Background
In July 2023, this site published a series of articles explaining how Cambridgeshire County Council (CCC), aided and abetted by its then auditor, BDO, falsified successive annual statements of accounts by an aggregate total of £218 million over five years by asserting that central government's City Deal grants had no conditions attached to them, and therefore that the grant income should be recognised up to four years before the grants even became receivable.
Those false, and I maintain, fraudulent financial statements overstated CCC's usable reserves by up to 87% at a time when the authority was borrowing heavily from the Public Works Loan Board (PWLB) to lend over £100 million to its failing housing development subsidiary - This Land Ltd. The erroneous frontloading of grant revenue breached the fundamental accounting principle of accrual accounting, which is stipulated under the CIPFA Code of Practice and International Financial Reporting Standards (IFRS). Local authorities are required to comply with both sets of standards in preparing their financial statements.
This site published details of the false accounting in a series of posts last July, beginning here. The audit trail of BDO's direct involvement in falsifying the accounts is set out here.
The false accounting continued throughout the five years of the first City Deal agreement (5 annual grants of £20m) up to 2019/20, even after BDO's term ended and EY's appointment as CCC's external auditor in 2018/19. EY and CCC maintained the false accounting of City Deal grants up to the first year of the second City Deal agreement (5 x £40m annual grants) in 2020/21, overstating revenue and reserves by £160 million in that year alone. However, the authority and EY performed a swift U-turn to correct the nine figure overstatement shortly after it was exposed in Private Eye magazine. In the three financial years since 2020/21, CCC and EY have maintained the correct accrual accounting treatment for City Deal grants.
Having corrected the 2020/21 accounts, CCC and EY should have made prior period corrections in that same financial year for all five previous years of false accounting, as required under International Accounting Standards 8 (IAS 8) "Changes in Accounting Estimates and Errors". The idea behind IAS 8, and a requirement of the CIPFA Code, is that councils choose the correct accounting policies and apply them consistently. Council Chief Finance Officers are required to make a statement to that effect in each year's published financial statements. In failing to make the material prior year corrections, CCC's CFO has therefore materially misled all users of CCC's accounts (including lenders and central government) for the last four financial years.
In 2018, Mr Mike Mason, a former Cambridgeshire County Councillor, submitted an objection to the accounts in connection with the false accounting of City Deal grants that year. BDO took five and a half years to consider that objection, only producing a statement of reasons in January this year, which asserted that the grant revenue frontloading treatment was correct, despite EY coming to the opposite (and correct) conclusion in 2022.
In July this year, I wrote to Mr Scott Knight, BDO's Head of Audit and Assurance, challenging his firm's insistence on defending the false accounting of City Deal grants between 2015/16 and 2019/20. Mr Knight did not respond, so on 6th September I wrote to him again on the same subject, and also on the subject of the unlawful £38,000 pay rise awarded to CCC's former Chief Finance Officer, Mr Chris Malyon, in 2017/18. The same (now retired) BDO audit partner, Ms Lisa Blake, was complicit in both the City Deal false accounting and in Mr Malyon's unlawful pay rise and associated cover-ups. Mr Malyon's unlawful pay rise, which was designed to cover up substantial undeclared remunerative benefits, is the subject of a previous post on this site, dated 24th August.
My second letter to Mr Scott Knight is reproduced below.
6th
September 2024
Dear Mr Knight,
Will BDO’s culture of “systematic dishonesty” now
change?
I wrote to you at the end of July about the £218m worth of
aggregate false accounting in Cambridgeshire County Council’s (CCC) financial statements
between 2015/16 and 2019/20. The false
accounting was the direct result of former BDO audit partner Lisa Blake lying
about City Deal, which comprised discrete annual grants of £20m and not
a single £100m grant, lying about the absence of grant conditions, and lying
about what the CIPFA Code stipulates. I
have attached that earlier
letter with this one. Those
consequential lies first appeared in BDO’s September 2017 ISA 260 report. The key passage was:
“We concluded that the grant
income awarded to the Council in relation to the City Deal in 2015/16 (£100m,
to be paid in 5 annual instalments of £20m) did not have any conditions
attached regarding its use. The Code requires that grants should be recognised
immediately as income unless any conditions have not been met. In the absence
of such conditions, the grant should have been recognised in full in the year
the grant was awarded.”
You did not reply to my letter, in which I asked you, as
BDO’s National Head of Audit and Assurance, what you understood by the term “accruals
accounting”, which is what the CIPFA Code and IFRS stipulate for recognising
grants and all other income and expenditure.
Lisa Blake apparently did not understand it.
I did however have a response last week from the Deputy
Prime Minister’s Office, (see Appendix below).
It is reassuring that the new government fully recognises how thoroughly
broken the local audit regime is, and that Cambridgeshire County Council and
BDO are now firmly on its radar as two dysfunctional organisations.
Another matter BDO covered up for many years was CCC former
Chief Finance Officer Chris Malyon’s theft of taxpayers’ money in the form of
non-executive directorship (NED) fees from CCC’s 50% owned subsidiary company,
Cambridge and Counties Bank Ltd. Mr
Malyon failed to disclose those remunerative benefits in the accounts he
prepared and certified as true and fair for seven years. In that time he may have stolen over £200,000
of taxpayers’ money before Lisa Blake colluded with CCC in disguising the
2017/18 NED fees (£45,000) as a mid-year, £38,000 retrospective pay rise plus
£7,000 pension contribution.
I recently set out the key details of the alleged fraud and
cover-up in a letter to CCC’s serving Head of Human Resources, Janet Atkin, who
played a key-role in the original 2018 cover-up. The letter is posted on my blog and can be
found here. Ms Blake knew about Mr Malyon’s thieving,
because she admitted it to me. She was
also well aware of, indeed complicit in his bogus 2017/18 pay rise, which was a
clumsy attempt to cover up for the recently discovered undeclared NED fees.
That unlawful and fraudulent pay rise paved the way for Mr Malyon to receive a
substantially larger pension than he was entitled to on his retirement in 2021. Local taxpayers are paying for that. I again draw your attention to the role of
CCC’s former CEO, Gillian Beasley OBE, who was responsible for awarding Mr
Malyon the unlawful pay rise, and who deliberately inserted materially false
and inflated “current salary range” figures into her March 2018 pay
policy statement for the CFO’s role. I
explain this in the letter to Ms Atkin, pointing out that those higher figures
were designed to deceive elected members into unwittingly approving an
effective 33% pay-rise for the CFO in 2018/19 and to smooth over his unlawful,
unauthorised 36% pay-rise the year before.
There is no doubt that BDO and CCC share the same culture of systematic dishonesty,
whose objective is to deny local taxpayers the transparency and accountability
they are entitled to receive from the local audit process.
I shall publish this letter on my blog and discuss it with
my Member of Parliament. I shall also
keep central government apprised of whether BDO intends to continue covering up
this auditor-assisted corruption, or whether, under Mr Shaw’s new leadership
next month, the firm wishes to show some accountability and responsibility
towards Cambridgeshire’s taxpayers, who have paid out hundreds of thousands of
pounds since 2015/16 for audit opinions and statements of reasons that are not
worth the paper they are written on. Local
taxpayers and other users of the accounts have been disrespected and materially
misled by BDO for the last eight years. It
is also worth noting that the six and a half years BDO took to produce two
whitewash statements of reasons contributed perhaps more than the firm’s fair
share to the national local audit backlog.
It would be an interesting exercise for someone to establish how many
other audit reporting delays at English councils were caused in part by rotten
auditors dragging out objection investigations for years until well after crooked
senior council officers like Mr Malyon and Mrs Beasley had safely retired.
To that end, I invite you Mr Knight, or Mr Mark Shaw to
comment on Ms Blake’s disgraceful conduct during successive CCC audits and on
the long drawn-out objection “investigations” that culminated in the two worthless
statements of reasons in January this year.
I look forward to hearing from you, and to showing readers
and central government that the firm is now committed to taking its
responsibilities seriously by owning up to the serious accounting and accountability
failings of its former National Head of Public Sector Assurance, Lisa Blake.
Yours sincerely,
Andrew Rowson
Encl.
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