Accounting Errors at CCC - Post 8/15 in a series - A&A Committee approves accounts without knowing contents

8 – The A&A Committee approves the accounts 

without knowing their contents

The table below shows relevant information from the three iterations of CCC’s 2016/17 financial statements. 

• Anomaly 1:            

The 2^nd draft, published on 19^th September 2017, was materially different to the first draft that the public was able to inspect up to the statutory deadline of 15^th August.  Yet both versions contained the same certification date (30^th June) by the CFO

• Anomaly 2:         
  

In the 2^nd draft (featuring the £80m prior-period adjustment), the Committee Chair, Cllr Shellens, confirmed (on page 22) that “these accounts were approved by the Council at the meeting of the Audit and Accounts Committee held on 19^th September 2017”.  That did not happen.  The minutes of that meeting (page 6) record the following:

 

“As it was clear that the Accounts could not be signed off at the current meeting, the Chairman sought clarification on whether they would be in a position to be finalised for sign off on the 29th September, the date for which a special reserve meeting had been arranged.” 

 

There is no record of such a meeting taking place on the A&A Committee’s calendar. 

• Anomaly 3:          
  

   The final, audited accounts, (featuring £97.8m worth of prior-period adjustments) were published on 12^th October 2017 and contain the same date as the CFO’s certification date. They were approved by the Vice Chair of the A&A Committee (Cllr Rogers), who claimed that “these accounts were approved by the Council at the meeting of the Audit and Accounts Committee held on 19^th September 2017”.  That statement is also incorrect.  The final version of the accounts with the additional £17.8m adjustment journal was never seen by the whole A&A Committee prior to publication.

How are these anomalies resolved?  The official minutes of that September meeting contain the following:

In other words, although the City Deal accounting issue was still unresolved (BDO had only provided a preliminary response to the issue at the time), the committee was happy to leave it in the hands of the CFO, the Committee Chairman and Vice Chairman to make whatever adjustments they deemed fit, however material, without consulting the rest of the committee.  

In addition the members were happy for the CFO to make additional adjustments to any other misstatements as long as they were not material, also without consulting them.  In the event, the CFO did make an additional material adjustment.  He made the botched correction journal for the £17.8m creditor - which was above BDO’s £16.5m materiality threshold, but on which the members were not consulted.   

Thus the committee in charge of governance appears to have taken a wholly hands-off approach to approving the final accounts which contained £97.8m of false accounting in the prior period adjustments, and a further £60m of misstated revenue, debtors and usable reserves in 2016/17 itself.

After the final £17.8m journal was entered and the final 2016/17 accounts approved and published in October 2017, this is how CCC explained the rationale behind the material corrections:

Did the Council really undertake a review of City Deal accounting?  If there was a review “in response to recommendations made last year”, why did the authority not do it before preparing the draft 2016/17 accounts for public inspection rather than a month after the deadline available to local electors to challenge the 2016/17 accounts?  

It is hard to tell which party – CCC or BDO had the original idea of changing the accounting treatment so radically.  However, it is clear that they both colluded on the matter, and maintained the collusion for six years, with EY joining in from 2018/19 onwards.

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.

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.

Accounting Errors at CCC - Post 11/15 in a series - The £160m U-Turn & £218m Cover-Up

 11 – The £160m U-turn and £218m cover-up

The exposure from the first two Private Eye articles appears to have achieved what five years of campaigning and two formal objections failed to achieve.   

In May 2022, EY recommended making the £160 million correction to the 2020/21 City Deal grant and returning to the correct, accruals basis accounting after endorsing the incorrect accounting treatment in its previous two audits.  Mr Hodgson would not admit the error by using the term “accruals accounting”.  This is how it was explained in EY’s Audit Completion Report – Addendum in May 2022.  It amounts to the same thing:

“That when broken down, the City Dealagreement was in fact 5 annual grants of £40 million, determined on an annualbasis by Government within the overall 5-year funding agreement settlement, andtherefore should be recognised in that manner.”(Agenda item 8, page 9)

A simple reading of any of the City Deal 1 or 2 grant determination documents would have given him that same information.

Under International Accounting Standard 8 (IAS 8 - Accounting policies, changes in accounting estimates and errors), when a material error is discovered, and the same material error took place in prior years, the comparative amounts for the prior period(s) need to be restated and properly disclosed “as far back as is practicable”. 

The correct disclosure under IAS 8 is set out in paragraph 49

The erroneous frontloading of City Deal 2 revenue in 2020/21, which was corrected, is identical to the frontloading of City Deal 1 revenue in 2015/16 and the corresponding overstatements of debtors and usable reserves between 2015/16 (prior period adjustment) and 2019/20.  The  City Deal 1 accounting errors were material, amounting to £217.8m in the aggregate, as set out above.  Nobody at CCC or EY or BDO has challenged that figure with counter evidence.

As the Financial Reporting Council’s final decision notice in the matter of Grant Thornton’s audits of Patisserie Valerie noted last year, the principal objective of audits is…

“to obtain reasonable assurance about whether the financial statements as a whole were free from material misstatement, whether caused by fraud or error”.

The case for CCC and EY therefore to comply with IAS 8 with respect to the City Deal 1 accounting errors back to 2015/16 appears to be overwhelming.

However, in its final 2020/21 financial statements published in July last year, CCC declined to comply with IAS 8.  On page 51 of the final, audited accounts, under the section on General Accounting Policies and Judgements, the CFO wrote:

“The Council have considered whether a prior year adjustment is required, due to the judgement made about income recognition in respect of the second City Deal funding agreement. The Council has concluded that a Prior Year Adjustment is not required, as it is not material to the users of the accounts under IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.”

In its Independent Auditor’s Report, which forms part of the published financial statements, EY made no mention of the £160m correction made during that audit, or of any consideration of prior period adjustments.

The auditor issued his 2020/21 audit opinion in July 2022 without having accepted or rejected my objection, just as he had done in the two previous years.

At the 29^th September 2022 meeting of the A&A Committee (two months after the 2020/21 accounts were signed off), the Chairman asked EY’s audit partner to comment on the absence of prior period adjustments in those accounts.  Mr Hodgson replied:

“…On City Deal, we did, as part of our opinion for 20/21 consider the need for prior year adjustments – both the immediate prior year and the whole life of the previous City Deal “tranche”.  We concluded a prior year adjustment was not merited.  One consideration point is that neither we nor management in place now could have gone back and understood what information upon which management made their decision in 2015/16 was based, as nobody was around to validate that.  And clearly, as we have gone through City Deal, you could take one view, or you could take another view, depending on which element of weight you gave to the accounting and evidence base behind them.  So on balance, a prior year adjustment was not required.” (Timestamp 51:51)

It is important for the public to understand the full import of the above statement.  It falls into two parts.

Mr Hodgson’s first argument is nonsense.  As set out in Sections 6 and 7 above, all that information is in the public domain and was known to Mr Hodgson. But even if he had been unaware of it, that begs the question: why did EY slavishly follow the same incorrect accounting “policy” for two years, without ever questioning it?  By law auditors are required to maintain “professional scepticism” throughout the audit:

“In accordance with ISA (UK) 200 (Revised June 2016), the auditor shall maintain professional scepticism throughout the audit, recognizing the possibility that a material misstatement due to fraud could exist, notwithstanding the auditor's past experience of the honesty and integrity of the entity's management and those charged with governance.” (Paragraph 13)

But even if EY had not known why CCC accounted incorrectly for City Deal 1, that is no argument for not entering prior year adjustments for the same acknowledged error that the auditor and his client have just agreeed should be corrected for City Deal 2.  Accounting policies, once chosen, have to be applied consistently.  The CFO signs a certification to that effect in each year’s published financial statements (see above).

The second part to Mr Hodgson’s response to the committee Chair – highlighted in yellow above, makes even less sense.  In March 2022 the EY audit partner told the A&A Committee that his decision on the correct accounting treatment for City Deal 2 would be a binary choice between revenue frontloading and accruals basis accounting.   

Here Mr Hodgson is effectively saying that there is no objective right or wrong, and you can choose either one or the other accounting treatment depending on how you feel.  He is contradicting his own conclusion from May 2022 when he correctly stated that accruals accounting was the correct policy for the discrete City Deal 2 grants, paving the way for the £160m correction to the 2020/21 financial statements.

Furthermore, even if one posits that there is no right or wrong and therefore the Council and/or EY can make a subjective choice on the accounting treatment of hundreds of millions of pounds based on nothing in particular, then the consistency imperative for accounting policies would compel CCC to stick with the previous revenue frontloading arrangement for the sake of consistency, and not make the £160m correction to the 2020/21 grant.   

The fact that the £160m correction was finally made means that EY recognises that the previous accounting treatment was incorrect.  That means the same correction should be followed through to City Deal 1 and prior year adjustments should be made to implememt those corrections, as prescribed in IAS 8 (see above).  

Mr Hodgson’s statement at the September A&A meeting therefore makes no logical sense.  His conduct indicates that he is simply trying to divert attention away from his own complicity in the incorrect accounting in 2018/19 and 2019/20 which he, as auditor, conspicuously failed to challenge. 

---

Accounting Errors at CCC - Post 12/15 in a series - Evidence for Fraudulent False Accounting

12 - The evidence for fraudulent false accounting

False accounting is fraud and a criminal offence underSection 17 of the Theft Act 1968 (see Appendix 4 below). It is for the courts to decide whether the material misstatements relating to City Deal 1 grants over five years and endorsed by both BDO and EY were in fact fraudulent.  There can be no doubt however, given the evidence presented above, that they were deliberate.

In January 2023 I wrote a 25 page open letter to all CCC members, setting out the detailed evidence and arguments that the revenue frontloading treatment for City Deal 1 grants was false accounting.  The letter was copied to CCC Finance, BDO and EY.  The response has been silence.  Nobody has challenged the evidence with facts or counter-evidence. 

Last July, Cllr Boden, a member of the A&A Committee issued a statement (Minutes, page 2) decrying what he claimed were baseless allegations about City Deal fraud and the Council’s going concern position (see Section 13 below).  It contained no facts or explanation for the circumstances of September 2017. 

In that statement, the councillor seem to have taken his lead from the EY audit partner, who, in his Audit Completion Report – Addendum two months earlier, finally conceded that City Deal should be accounted for on an accruals basis (see Section 11 above).  In that same report he also wrote, in connection with City Deal:

·      Whilst, an aggressive accounting policy had been adopted for the initial accounting treatment, there was no indication of fraudulent mis-reporting or bias by Management.

It is difficult to see how Mr Hodgson can reach such a conclusion if one can believe his statement to the same committee last September:

“neither we nor management in place now could have gone back and understood what information upon which management made their decision in 2015/16 was based, as nobody was around to validate that.”

If he did not know the reasons for the original change in treatment in September 2017 (not in 2015/16), how could he know there was no indication of fraudulent mis-reporting or bias?  Mr Hodgson is disingenuous at best.   

A more plausible explanation for his expression of ignorance is his own complicity in maintaining BDO’s incorrect position on City Deal accounting for two years, until public exposure forced him into the £160m U-turn in May 2022. 

Mr Hodgson clearly lied about his ignorance of the origins of what he calls CCC’s “aggressive accounting policy”.  The public and others may draw their own conclusions about what that might imply about his awareness of alleged fraudulent mis-reporting.

Accounting Errors at CCC - Post 13/15 in a series - CCC's Going Concern Position

13 - Cambridgeshire CC’s going concern position

Along with denials of fraudulent conduct, last September members of the A&A Committee also denied there is any question over the authority’s going concern status as a possible motive for deliberately overstating debtors and usable reserves.  Here too, that assertion does not stand up to honest enquiry.

In recent years CCC’s general fund and earmarked reserves have been at the lower end among County Councils, as this graph produced by Grant Thornton shows.

Only Somerset CC and the former Northamptonshire CC (CCC’s former partner in the ill-fated Local Government Shared Services arrangement) are lower.  The non-existent reserves from the City Deal false accounting are not included under Earmarked Reserves or General Fund.  In CCC’s annual Movements in Reserves Statements, the Capital Grants and Contributions Unapplied Reserve appears in a separate column, where its year-end balance was overstated by up to 600% (2016/17) during the City Deal 1 years.

During the 2020/21 financial year, CCC still maintained that no conditions were attached to City Deal grants.  On 16^th October 2020, CCC’s Commercial & Investment Committee met to discuss how to budget for the coming months and years given the unknown effects of the Covid-19 pandemic.  At the time the country had experienced the first wave of the virus.  Finance had prepared a report with three possible financial scenarios: A (the most benign), to C (possible worst case scenario).(Agenda Item 4 Appendix). The estimated additional savings requirement for 2021-22 ranged between £32.8m and £82.2m.

At the time, the authority had fended off the challenges over City Deal accounting for four years, and was no doubt counting on maintaining that position throughout the City Deal 2 years.  Thus the CFO would have assumed he could overstate usable reserves in 2020/21 by £160 million, and in 2021/22 by £120m.  £120m exceeds by some margin the worst case scenario envisaged at the time for the savings needed in 2021/22.

The transcript below reveals the CFO’s concerns about the council’s precarious financial position in the absence of additional support from central government.  Whether or not his reference to exhausting the reserves and “stripping out everything we’ve got in the balance sheet” included the virtual capital grants unapplied reserve, it cannot be denied that the CFO was concerned enough about the council’s financial position to talk openly about the possibility of having to issue a Section 114 Notice. 

“You may or may not yet be aware but we are engaging proactively with MHCLG [now DLUHC] who obviously are the government department that overview local government finances.  We have started a process to ensure that they are aware of our financial position.

If the Scenario is more likely to be a B+ or even, as Cllr Shellens highlighted, the C Scenario, we simply can’t fund that.  And I can’t fund it from the reserves that we’ve got available – even stripping out everything we’ve got in the balance sheet if it’s up towards the upper end of that scenario modelling.  Therefore, the implications of that are I would have to issue a Section 114 Statement, which effectively says the Council can’t meet its liabilities.

 

Now I want to be clear that we’re not anywhere near that position, and we want to obviously avoid it – hence the reason why we’re engaging early with MHCLG to talk through what the mitigations and flexibilities [are] that might be afforded – and what additional support might be afforded by the government.  But we are – I’m not trying to cover up anything, I’m trying to be transparent in terms of the challenges we are facing.” (Timestamp 26:28)

Since then, other financial challenges have emerged, including, in particular, the state of the council’s loss-making housing development company, This Land Ltd.  At last September’s meeting of the A&A Committee, Mr Hodgson took members through the risks in his audit plan report for the 2021/22 audit.  

A new and significant risk for 2021/22, (though it should have been signalled several years earlier) was the “Recoverability of Long-Term Debtor with This Land Group”. (Agenda Item 6 Appendix, p6)  Mr Hodgson explained it as follows:

“There has been some significant press coverage of both This Land and other housing-related subsidiaries in the country, and their ability to repay the borrowing to which they have been afforded.  And in light of that we need to review the business model that This Land has via the component auditor, their going concern assumptions, and therefore their ability to repay the £113 million that is currently outstanding at 31^st March [2022] – and discuss with management the need for any impairment over that balance because of any recoverability issues.”

The salient facts about This Land are that at 31 March 2022 (the balance sheet date of the latest available accounts), the This Land group had cumulative comprehensive losses of £27 million and outstanding borrowing from CCC of £113.8 million.   

Only £44.5m of that is secured against land CCC sold to This Land.  The remaining £69m is unsecured after This Land sold off much of its land to third parties without repaying the mortgages to CCC in order to meet the interest payments it owed to its 100% shareholder.   

Historically, when This Land could not pay the loan interest (because it was not selling any houses), it simply borrowed more from CCC, which sourced the funds from the Public Works Loan Board.  That avenue is no longer available to the authority.  Each of the 18 homes This Land sold In2021/22 represented a loss of £399,000 towards the company’s £7.2m comprehensive loss for that financial year.

If CCC were to take a realistic view about the recoverability of the nine-figure sum lent to This Land and write off a significant portion of it, that would only add to concerns about the council’s own going concern assumptions.  So it is certainly not unreasonable for members of the public to raise those concerns with members of the committee charged with governance, and with the wider taxpaying public.

On the same subject, CCC’s audited accounts for 2021/22 have still not been published, nearly seven months after the statutory deadline, whilst publication of the draft accounts for 2022/23 has been delayed until at least July 20^th.  These too are disconcerting details, especially in light of the uncorrected material misstatements in the authority’s recent statements of accounts.