People’s Audit Ten – ROLE OF THE EXTERNAL AUDITORS: “RIGHT FOM THE START WE FELT THE COUNCIL’S EXTERNAL AUDITORS WERE NOT TAKING OUR OBJECTIONS SERIOUSLY”
It appears that the evidence of serious failings in Lambeth’s financial management was not picked up by the external auditor.
Indeed, Lambeth admitted to us that one member of the Peoples’ Audit had asked to see more information than the auditor had, despite them charging £243,000 for their services.
We would expect Lambeth’s external auditors to take their responsibilities particularly seriously. The audit fees for Lambeth are the 10th most expensive for a local authority in the UK, on a par with crisis-ridden Tower Hamlets and metropolitan district councils such as Leeds, Liverpool and Manchester.
Public Sector Audit Appointments, the body responsible for appointing auditors to local government, explained to us that the level of the fee “reflect the auditor’s assessment of audit risk and complexity”.
But right from the start we felt the council’s external auditors were not taking our objections seriously. In more than one instance the auditor hadn’t even bothered to read our objections properly.
For example, he rejected an objection on the basis that it did not fall within the financial year, when the evidence clearly showed that it did.
Their audit report dated 26th September 2016 states, “We anticipate issuing an unqualified audit opinion on the authority’s financial statements by 30 September 2016….We have considered whether any of these objections prevent us from issuing our financial statements audit opinion or our value for money conclusion and do not believe that, as presented or raised, they prevent us finalising those two aspects of our work.”
Given that at this stage the auditor had not responded to our objections, which included allegations of potential illegality, we find this statement astonishing.
The auditors then go on to say “The authority has good processes in place for the production of the accounts and good quality supporting working papers. “Officers dealt efficiently with audit queries and the audit process has been completed within the planned timescales.”
In relation to fraud, the auditors state “In line with our methodology, we carried out appropriate controls testing and substantive procedures, including over journal entries…. There are no matters arising from this work that we need to bring to your attention.”
These statements come despite the glaring issues in governance that we had already highlighted to them. We reported our findings to them, and having uncovered serious evidence of financial failings in Lambeth, we had hoped that once presented with the evidence Lambeth’s external auditor would take action to protect taxpayers’ money.
It is more than evident to us that the lack of governance within Lambeth council is systemic.
Sadly the firm’s attitude to the audit and the objections we raised can only be described as falling far below the professional standards we would expect.
With regards to the payment of a reduced fee to GLL, the auditor’s response was as follows: “To address your second point about the reference to Culture 2020 on the invoice and the implication this was the justification for reducing the GLL management fee. I have obtained written representation from the council confirming this was an erroneous note made in error and any other arrangements are non-dependent and not connected to the reduction in fee for the existing contract.”
It is remarkable that having found evidence of serious impropriety in the way in which contract terms were changed, the auditor was satisfied with a simple explanation from an officer at Lambeth declaring that everything is OK.
It seems simply implausible someone “mistakenly” wrote “Reduced fee Culture 2020” on an invoice as a genuine error, yet the auditor was happy to accept this proposition at face value, without further investigation.
The grounds under which an external auditor can act under the Act are fairly limited. However, given the severity of what we found happening within Lambeth, we did at least expect the external auditor to make a Public Interest Statement.
After three requests to see the firm’s policy on public interest statement, they eventually admitted to us that they did not have a policy. They told us that they were governed in this respect by the National Audit Office’s Code of Audit Practice. This gives no definition of what is considered to be in the public interest.
So it would seem to be left to the whims of the individual auditor as to what is considered to be in the public interest.
Clause 1.6 of the Code of Audit Practice states: “It is not part of the auditor’s responsibilities to question the merits of policy, but the auditor does have wider duties …. to scrutinise and report not only upon the truth and fairness of the financial statements but on aspects of public stewardship and the use to which resources have been put. The auditor carries out this work on behalf of the public and in the public interest.”
Tragically it now seems that it is left to voluntary groups such as Peoples’ Audit to carry out this task. (Source: Lambeth Peoples’ Audit report).