Monday 27 August 2012

The art of audit in Broken Barnet: or - hear no evil, see no evil, speak no evil

The demanding role of audit in local government

As you may recall, Mrs Angry has been attempting to raise issues of concern in regard to our bungling council here in Broken to our external auditor, Mr Paul Hughes, of Grant Thornton.

After trying to object to the accounts, and to ask - twice - for him to instigate an investigation, on the grounds of public interest, this time into the council's demonstrable failure to identify and address the huge risks involved in the One Barnet programme of outsourcing, he has again refused to consider any such procedure. Last year he refused requests for an investigation into the MetPro scandal on the rather interesting basis that to do so would be not only too costly, but more importantly, because it might undermine confidence in a public body ... It would appear that the role of external auditor may well be independent, but is it an effective means of scrutinising the financial management of local authorities? Eric clearly has his doubts, doesn't he?

This has been a busy week in Broken Barnet, and elsewhere, it seems.

On Thursday, the patron saint of the Barnet blogosphere, our friend Mr Pickles - (who's Edward Pickles again? Miss Angry asked, unenthusiastically, as her mother was boring her on this subject today) - yes, Eric Pickles, Miss A, Eric issued a Press Release from DCLG commanding councils to be fully open to and supportive of the enquiries of 'armchair activists and concerned citizen bloggers.

Rather pointed, his message, in fact. And the very next morning, Mrs Angry received a nice email from his aide encouraging her in her efforts, and with some information that she will keep to herself at the moment, but which is not entirely unrelated to the struggles we are having here to interest our external auditors with matters that we feel to be of concern. More below, but first, not long after the nice email from nice Mr Pickles' nice friend, along came Mr Hughes' latest determined rebuttal of the issues that we have raised with him. Mrs Angry says determined: perhaps that is unfair, as he clearly feels his powers as within this process are strictly limited.

And as he pointed out, he does not in fact have to give any explanation for turning down the request for an investigation, but he has at least kindly taken the trouble, as he explains, 'in the interests of openness', to do just that, and his reasons, measured against what he sees as his duties in regard to the Audit Act are here given in italics.

As usual, Mrs Angry's smartass commentary in red.

Council responsibilities:

1. Demonstrating proper stewardship
of their financial affairs by producing
accurate statements of account on a
timely basis.

- Comment for London Borough of Barnet

As evidenced by the accounts audit section of our
2010/11 annual report to those charged with
governance (and our forthcoming 2011/12 report)
this is not a matter of concern in the context of
consideration of the exercise of our statutory duties.

Who says the accounts are accurate, then, we wonder, if this is not a matter of concern for the external auditor?

2. Conducting their financial affairs
properly, avoiding unnecessary waste
or losses and establishing
arrangements to ensure continued
sound financial standing.

As evidenced by the value for money section of our
2010/11 annual report to those charged with
governance (and our forthcoming 2011/12 report)
this is not a matter of concern in the context of
consideration of the exercise of our statutory duties.

Same question: why is the avoidance of unnecessary waste, for example on very expensive consultants, not a matter of concern?

3.Providing value for money in
delivering service.

As evidenced by the value for money section of our
2010/11 annual report to those charged with
governance (and our forthcoming 2011/12 report)
we have no significant concerns in this area.

No significant concerns in this area - at last a qualification ...

4.Maintaining an adequate and
effective system of internal control,
including financial systems and
standing orders, to minimise the risk
of loss or failure

In relation to issues previously identified in these

· The concern we raised two years ago about
the absence of an overall business plan for
the collection of projects that come under
the banner of One Barnet, was followed up
on and closed off in our 2010/11 annual
report to those charged with governance.

It was closed off, your concern about the absence of an overall business plan for One Barnet. That has certainly reassured Mrs Angry.

· In our 2010/11 report to those charged
with governance we reported on our work
in relation to contract management issues
(including Metpro) and concluded that the
issues were not sufficient to result in a
qualified value for money conclusion.

If you had agreed with the requests to instigate a public interest inquiry at this point, you would in fact have discovered,as we did, that MetPro was just the tiny tip of an enormous iceberg, and you would therefore have been presented with issues which most certainly would have required a qualified value for money conclusion.

We have kept up to date with the Council’s
progress in resolving this issue during the
year, including through reviewing internal
audit work and through regular updates
provided by management and internal audit
to the Audit Committee. We are satisfied
that the Council continues to make
progress in addressing the identified
control issues but will continue to monitor
and report on progress over the coming

It's progress, Paul, but not as we armchair auditors recognise it. Too little, too late. The auditor is too easily satisfied, from the point of view of this tax payer, Mr Hughes, and one who is in fact not just a tax payer but one who has, with her fellow bloggers, spent vast amounts of time and energy uncovering more and more examples of our council's staggering degree of failure in compliance in procurement and contractual matters.

· Our reported finding, two years ago, in
relation to departmental understanding of
risk management was in the context of an
unqualified value for money conclusion.

We have since acknowledged that the
Council has acted upon our observations,
including through the introduction of a
updated approach to risk management.
Clearly, at any large and complex body risks
and issues will materialise that will need to
be managed and the Council is no different
in this sense.


As indicated in my previous letter and in
the reports and plans that we will take to
Audit Committee over the coming months,
we will continue to review overall risk
management and governance arrangements
for individual One Barnet projects and
report our findings

and no one will have to take any notice ...

5.Complying with appropriate ethical

(This is a good one)

We have not identified any material areas of
concern in relation to ethical standards. As
indicated in my previous letter we will, however,
look into your point over potential conflicts of
interest as part of the 2012/13 audit.

Just incredible, and Mrs Angry's view, utterly indefensible.

Looking into the risk of potential conflicts of interest in relation to One Barnet, and the authorities failure to mitigate such risk after the competitive dialogue process reaches its conclusion is clearly pointless, dangerous, and completely inadequate.

If the existing evidence - and you know what that is - does not represent a material area of concern in regard to ethical standards, then what on earth would?

What is the point of such issues being within the remit of external audit if such concerns do not meet the criteria necessary for urgent investigation?


6.Acting within the law

We have not identified any expenditure that we felt
was outside the Council’s
powers and for which we
would seek legal advice.

Yeah, yeah, if you say so.

Hughes' response, in other words, completely rejects any reason whatsoever to take any urgent action on any aspect of the One Barnet programme. He continues:

"Audit Commission guidance states, “In considering whether to issue a public interest report, the auditor will need to consider whether the public interest would be served by publicising the issue of concern. Where the issues involved are minor, or where the body is already taking action to remedy deficiencies, the auditor may conclude that a public interest report at that point would have only limited impact and may in fact have the effect of unnecessarily undermining public confidence in the body.

Mrs Angry would politely suggest to Mr Hughes that the issues of concern raised with him in relation to the One Barnet programme are not minor, that Barnet clearly is not taking adequate action to remedy deficiencies, and for God's sake: there is no public confidence left in this authority to be undermined ...

Applying this guidance to the comments in the table above, my conclusion is that there are
no significant issues where the Council has not, or is not, already taking remedial action. The issues identified are also already in the public domain. Therefore, a public interest investigation or report is not appropriate at this time. Further, I neither have the reason nor the power to “call a halt to the outsourcing programme,” which is a political decision by the Council and outside of my remit.

Mrs Angry is losing the will to continue.

Ah, but there is more ... a perhaps unexpectedly robust defence from the external auditor for the surprising decision which is not a decision, but will be soon, to dump the strategic partnership model for one part of the One Barnet £1 billion gamble, in favour of the even riskier joint venture model ...

Regarding your point on the delivery model for the DRS project, Cabinet Resources Committee considered the updated business case of DRS in December 2011 where it was mentioned that the Joint Venture should be kept open to explore during dialogue. Cabinet Resources Committee noted the updated business case thereby giving approval for pursuing through competitive dialogue. In addition, the vehicle the council is considering to manage the delivery of the DRS contract does not change the service being procured. The Council has taken legal advice on this matter to support with the legality of this approach. The outcome of the dialogue process will be subject to member approval by Cabinet in due course."

Hmm. Odd, perhaps, that this issue has not been raised, as far as Mrs Angry knows, in any consequent audit report or meeting, isn't it? Mrs Angry looked at the report, and found one low key reference, in a 53 page report, - (there was another, separate report which was exempt whose contents we do not know, of course) ... which states:

"Approach to delivery

At this stage, the business case has found that a Strategic Partnership still
represents the most beneficial option for the council, particularly in terms of the pace
and complexity of implementation. This option will provide the freedom to trade
services and generate further income, secure the expertise to deliver service
transformation, provide investment and high levels of commercial capability.

However, the possibility of establishing a Joint Venture (JV) with a private sector
provider should not be completely discounted if it proves to be the most
advantageous to the council during the procurement process, particularly with regard
to profit sharing increased income from the services, many of which generate
revenue from third parties. Whilst the (missing word, presumably the unpalatable word 'risks') associated with a JV model are judged at this stage to be higher than for a Strategic Partnership, the potential for a compelling bidder proposal should be left open to explore ..."

Ah: a compelling bidder proposal. Something like - do what we want or we're out of here?

This CRC meeting is noted as having taken 32 minutes, to cover more than a dozen important items. Anyone who has attended one of these meetings knows they are merely a high speed rubber stamping exercise, with no debate. It is likely that not only was there no debate of the DRS item, The members are unlikely to have read the report thoroughly, nor shown any interest in one small paragraph referring to the option of joint venture. Why should they? It was of no obvious relevance then.

Technically, therefore, Hughes is right, approval has been given for the maintenance of joint venture as an option, despite their misgivings. What is the crucial point, however, is that a decision to divert the sequence of dialogue, and suddenly opt for the higher risk option, has not been approved by the proper process, but announced without the due authorisation or even consideration by the elected members, as a result of machinations involving officers and consultants acting without due regard to transparency and accountability. How this happened may or may not be a matter for the auditor, but the consequences of such an alarming development surely must be?

Well, may be not. And if not, add this to the list of things which you might think an external auditor ought to consider, as part of his role. As Mr Pickles' chum reminded Mrs Angry,

Finally, you may wish to be aware that the Government is reviewing the local audit regime, and plans to establish a new local audit framework and repeal the Audit Commission Act. The Government has recently published a draft Bill and has invited views by 31 August – please see the link

The closure date for consultation on this very important issue is closing on Friday - Mrs Angry hopes that anyone who feels concerned about the lack of scrutiny that is so demonstrable in the current definition of local audit will take the trouble to submit their views.

She most certainly will be.

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