Mendip numbers don’t add up

Literally as it happens. Last week at the Mendip Audit Committee we got some insight into how the authority is struggling to run a decent accounting function.

But first a curiosity. The report of External Auditors presented at that audit meeting was dated November 2019 but still had not been signed. This is highly unusual, it is after all February 2020. It appears to point to unresolved issues in the way the council prepares financial reports and problems with controls over those finances.

Why might this be?

There are some significant clues. There are significant issues identified by the auditors, Ernst and Young, that do not reflect well on the running of the council. However first a word of caution. The council now in place is a LibDem administration supported by Independents. This audit report is on the accounts prepared by the previous Conservative administration that was in power for the year ended 31st March 2019 and immediately thereafter.

This includes a failure of the finance team to understand and correctly reflect a new set of accounting rules (IFRS11 Financial Instruments.)

The auditors state “The Council’s draft financial statements did not display sufficient and appropriate knowledge of the new accounting standard. Preparations, which could have been undertaken significantly earlier in the year, were not adequate to meet the 31 May deadline with material accuracy even though the Council lacked any complex financial instruments.”

It also seems the finance team struggled to prepare an accurate set of accounts. Even the basics were wrong:

Ernst & Young again “The financial statements published on the Council’s website on 31 May 2019, for the public to review, contained a significant number of basic errors and were significantly below the standard we expected.”

As an example they note “ the Cashflow Statement, showing £4.790 million of Cash and Cash Equivalents, was inconsistent with the £1.610 million of Cash and Cash Equivalents in the Balance Sheet.” Added to which information that is usually looked at by the public in detail was also wrong: “an incorrect Senior Officers Remuneration note” was included in the accounts.

But there were also material weaknesses in the way the council was run. This is what the auditors had to say about it:

management is in a unique position to perpetrate fraud because of its ability to manipulate accounting records directly or indirectly and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. We identify and respond to this fraud risk on every audit engagement.”

In fairness they admit that they could not find evidence that fraud had been committed but this is really extremely poor management of a local authority.

The new administration elected in May 2019, have a lot of work to get things back to normal.

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