursue the recognition of such revenue from
S106 monies to fund general expenditure. It therefore proposed reversing this
from the accounts. The total reversal of S106 monies is £9 million used in
2016/17 and £4.5 million used in 2017/18, a total of £13.5 million.
Section 38 monies:
As above, the Authority
had previously accounted for the use of £2.8 million of Section 38 Highways
contributions to fund non-specific expenditure. Following subsequent
discussions with Officers, the Authority confirmed it no longer wished to
pursue the use of this S38 money to fund general expenditure.
… As a result of this, and
the lack of other mechanism to fund the expenditure previously accounted for
via S38 grants, this will contribute to the Authority’s negative general fund balance
as of 31 March 2018.
These are just some of the highlights I picked out of the lengthily report prior to the Audit Committee meeting but the whole report can be accesses by clicking here.