Role of Auditor queried in signing off Liverpool Council’s Accounts

I have asked the regulatory board of the professional body for chartered accountants to examine the work done by our external auditor in Liverpool

One of the areas which has perplexed me for a number of years is the role of the external auditor in not finding out the many and obvious problems in the way that the Council was being run by Labour for the past decade.

Cllr Andrew Makinson and I have both challenged the Auditor in meetings of the former Audit & Governance Committee but basically got the brush off from both them and the committee chair former Cllr Leon Tootle. They were told that they couldn’t respond to rumours but what was happening did not rely on rumours.

All the media were aware from mid-2015 that there were serious problems within the regeneration department. The problems of China Town hit the headlines, and the Council very publicly lost a court case which cost us £1 million to try and resolve the situation. Reports within the Council showed problems, for example, with collecting section 106 money for planning gain agreements.

The Caller Report, published in mid-March this year exposed long-standing deficiencies in council systems for purchasing, procurement and payments going back years. The current ‘guesstimate’ is that we will have lost more than £135 million but I suspect we will never have the full figure.

All this seems to have escaped the people who are supposed to give us a view of the Council’s overall financial position by their annual audit activity and the production of their opinion on the annual accounts. Escaped that is until the past couple of weeks. The existence of the new independent Audit Committee which is being excellently chaired by Cllr Kris Brown is forcing change both with and outside the Council.

Our external auditors have suddenly, at the last minute, raised a series of questions with the Council. Every one of those questions is right and relevant and the auditors admitted they were late in asking them. They seemed to think that they were a few months late. I think that they were a few years late!

So, I have referred the Company to the Accountants Regulatory body and asked them to examine the actions of the company over the past three years. I have posited 3 options to the ICEAW:

  1. That XXXXXXXXXXXXX staff did not have an enquiring mind; or
  2. That they did not have the capacity or perhaps competence to correctly overview the Council and decide upon risk areas; or
  3. They were happy to be guided by the then officers of the Council into ‘safe’ areas for those officers.

What happened within the Labour controlled Council for the last decade has cost every council taxpayer dearly. We need to examine who is culpable both inside the Council and outside it in allowing these things to happen. In the meantime, we have agreed to enter a tendering process to find an external auditor for the next five years.

The minimally reacted letter to the ICAEW  Regulatory Board is attached

Cllr Richard Kemp CBE

Leader, Liverpool Liberal Democrats

16, Dovedale Road,

Liverpool L18 1DW

Richardkemp68@yahoo.co.uk

07885 626913

Jenny Watson CBE,

Chair

ICAEW Regulatory Board
Chartered Accountants’ Hall
Moorgate Place
London EC2R 6EA

3rd November 2021

Dear Ms Watson,

Re: XXXXX XXXXXXXX and its audits of Liverpool City Council

Congratulations on your new appointment. I note from the ICAEW note about you on their website that you have both a public and private sector background which I think will be useful in terms of considering the complaint that I am making to you about the way in which XXXXX XXXXXXXX have behaved in connection with their auditing of the accounts of Liverpool City Council.

I am sure that you are aware that Liverpool Council is in a crisis. There have been 16 arrests made of staff and people who are politically connected in the city although no charges have yet been made.

The arrests have occurred because the Police were supplied with information from within the Council relating to a report commissioned from our internal audit team by the incoming Chief Executive. Following the arrests, including that of the then Mayor Joe Anderson, the Government appointed Max Caller and a team to undertake a ‘Best Value Inspection’ of the Council. The report produced was damning. It indicated large losses to the Council from missed income and lack of due procedures in the disposal of assets and the procurement of contracts.

This has been ‘officially’ public since early 2019 when the Police announced their formal investigation into the state of the Council. The scale of the problems was enhanced by arrests in December 2019 of people including the Director of Regeneration and December 2020 with the arrest of the Mayor.

Things had been going wrong for much longer than this. The Caller Report showed that things had been going wrong within the Council for almost a decade. This was well known throughout the city, had been reported in the press and had been the subject of numerous enquiries made by myself and my Deputy Leader, Cllr Andrew Makinson, who was our spokesperson on the then Audit & Governance Committee.

His concerns were dismissed by both the Council, who were still coming out of a period of denial and by representatives of Grant Thornton who made clear that they could not act on the basis of rumours.

The accounts have not been fully signed off since 2015 because of anther police investigation but no reference to the current set of allegations which largely concern the Regeneration Department was made either in the Annual Report or in the schedule of work undertaken by Grant Thornton to undertake the annual audit in recent years.

However, at last night’s meeting of the new independent Audit Committee we received a report which indicated that Grant Thornton was, at long last, raising detailed questions about the 2019/20 audit, which should have been signed off this month but will not now be signed off until January 2022. I doubt that the Council will be able to respond in sufficient detail at this late stage.

The request for information from the Company to our Chief Executive can be found here. https://councillors.liverpool.gov.uk/documents/b50629/Supplementary%20Agenda%2002nd-Nov-2021%2017.00%20Audit%20Committee.pdf?T=9.  Please note that although is marked by XXXXX XXXXXXXX as being in commercial confidence this was published on a public report and discussed with XXXXX XXXXXXXX in a public meeting of the Audit Committee.

As our Chief Executive made clear last night things have improved greatly since 2018 and whilst there is still a lot to do systems are being brought under control and due processes are being introduced. XXXXX XXXXXXXX now raising questions about the last financial year is good, if not timely. The point of contention is why they were not asking these questions in the years that they have effectively signed off!

As someone who chairs a Company which works in the highly regulated financial sector, I believe I know what we should be expecting from both an internal and external audit process.

From external auditors in particular, I would expect an inquisitive mind and a desire to dip into part of the council where irregularities are most likely to occur. Anything to do with property disposals and procurement would clearly be within the high-risk category. Indeed, the Caller Report showed that no less than 58 out of 60 Delegated Authority Reports within Regeneration were wrong in one way or another. This has cost the Council, and by extension our taxpayers, a lot of money.

I can only come to one of three conclusions in this matter:

The Grant Thornton representatives last night conceded that they were late in asking for the information. They think its five months late. I think they are 5 years late!

Last night the Council also agreed to join the PSAA Ltd approach for tendering for external audit for the next multi-year period for most English Councils. Because I believe that the issues here are relevant to the national procurement process, I am also sending this letter to Sarah Pickup, the Deputy Chief Executive of the Local Government Association, to see how what has happened in Liverpool should be borne in mind in the new tender process.

I would be pleased to talk to you or your investigators about these issues.

Yours sincerely,

Kemp sig

Cllr Richard Kemp CBE

Leader, Liverpool Liberal Democrats

Tony Reeves, Chief Executive, Liverpool City Council.

Sarah Pickup, Deputy Chief Executive, LGA

About richardkemp

Leader of the Liberal Democrats in Liverpool. Deputy Chair and Lib Dem Spokesperson on the LGA Community Wellbeing Board. Married to the lovely Cllr Erica Kemp CBE with three children and four grandchildren.
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3 Responses to Role of Auditor queried in signing off Liverpool Council’s Accounts

  1. Paul says:

    Thanks Richard for the timely updates on this they are still in complete denial what has Happened to Liverpool’s finance’s

  2. Catherine Byrne says:

    Yes, thank you, this is encouraging.
    The external auditor’s approach has always puzzled me, too (like you I am very familiar with corporate and financial governance in the private sector…). I know audit seems beyond boring to most people – but the scope for wrongdoing in both procurement and property is so enormous people should pay a lot more attention, even in the absence of any sign of wrongdoing. Just in case.
    The rumours thing is interesting – I get that you cannot waste time pursuing everything, but it seems odd that an external auditor wouldn’t do at least a cursory check when there were persistent and often detailed rumours of dodgy finances. Perhaps they thought the council’s own audit function was more effective than it appears to have been. Which seems very naive. I wonder if they adopt the same approach with their private sector clients? Hard to imagine.
    But better late than never – the questions they have now raised are great, and should have been asked years ago. I suspect the council does not have the capacity to answer them properly, so it will be interesting to see the response.

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