Democracy Denied

By Andrew Rowson – 1^st December 2023

This is the first in a series of articles exposing the obstructionism by Cambridgeshire County Council (CCC) finance officers after local electors asked to inspect and have copies of documents and accounting records relating to the draft annual financial statements.  That public right is enshrined under Section 26 of the Local Audit and Accountability Act 2014 (LAAA 2014).

For the last seven years, two local electors, (one a former County Councillor) have been repeatedly denied our inspection rights at CCC for no good reason, often being lied to, or else we have received information that has been doctored or manipulated in some way.  

Following the same unacceptable treatment during this year’s public inspection period, I wrote to the Chief Executive last month, complaining about the denial of information again this year.  Two weeks ago I received an email from CCC’s Finance department.  Instead of providing the missing information, which had all been requested within the statutory inspection period ending on September 1st, the officer attempted to justify the council’s conduct of withholding the information, using bogus arguments and incorrect facts.  

Since the CEO personally took ownership of my complaint, I conclude that he condones and has approved of his officers’ conduct.  Consequently, I shall shortly be writing to the Council Leader, Cllr Lucy Nethsingha, asking her to instruct the officer body to comply with the legislation and to provide the missing information.

City Deal again.

In a recent article on this website I challenged CCC to issue legal proceedings following its shameful bullying tactics against a local journalist who published an opinion piece about the materially false accounting of government City Deal grants.  The article that offended the authority was republished on this website three months ago.

Since then, I have heard nothing from CCC.  It has clearly decided against putting its money where its mouth is after its earlier theatrical threats against the journalist.  The inescapable conclusion is that the authority’s silence is a tacit, but nonetheless eloquent admission that it deliberately and fraudulently falsified its financial statements for several years, overstating its assets and usable reserves by £218m in the aggregate between 2016/17 and 2019/20, including a £97.8m prior year “correction” to the 2015/16 accounts which had previously correctly accounted for that year’s £20m City Deal grant.  

That being the case, this website will from now on drop the word “alleged” when referring to the uncorrected false statements in CCC’s financial accounts.

The breakdown of the overstatements is shown in the table below.  It was explained in some detail to every elected member in January this year, and has been explained many times to members serving on the council’s Audit & Accounts Committee.  Nobody has challenged the facts, which come from the authority’s audited financial statements.

CCC’s current and previous auditors (EY and BDO), who I have publicly accused of being complicit in the false accounting, have also failed to come forward with any legal challenge.

The last article quoted EY’s contorted explanation from its decision notice in March this year for not correcting the accounting errors in the five financial years before 2020/21, after it had belatedly corrected the same accounting error for the final 2020/21 accounts (see bottom line in the table above).

The false accounting of City Deal grants is related to two of the requests for information in this year’s public documents inspection which the authority refused to provide.

Back in September 2017, when CCC Finance and the then auditor BDO first decided to falsify the accounts, they did so on the false assertion that the government attached no conditions to how the City Deal grants were to be spent.  In fact, conditions have always been attached to the grants, as the authority and its current auditor now concede.

Had there been no conditions, the monies ringfenced for the Greater Cambridge Partnership (GCP)’s specific capital infrastructure projects under City Deal could have been spent on items beyond the ring fence, including relieving pressures on CCC’s own revenue budgets rather than finding in-year savings. 

Therefore, in my inspection request dated 17^th August this year, I asked for the sums spent on City Deal projects during the financial year, the full list of cost centres in CCC’s financial system designated for City Deal projects and, if that list did not fully reconcile with the stated expenditure, the explanation, or reconciliation of where that expenditure had gone.

The point of requesting the full list of City Deal cost centres was to be able to check the total City Deal spending for the financial year against those cost centres from the published Transparency Code spend data.

Twelve days after the request, Finance provided the summary figures below, followed by a list of 64 titles under the heading “Cost centres”.  When they were cross-referenced to the true cost centres in the Transparency Code database, 45 of the 64 (70%) were not cost centres at all – rendering any reconciliation exercise impossible.  The following day (August 30^th), I informed Finance of its error, reiterating that I was looking to reconcile the declared City Deal expenditure total for 2022/23 (£27,846,194) against the payments in the Transparency Code payment data in the corresponding City Deal cost centres.  I also asked for confirmation that the true list of City Deal cost centres only captured bona fide City Deal spend and nothing else.  I never received an answer to that question.

At 1.41pm on Friday 1^st September, the final day of the inspection period, I received an email from Finance containing 32 attachments.  The 32^nd attachment was a revised list of 45 City Deal cost centres, 41 of which matched with cost centres in the Transparency Code data that had recorded payments against them.  The finance officer explained that the earlier list had included “capital project titles rather than capital cost centres”.  It is hard to understand how Finance could have made that mistake accidentally, given the clarity and the context of my repeated requests for cost centre titles.

After matching the revised cost centre list with published payments to those cost centres during 2022/23, the total payments fell short of the £27.8m by £10.9m (39%).  The difference is orders of magnitude higher than can be explained by timing differences between expenditure and payment dates, or by any payments below £500, which are not included in the published payment data.

The significant discrepancy might be explained by the following four factors, or by a combination of them:

• Bona fide City Deal expenditure was incorrectly coded to cost centres other than those provided by Finance as the full list of City Deal cost centres,
  
  
• Bona fide City Deal expenditure was correctly coded to the corresponding cost centres, but a significant proportion of payments were simply removed from the Transparency Code datasets prior to publication.  CCC has a long and disreputable track record for doing this,
  
  
• Substantial expenditure contributing to the £27.85m total above was spent on non-City Deal-related items, and coded to other cost centres - in breach of the government’s grant conditions that CCC has belatedly recognised,
  
  
• Substantial expenditure contributing to the £27.85m was not related to City Deal and was never recorded in CCC’s payments system, but instead was syphoned off from the City Deal pot by means of general ledger journals to support the County Council’s revenue budgets – again in breach of the clear City Deal grant conditions set out in the grant determination documents and other grant agreement documents.
  
  
• By waiting twelve days before providing an initial response, then providing incorrect and useless information, and finally by providing an incomplete response to my request on the very last afternoon of the inspection period,
   
• Finance again employed similar tactics to previous years to deny a local elector his statutory inspection rights.  

Because of the scale of the City Deal discrepancy in 2022/23, and the authority’s previous lie (maintained for four years) that there were no conditions associated with the capital grants, there are reasonable grounds to suspect that a large part of the missing payments may be explained by the fourth factor above.  That suspicion is given added substance by clear references in public committee documents to “internal borrowing” from unspent City Deal grants to spend on items unconnected to City Deal projects. 

As reported in the previous article, further concern comes from the fact that if one takes the opening City Deal balance above (£87.3m), and compares that with the known grant receipts dating back to 2015/16, and the disclosed payments to cost centre descriptions prefixed with “City Deal” or “GCP”, the City Deal expenditure not showing in the Transparency Code payment data rises to around £47m up to March 2023.  

Instead of explaining these anomalies, which might yet have an innocent explanation, CCC has set itself on a course of explaining nothing, covering everything up, and attempting to discredit the people who ask legitimate questions about how these government grants have been, and are being spent.

Questions about the governance and transparency of City Deal grants are not frivolous, and local electors are entitled to seek assurances that their money is being properly managed in a transparent fashion.  The fact remains that there is a yawning £47m hole in the transparency of how City Deal grants have been spent (£10.9m in 2022/23 alone).  

This authority’s endless ducking and diving to avoid providing the information properly requested under s26 of LAAA 2014 is a reprehensible denial of the public’s inspection rights, and does nothing to quell the many concerns about how City Deal grants have been managed and spent.  The Chief Executive Officer’s role in defending the indefensible conduct of his officers is an outrage.

A second request during the inspection period was for the signed City Deal grant funding agreement, complete with terms and conditions, as set out in the Treasury’s “Managing Public Money” document, and also in the Cabinet Office’s Guidance for General Grants.  

I was repeatedly denied that document as well.  Instead, Finance officers pointed to a government press release which contained a short document for public consumption which was not signed and did not contain any of the detail or terms and conditions specified by the Treasury and the Cabinet Office. That document was certainly not the grant funding agreement for the potential payment of £500 million worth of government grants over fifteen years.

Echoes of the GCGP LEP

Cambridgeshire County Council has been in a similar position before.  In 2017, North East Cambridgeshire MP Stephen Barclay raised concerns about the transparency and governance of the former Greater Cambridge/ Greater Peterborough Local Enterprise Partnership (LEP), and the LEP Chairman’s conflicts of interest.  As with City Deal, CCC was also the accountable body for the LEP.  Investigations and critical reports by the National Audit Office and the Public Accounts Committee followed.

In January 2018, CCC’s then CEO – Gillian Beasley, and the LEP Chairman, Mark Reeve were questioned by MPs, who were dissatisfied by and severely critical of their responses about accountability and transparency.  The upshot was that £38m of planned government funding was withheld, and the LEP was scrapped.

In respect of the City Deal reconciliation and the other inspection requests denied by CCC again this year, the authority seems determined to conceal important information from local electors and in so doing, disregard the law.  

Consequently, in addition to writing to the council leader, I am also escalating the matter to my Member of Parliament, Lucy Frazer KC MP, the Culture Secretary.

Where has £47 Million of Government's City Deal Grant Gone?

By Andrew Rowson

September 2023

For nearly six years, Cambridgeshire County Council (CCC) deliberately overstated its debtors and usable reserves in its financial statements by an aggregate amount of £378 million.  Two formal objections to the accounts on the matter in 2018 and 2021 by former County Councillor Mike Mason and me were simply ignored by the auditors (BDO and EY).  It was only after the false accounting was exposed by Private Eye magazine in November 2021 (see Appendix 1) that CCC and EY corrected the 2020/21 “error” of £160m.  But they declined to correct the identical prior year errors totalling £218m on the grounds that they were “not material to the users of the accounts.”

During the statutory accounts inspection period last month, I sought to establish that the £40m City Deal grant for 2022/23 had been properly spent.  I asked CCC’s Head of Finance, Mr......... for a reconciliation of grant income and expenditure during the year, and a list of the cost centres used to ring fence City Deal expenditure from the rest of the council’s business.  City Deal is a Greater Cambridge Partnership programme (GCP).  At the agreed documents inspection meeting on 22^nd August at New Shire Hall,...........denied my request, and asserted, incorrectly, that he did not have to answer any questions about the accounts.  When shown the NAO’s guide to the public’s rights,............ claimed questions could only be put in writing.  Also not true.  My written questions about City Deal were ignored until 29^th August, when I received the set of balances shown in Appendix 2 below, and a list of 65 names of supposed City Deal Cost Centres.

46 of these were not cost centres at all, and it was not until 1.41pm on the final day of the statutory inspection period that Mr ........ sent me a revised “full list” of City Deal cost centres in the last of 32 attachments in one email.

When matched with the council’s published expenditure, those cost centres had only paid out £16.7m in 2022/23 – nearly £11m lower than Mr.......... £27.8m figure for the accounting year.

When the reconciliation is extended back to earlier years (see Appendix 2), it appears that nearly £47m of City Deal government grants earmarked for specific GCP infrastructure projects might have been spent on CCC’s own goods and services not connected with City Deal, possibly breaching the grant conditions that for years CCC and its auditors claimed did not exist.

When I informed Mr ........of my findings, the Head of Finance claimed that he could not answer any more questions because the inspection period was now over.  His action is unlawful because, as established in the case of Moss v RB Kingston in 2021:

“section 26 of the Local Audit & Accountability Act 2014 does not allow a relevant authority to refuse to process an inspection request on grounds of the time it will take to satisfy the request” - see paragraph 83.

Mr........ conduct in previous inspection visits has been equally obstructive and unprofessional.  Getting to the bottom of this matter is important because the public (and presumably the government) need to know whether many millions of pounds of grant money have been correctly spent in a way that complies with the City Deal grant conditions that the authority is well aware of.

About the author

I am a former auditor with Price Waterhouse and have worked in business software applications (ERP) and data mining for nearly thirty years.  In recent years I have specialised in local authority finances. 

 Appendix 1 Private Eye - Rotten Boroughs articles on City Deal

Issue 1560 – 10^th November 2021

Issue 1564 – 5^th January 2022

Issue 1575 – 15^th June 2022

Appendix 2 – City Deal grant reconciliations

This is the set of balances provided by the Head of Finance on 29^th August 2023:

 

The tables below show City Deal grant income and net expenditure matched to the set of revised City Deal cost centres provided by CCC’s Head of Finance.

The two reconciliations below show how nearly £47 million of City Deal grants received by CCC on behalf of the GCP have not been accounted for.  £10.88m is unaccounted for in 2022/23, whilst the opening balance above indicates that around £36m may have been spent in previous years on goods or services unrelated to City Deal projects.

Accounting Errors at CCC - Post 2/15 in a series - What is City Deal?

2 - What is City Deal?

City Deals 1 and 2 are two, five-year government grant arrangements sponsored by the DLUHC and the Treasury.  The grants were awarded to the Greater Cambridge Partnership (GCP).  CCC is the accountable body for the GCP, which means it holds funds and oversees payments to its delivery partners under the scheme (Cambridge City Council and South Cambs District Council) and suppliers where relevant.

The first City Deal (City Deal 1) ran from 2015/16 to 2019/20.  It comprised five annual grants, with conditions, worth £20 million each, i.e. £100m over all five years. 

City Deal 2 began in 2020/21.  It too comprises five annual grants, with the same conditions, worth £40m each, i.e. £200m over the five years to 2024/25.

The conditions are contained in grant determination documents signed by authority of the Minister of State for Housing, Communities and Local Government (now DLUHC).  The grant determination documents have been sent to CCC each year since 2015/16 to accompany the corresponding annual grant payments.  The conditions in all City Deal grant determination documents to date have been the same.  They state:

“Grant paid to a local authority under this determination may be used only for the purposes that a capital receipt may be used for in accordance with regulations made under section 11 of the Local Government Act 2003.”

That means if any grant monies are used for purposes, outside those specified, the grant monies may need to be returned, or the government may cease to pay the grants.

Accounting Errors at CCC - Post 10/15 in a series - Ernst & Young Fails to Challenge Accounting Treatment

10 - 2018/19 - Ernst & Young fails to challenge accounting treatment

EY took over from BDO as CCC’s auditor for the 2018/19 audit onwards.  EY did nothing to challenge the City Deal accounting treatment in 2018/19 or 2019/20.  It carried on where BDO left off, issuing unqualified audit opinions on both years’ financial statements.  On page 44 of the 2018/19 audited accounts, CCC wrote in the section on General Accounting Policies and Judgements:

The Council previously judged that the appropriate accounting treatment for the City Deal funding from Central Government to the Greater Cambridge Partnership (GCP) of £20m per year from 2015-16 to 2019-20 was the recognition of the total funding as a grant in 2015-16, along with a debtor for £80m.  This accounting treatment continues to be applied with a further £20m received in 2018-19, reducing the debtor balance to £20m.

The same message, (only with the debtor balance reducing to zero) was included in the 2019/20 accounts.  The £20m overstated debtor balance, the £20m overstated usable reserves balance, and the understated £20m revenue in both years were all above the final materiality thresholds EY set for those audits of £16.1m and £19.58 respectively.   

Yet Mr Hodgson steadfastly chose to say and do nothing.  He had access to CCC’s and BDO’s stated reasons for the change in accounting in 2016/17.  All the relevant documents are in the public domain on CCC’s website.  In addition, EY’s Cambridge office is adjacent to BDO’s office.   

Following EY’s appointment, both audit partners have met regularly to discuss the progress of the outstanding objections.  It is therefore inconceivable that Mr Hodgson was unaware of Mr Mason’s 2018 objection on City Deal accounting, or was unaware that the City Deal accounting treatment breached the CIPFA Code and CCC’s stated accounting policy for income and expenditure recognition.   

He could not have been ignorant of the fact that the 2018/19 financial statements were not free from material misstatements, or that his statements to the contrary in his audit opinions were false.

Between 2019 and 2022 I submitted four objections about CCC’s draft accounts to EY.  Up to October 2022 Mr Hodgson declined to accept or reject any of them on the stated grounds that he could do nothing until BDO had completed its investigations into Mr Mason’s two historical objections.  That conduct breaches the National Audit Office’s Code of Audit Practice that auditors are obliged to comply with under Section 20(5) of the Local Audit and Accountability Act 2014 (LAAA 2014) – see Appendix 2 below.

Thus, by 2022, six formal objections to CCC’s last six annual accounts remained outstanding.  One of the matters in my 2020/21 objection was the accounting treatment for City Deal 2, whereby, as with City Deal 1, all five years’ worth of City Deal 2 grant income were recognised in year one (2020/21) as a single grant.  City Deal 2 was worth £200m over five years, so the incorrect accounting recognised £200m as grant revenue for 2020/21 alone, instead of the correct value of £40m, as set out in the determination documents.   

The result was that in 2020/21, revenue, debtors and usable reserves were all overstated by £160m, over eight times the materiality threshold EY set for its audit of CCC’s 2020/21 accounts.  Those overstatements meant that the draft usable reserves balance of £375,478,000 was overstated by 74% - hardly an immaterial difference.

During the 2021 statutory inspection period under Section 26 of the LAAA 2014, I asked to inspect and have a copy of that year’s City Deal grant determination document, which contained the conditions CCC alleged did not exist.  I already had copies of previous years’ determination documents from a contact at the National Audit Office (NAO).   

CCC’s Head of Finance repeatedly wrote to me asserting that no such document existed.  I mentioned this lack of cooperation from the senior officer in my objection to EY on the 2020/21 financial statements which was submitted on 13^th September 2021.  I sent a copy of the objection to CCC Finance.   

Just three hours later, CCC’s Head of Finance wrote to me enclosing copies of two determination documents covering the 2020/21 financial year.  The grant value in each document was £20 million.  Both documents contained the expected grant conditions that CCC had previously denied existed, but now acknowledges.

In its audit plan for the 2020/21 audit EY presented to the A&A Committee in September 2021 (Agenda Item 8), the auditor made no mention of any audit work to be done on City Deal accounting, despite the scale of the overstatements in the draft financial statements or his knowledge of Mr Mason’s outstanding 2018 objection.   

At that same meeting, Mr Mason submitted a written question about City Deal accounting.  The question and the answer from the Head of Finance can be found online (Timestamp 13.22) and in the minutes (Appendix 1).  The Head of Finance’s response was factually incorrect and misleading on several counts:

·       CCC had not been consistent in its treatment of GCP funding.  In 2015/16 it accounted correctly for that year’s grant, on an accruals basis (see Sections 4 and 5 above),

·       The revenue frontloading accounting treatment does not comply with the CIPFA Code (accruals basis) or with any recognised accounting policy,

·       The Head of Finance misquoted from the CIPFA Code and fabricated content that is not in the Code.  He conspicuously omitted to mention the overriding obligation to account for capital grants on an accruals basis.

·       Adding short and long-term debtors to balance the overstated revenue does nothing to correct or diminish the false accounting. The net result is still £160m overstated revenue, debtors and usable reserves which simply did not exist in that financial year.  Users of the accounts, such as short term lenders and central government had still all been materially misled.

·       In addition to creating long and short term debtors for the non-existent revenue, the resulting “reserves” were taken to the same Capital Grants and Contributions Unapplied Reserve, which on CCC’s own definition is designed for grants already received.

Following that response, the Committee Chairman stated that he would expect City Deal accounting to be looked at by the external auditor as part of its audit work that year.

After that September meeting, I wrote to Private Eye magazine, providing a copy of the draft accounts and other background evidence.  The magazine sought professional opinions, including from a former investigator at the Serious Fraud Office and a former investigator at the Financial Reporting Council.  The resulting articles published on the magazine’s Rotten Boroughs page in November 2021, January 2022, and June 2022 are shown in Appendix 3 below.