Accounting Errors at CCC - Post 9/15 in a series - CFO Distances Himself from his own Accounts

9 - November 2017 – the CFO distances himself 

from his own accounts

In addition to the mystery over when the supposed review of City Deal took place lies another key question.  Given that last year CCC and EY finally agreed that frontloading City Deal revenue was the wrong accounting treatment, and they both now recognise that the City Deal grants do contain conditions (after insisting for five years that they did not), whose idea was it in 2017 to move from the correct accruals base accounting to the incorrect, frontloading treatment?   

Was it CCC’s CFO, and BDO just went along with it, or was BDO the instigator, perhaps assisting its client to embellish its balance sheet to offset the £92m, 28-fold increase in short-term borrowing that year.  That question has still not been answered, because the 2018 objector (former County Councillor Mike Mason) and CCC are still waiting to hear BDO’s conclusions to that objection. 

Each set of published financial statements contains statements of responsibilities.  CCC’s statement of responsibilities for the Chief Finance Officer is shown overleaf:

In 2015/16 the CFO and the BDO audit partner both agreed that the City Deal grants should be accounted for on an accruals basis - the correct treatment according to CIPFA, IFRS and CCC itself (see Section 3 above).   

The following year, at least from September 2017 onwards, the same CFO (Chris Malyon) and the same audit partner (Lisa Blake – née Clampin) both agreed on a fundamentally different accountancy treatment for City Deal alone that does not correspond to any recognised accounting policy.  Bearing in mind that:

a)  In 2017, Mr Malyon had been a CIPFA Member for 32 years

b)  Ms Clampin is BDO’s National Head of Public Sector Assurance

c)  Accruals accounting is the most well-known and most fundamental concept in accountancy

it is ludicrous to suggest that the decision to depart from accruals accounting for this one material item of account (but no others) could have been an accidental oversight.  It was plainly deliberate.  It was also based on a demonstrable lie: the assertion that City Deal grants had no conditions attached.

On 2^nd November 2017, three weeks after BDO issued its unqualified audit opinion on the 2016/17 financial statements (together with the prior-period adjustments shown in Section 7 above), the GCP Joint Assembly held a public meeting at South Cambs District Council’s headquarters at Cambourne.  At that meeting, the objector to CCC’s 2016/17 accounts (Mr Mason again), challenged Mr Malyon over the recent, irregular change in accounting treatment that the public had been denied the opportunity of challenging that year because of the lateness of the revisions.  Here is the CFO’s response:

“…In relation to the £60 million, actually I agree with Cllr Mason, and one of the reasons why we had to go through an extra iteration of the accounts was because we hadn’t included that sum in our accounts in the first instance.  It was actually at the auditor’s request, not ours that that sum was recognised in our balance sheet.  And we have matched it with a debtor at the same time.  So, [unclear] …But unfortunately, I’m doing what the auditors require.  You can always challenge that with the auditors – then you will have my full support.”*

 *Timestamp 15 mins, 09 secs.  A clearer audio recording of this public question and answer is available on request.

That was an incorrect response from the Section 151 Officer who had a statutory responsibility to prepare the statement of accounts, select suitable accounting policies and to apply them consistently.   

 If Mr Malyon had had the courage of his stated convictions, the appropriate response to any pressure from the auditor to misstate the accounts would have been for him to challenge BDO to apply to the court under S28(1) of the Local Audit & Accountability Act 2014 for it to declare that the item of account was contrary to law.  By contrast, Mr Mason did challenge the City Deal accounting with the auditors in his 2018 objection (see below), but never received any support from the CFO.  Six years after BDO and CCC changed the City Deal accounting treatment, Mr Mason is still awaiting a response from BDO’s Lisa Clampin to either of his objections.

Four days after that Joint Assembly meeting, Mr Mason and I met with BDO’s Lisa Clampin to discuss Mr Mason’s 2016/17 objection.  During the meeting, we raised the issue of City Deal’s changed accounting treatment.  Mr Mason had not been able to include it in his 2017 objection because, as stated above, the treatment was only changed a month after the August 2017 deadline for local electors to submit objections for the 2016/17 draft accounts.   

We showed Ms Clampin a copy of paragraph 2.3.2.8 of the CIPFA Code (see p4 above) which explicitly states that capital grants are accounted for on an accruals basis.  We asked her to comment.  She stared at the sheet of paper and said nothing.  Mr Mason duly included the City Deal accounting treatment in his objection the following year, in which the overstated debtors and reserves were £40m, and BDO’s materiality threshold had risen slightly to £16.6m. 

In the five and a half years since November 2017, BDO has sailed past a number of self-imposed deadlines for completing its investigation audit work into Mr Mason’s two objections.  The last promise came from BDO’s Head of Audit and Assurance, Scott Knight, at the 9^th February 2023 meeting of CCC’s A&A Committee.  Mr Knight said that he thought the two objections would be disposed of in “a matter of a few weeks rather than anything longer than that.”*

* Timestamp 8.12

At the time of writing, that was twenty three weeks ago.