Is The Game Up for "This Land"?

 

The record loss in the year to Dec 2019 was in large part due to that year’s inventory impairment charge of £7.58m to bring the total inventories value (which included a loan interest component) down to the assessed net realisable value of the inventories.  If that impairment charge were removed, the £11.2m comprehensive loss in 2022/23 would have been the highest to date. 

 

In the financial statements, the administrative expense categories are not shown in full, with a total that reconciles with the headline admin expenses in the Profit & Loss account.  This is contrary to how financial statements are normally disclosed.  It means the reader of the accounts has no visibility of what type(s) of admin expenses are included in the undisclosed £8.97m since 2017.  This is a clear fraud risk factor, and it is surprising that the external auditor has not insisted that This Land follow the accounting convention of recording all sub-categories in the notes to the accounts, even if it means including a catch-all “other” category for very small amounts not shown elsewhere.  In every financial period bar 2022/23, the undisclosed admin expenses values were higher than staff costs.

 

 

The Chief Executive Officer’s total remuneration (excl. employer’s NIC contributions) has risen pro-rata by 40% in the last two financial periods (£19% per annum).

 

Where’s our money gone

An open letter to Cambridgeshire County Council’s Chief Executive Officer

Dear Dr Moir,

Democracy denied

Following our recent correspondence, I look forward to receiving the documents and accounting records I requested but was denied during the August public inspection period.  Of the many pieces of information that remain outstanding are the transactions (invoices and any other transactions) that make up the £27,846,194 worth of City Deal grant expenditure in 2022/23 (according to the authority), together with their corresponding unique payment ID references that appear in the Transparency Code spend data.  Armed with that information it should be a straightforward exercise to clear up the mystery of why the “full list” of ring-fenced City Deal cost centres (also according to the authority) only record £16.97m of net payments during the 2022/23 financial year.  The time differences between invoice and payment dates should more or less even out, which leaves a so-far unexplained discrepancy of £10.88m for the year. 

Since the end of the inspection period this reconciliation has become more topical following an article last week by the BBC and the Cambridge News about two GCP projects being paused thanks to spiralling costs and insufficient funds.  Two of the City Deal cost centres: “GCP - Cambridge South East (A1307)”, and “GCP - Travel Hubs” would appear to be connected to those two projects.

Under section 3 of the Local Audit & Accountability Act 2014, councils must keep adequate accounting records, sufficient “to show and explain the relevant authority’s transactions.”  I trust the authority will provide me with those records and the other information I requested during the statutory inspection period, so that I can pass them on to the auditor in good time for him to consider all the points in my objection to the 2022/23 draft financial statements.

Thank you for taking personal responsibility in dealing with this important matter.

Yours sincerely,

Andrew Rowson

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More Tricks More Stalling

 The following article appeared Private Eye last week:

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.

INDEX: Council Leader Covers Up £218m of Accounting "Errors"

July 2023

This is a series of posts in numerical order, click on any link to be taken directly to that post.

Summary of contents:

1 - Executive summary. 2

2 - What is City Deal? 3

3 - How local authorities should account for capital grants 3

4 - 2015/16 – City deal is accounted for correctly. 4

5 - 2016/17 – Correct accounting in the first draft accounts 5

6 - 2016/17 – Material, late changes in the revised draft accounts 6

7 – The additional £17.8m accounting blunder 8

8 – The A&A Committee approves the accounts without knowing their contents 10

9 - November 2017 – the CFO distances himself from his own accounts. 12

10 - 2018/19 – EY fails to challenge accounting treatment 14

11 – The £160m U-turn and £218m cover-up. 16

12 - The evidence for fraudulent false accounting. 19

13 - Cambridgeshire CC’s going concern position. 20

14 - EY’s retrospective objection investigations 23

15 - Conclusion. 24

Cambridgeshire County Council’s leader, Cllr Lucy Nethsingha has declined to explain why the authority failed to correct acknowledged accounting errors totalling £218 million that materially overstated the level of usable reserves in five consecutive years’ audited financial statements, even after the council was forced to make a £160m correction for the identical error in the following year’s accounts (2020/21). 

Accounting Errors at CCC - Post 1/15 in a series - Executive Summary

1 - Executive summary

“At a time when several councils are experiencing financial difficulties following high-risk investments, high quality audit is vital to maintain public trust.”

Dame Meg Hillier, Chair of the House of Commons Public Accounts Committee.

Seventh Annual Report of the Chair of the Committee of Public Accounts 2022-23

-oo0oo-

This lengthy and detailed narrative is an account of how Cambridgeshire County Council (CCC) deliberately and materially misstated its revenue position and embellished its balance sheet and usable reserves by prematurely recognising five years’ worth of central government City Deal grants in the first year of a five-year arrangement (2015/16 – 2019/20).  

In 2020/21 CCC employed the same incorrect accounting treatment in its draft accounts, but it performed a swift U-turn in May 2022 after the accounting treatment was exposed in the national press under the headline “Cooking the books”.  

Having acknowledged the error for the 2020/21 grant, the authority declined to enter prior-period adjustments for the same error in the previous five annual grants which overstated the council’s true debtor balances and usable reserves, and hence its liquidity position by a total of £218m in the aggregate.  The reason CCC gave for not making those prior-year adjustments (in breach of International Accounting Standard 8), was that the errors were “not material to the users of the accounts.”  Ernst & Young (EY), CCC’s current external auditor has failed to challenge its client over its inconsistent accounting treatment.

Two independent auditors - BDO from 2015/16 to 2017/18 and EY from 2019/20 onwards have colluded with CCC in agreeing to the material misstatements and attempting to cover them up.  At the time of writing BDO has still not concluded its investigation into a formal objection in 2018 from a local elector over City Deal accounting.  

Both external auditors at different times have held contradictory opinions on the issue and signed off the financial statements with both the correct and the incorrect accounting treatments, stating them to be true and fair on each occasion.

CCC finance officers and the two audit firms have repeatedly lied to and intentionally misled elected members of the Audit & Accounts Committee (A&A) on this matter.   Finance officers have also lied to the two local electors who first challenged the incorrect accounting treatment in November 2017.  The electors have also been provided with false information and denied documents that finance officers repeatedly claimed did not exist, only for them to be produced at a later date.

The same two electors have been insulted and on one occasion threatened in public meetings by elected members serving on the A&A Committee – (the committee charged with governance) for speaking the truth about the incorrect City Deal accounting treatment.

The historical overstatements of debtors and reserves took place over a period in which the council’s short-term borrowing rose seventy-three-fold from £3.4m in 2015/16 to £248.9m in 2020/21, the year in which the former Chief Finance Officer admitted that the authority was engaging proactively with MHCLG (now DLUHC) to discuss its precarious financial position.

CCC’s failure over five years to correct the material historical misstatements, and the two audit firms’ collusion mean that local taxpayers and other users of CCC’s financial statements (including central government) can have no confidence in the veracity of any financial information published by the authority even after it has been audited by BDO or EY.

The sections below explain what City Deal is and set out the correct accounting treatment for capital grants.  The sections from 4 onwards chronicle how City Deal grants were accounted for at CCC, and how both external audit firms have conducted themselves since 2015/16.

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.