Woe, woe and thrice woe!

Audit & Governance Committee 28 September 2017 (councillors are on the right hand side of the table; council officers and Ernst & Young auditors on the left; chair, directors and committee adminstrator are at the head of the table)

After tossing and turning for the last twelve months grappling with the possibility that something was not right in the subterranean world of Reading Borough Council’s (RBC) accounts department, the council’s audit & governance committee have woken up with a start. Things are not getting better; they are getting worse.

Financial statements for the year ended 31 March 2017

The accounts for the year that ended 31 March 2017 will not be audited and signed-off by the statutory deadline of 30 September. As a result of significant challenges, this may be delayed until July 2018, the deadline for sign-off of next year’s accounts.

There are two sets of draft unaudited accounts available on the council’s website. The council’s interim strategic finance director Peter Lewis told the meeting that there was a full set of accounts, but these lacked the evidence required to audit journal transactions, evidence that he and his team would continue to look for:

[We anticipate] we will be doing that over the next quarter of the financial year. The discussion yet to be had with our colleagues in EY [council auditors Ernst & Young] is when it is appropriate to go through the audit… from the point of view of economy and efficiency, because the 2016/17 accounts need to be on a solid foundation in order to underpin the movements into 2017/18 [00:24:20].

From the proceedings of the meeting it is clear that the position in which RBC finds itself is exceptional and possibly unique.

Councillor David Stevens, chair of the committee, asked Ernst & Young auditor Maria Grindley if other authorities were having the same sort of problems, to which she replied:

It is not usual at all to get to the stage where the accounts are in a state that we can’t even pin down most of the balance sheet, let alone the I&E [income and expenditure], and also where we get to the stage where there are some quite significant control weaknesses across the council.

There are very few organisations that would get to this position. So it is unusual, and… we are very keen to work with the council to support them through the improvements that are required, and to be clear on what the council needs to do… to meet the standards required [00:28:26].

Lucas Pacioli (pictured above) said “books should be closed each year, especially in partnership because frequent accounting makes for long friendship.”

Value for money opinion

The auditors prepare a ‘value for money’ opinion as well as the audit of financial statements. Last year they gave an adverse conclusion in their report which shocked councillors.

This year, Councillor Stevens asked if the auditors could present a ‘value for money’ report independently of the 2016/17 audit report. Maria Grindley responded that they could, but they had not yet discussed it with council officers as they had been preoccupied with the accounts. She said it might be a good idea to issue the 2016/17 ‘value for money’ conclusion now rather than later:

[The 2015/16 ‘value for money’ conclusion] was adverse because of… control issues, because of the [council’s] financial position, and particularly because of some of the messages around children’s services.

If I issue a ‘value for money’ conclusion at this point in time, it will have those same issues within it, and that won’t change even if I issue it in five months time, because it relates to the year [2016/17] [1:25:25].

Before Thursday’s meeting, RBC issued a press release about their failure to sign off their accounts:

The Council understands this is a serious failure to meet good accounting and control standards. It is currently reorganising the finance team and has appointed a highly regarded interim manager to help turn this performance around. Staff in the finance team have worked very hard to resolve these matters and have been also dealing with the Council’s plans to close the budget gap.


The potential for a disastrous 2017 year-end were clearly signalled from last September

September 2016: Accounts for the year ended 31 March 2016

The financial statements for the year ended 31 March 2016 were signed off over six weeks late. The sign-off was originally planned for 29 September 2016 and did not take place until 17 November 2016.

November / December 2016: A national comparison of Reading Borough Council’s audit performance

Public Sector Audit Appointments (PSAA) who are responsible for appointing auditors to councils, publish an annual report ‘Report on the results of auditors work’ for local authorities (LAs). Reading was one of 16 local authorities that missed the 30 September statutory deadline for sign-off of their accounts in 2016.

November / December 2016: Adverse value for money opinion

The same report presented statistics on value for money opinions. At the time that the report was issued in December 2016, adverse ‘value for money’ opinions had been given for three LAs but were not yet available on 12. One of these LAs must have been Reading, although none were named.

November 2016: A catalogue of issues highlighted in the 2016 audit results report

The audit results report presented by auditors to the council includes the value for money opinion but also sweeps up other matters about the conduct of the audit upon which the auditors are required to report, From this, it was clear in November 2016 that 2016/17 was going to be a difficult year.

The Whitley Pump evaluation of the situation at that time suggested some actions that needed to be taken to put matters right concluding that:

This, on top of the current financial crisis into which the council is spiralling, is likely to prove impossible to manage. The audit and governance committee should request and rigorously challenge a realistic plan on how financial management and reporting can recoup this lost time.

June/ July 2017: Draft accounts published

Draft accounts were published on the RBC website but  a second draft with changes was subsequently issued.

July 2017: Audit did not start on time

At this July’s audit & governance committee, in their update on the current year’s audit, the external auditors told the committee that the statement of accounts had not been produced, so the final accounts audit had not yet started.

July 2017: Internal audit limited assurance

At the same meeting, councillors had heard from RBC’s internal audit department. In their annual assurance report they highlighted weaknesses in:

  • many financial systems areas,
  • reconciliations including the bank account,
  • lack of compliance with governance procedures.

Links
  1. Audit and Governance Committee 28 September 2017 papers and webcast
  2. ‘Significant challenges’ in production of Reading Borough Council’s annual accounts
  3. Reading Borough Council  statement of accounts
  4. Lucas Pacioli’s treatise on double-entry book-keeping (1494) at archive.org
  5. RBC press release – accounts 2016/17
  6. Auditors finally deliver report on council finances
  7. Report on the results of auditors’ work 2015/16 – local government bodies
  8. Reading Borough Council’s 2016 audit performance
  9. Clouds are gathering over the Civic Offices
  10. Council audit fee for last year increases by 71%
  11. It’s Mr Lovejoy time of year again
  12. A long summer for accountants and auditors
  13. Doom and gloom at the Audit & Governance Committee


Glossary

Journal transactions: Journal transactions are used to make corrections or adjustments to accounts.

Balance sheet: A summary of all the assets, liabilities and other balances of the Council at the end of an accounting period (RBC statement of accounts p127)

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2 thoughts on “Woe, woe and thrice woe!

  1. Pingback: The next episode of “up Holy Brook without a paddle”: the RBC Audit and Governance committee – a satire? | The Whitley Pump

  2. Pingback: Up Holy Brook without a paddle: Interview with Audit and Governance Chair | The Whitley Pump

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