Gagging Part 2- Serious questions about the role of Audit in Barnet

Yesterday I published a list of questions I would have asked Barnet's Financial Performance & Contracts committee if I had not been gagged. Today, I have published the list of questions I would have asked at Audit Committee.  However, there is a broader and more serious point here. The Audit Committee received internal audit reports on  the performance of Capita but they are buried away on hyperlinks within the officers' report and not attached to the agenda. These reports detail a catalogue of problems and failings by both the Highways service run by Capita Re and Accounts Payable run by Capita CSG but also of the systems that are there to check the services are being delivered properly. Highways gets a "No Assurance" rating and Accounts Payable, a "Limited Assurance" rating - both of which are terrible given Capita have been running the service for over 6 years and we are paying them a fortune.

I, fellow bloggers and engaged residents have been saying for years that Capita are providing a diabolical service but these comments have been dismissed as "political" by Barnet's ruling Conservative group and as such ignored. This time last year there was a review of the service following the £2 million fraud and it was decided to bring a number of services back in house. Highways were an obvious candidate for in-sourcing given their dismal performance and accounts payable seemed a natural fit along with the finance function which was to be brought back in house as a result of the fraud. However, at some stage at the back end of 2018 the Chief Executive of Capita came to visit senior managers and councillors at Barnet, a deal was done for compensation and after that things changed. We have no record of the meeting or what was discussed or agreed other than a meeting was held. All we do know is that a number of services that had previously been identified for in-sourcing were now to be kept with Capita. This has proved disastrous for Barnet. Pensions administration run  by Capita has attracted an Improvement Notice from The Pensions Regulator, the first time one has been issued to a public body. Payroll (run by Capita) are still generating  an unacceptable level of errors (as deemed by the contract).  It looks like there is another fraud involving 7 false bank accounts. Millions of pounds worth of Highways work is not being properly checked or inspected. Special projects are not being authorised appropriately and LBB were unable to identify what payments had been made on specific special projects even though this is something I managed to obtain and collate during my inspection of the accounts.

Overall the Audit report should embarrass and shame every single Councillor of Barnet, make every resident question how our money is being wasted through inadequate systems and non existent management checks and ask why, after 6 years and a total cost of £438 million, we still have a service that is failing.

I have been gagged from asking serious questions and making a public comment, written or spoken, yet we have a service that is catastrophically bad  and that continues to attract criticism internally and externally. I have reached the point where I believe Barnet is now a failing council and requires a new management team to sort out the mess we are in. We have a looming budget deficit of £118 million over the next 5 years and with Capita failing to deliver on the most basic services like highways I can only see that budget gap widening. Many of the issues I have raised over the last five years, especially areas like the cost of special projects, have now been shown to be out of control with inadequate checks and raising questions as to whether we are receiving value for money.  I have set out the questions I would have submitted below but I suspect very few if any of the issues I have raised will be addressed. That is the Barnet way.

Questions to the Audit Committee

Agenda Item 7

• In the Highways no assurance report – the 54 page one that is not attached to the committee agenda but hidden in a hyperlink within the officer’s report – provides details that 4 of the 6 Special Project audited contained significant financial errors including lac of supporting evidence for charges, resource plans which exceeded the agreed budget and on where costs appear to have been over-charged by £18,000. Who is responsible for checking to cost of special projects, Capita or Barnet, why are they not be checked properly, and if this failure to check the costs of special projects has been on-going for more the last 6 years, how much money has been wasted/overcharged?

• Special projects are not being signed off properly with 5 of the 6 inspected documents lacked sign off by the Senior Responsible Officer, Commercial, Finance and Performance Management Teams and that 5 of the 6 inspected documents contained a picture of the Strategic Director’s signature to act as sign off rather than an actual (‘wet’) signature given the value of the projects was £1.6m. Given the risk of fraud associated by such poor practices, why has it taken 6 years to identify these failing and who in the council was responsible for checking these errors were addressed.

• The report identifies that payments were made on projects before they were signed off which suggests the payments procedures were non compliant. This happened before the Finance function was brought back in-house. What reassurance can we have that this is not still happening and what is the value of the milestone payments paid in June and September before the project initiation was signed off in December?

• The report notes that when asked about payments to a capped budget Special Project, LBB Finance stated that this information was not readily at hand and would ‘take a lot of time for someone to confirm’. Can you clarify if this is because LBB Finance are not up to the job of because Capita handed back the finance system in such a poor state that historical payment data is difficult to track down?

• You identified in 2017/18 that £689,000 of S106 money for Highways was at risk of being clawed back by developers because it hadn’t been spent but it took until June 2019 to get sign off on these projects. Was any of the £689,000 actually clawed back by developers and are systems no in place to speed up the process when dealing with S106 monies that could be clawed back?

• 25% of the special projects had been paid without any evidence to confirm the payment was authorised. Given this presents a very high risk of fraud or over payment who is at fault: Highways for submitting an invoice without authorisation; Finance for paying an invoice without authorisation; or the Senior Responsible Officer for not checking why payments were being made without their authorisation?

• Of the 16 actions from previous highways reviews 1 had not been implemented and 5 had only been partially implemented. Why was this failure to fully implement actions, not identified sooner?

• Why were the findings of the specially commissioned PWC forensic review of Highways Projects in 2016 not followed up to confirm implementation of the actions arising and how much did the PWC Forensic Review cost?

• In 16 of the 25 invoices inspected Internal Audit were not able to reconcile the invoice amounts to supporting calculations or documentation, for example contracts or Bill of Quantity schedules/ contracts provided. What is the total value of these 16 invoices and what is the risk that we have been overcharged for work not carried out?

• The report notes that a credit note in the amount of £95,945.60 was required against an invoice dated October 2018 for the works carried out to resurface Summers Lane but at the time of writing this report in 2019 this credit note had not been processed. Can you confirm that the credit note has now been processed and paid?

• What is the risk that other credits notes have not been processed and why isn’t there a procedure for identifying and tracking credit note processes?

• The report notes that in 20 of the 25 invoices inspected complete evidence for quality checks were not available, that in 6 of the 20 invoices there was no evidence at all of site inspection or quality checks and that in 14 of the 20 there was either missing photographic evidence or site inspection sheets and that it was not possible to link the photographic evidence to the works carried out. Given Barnet have invested £50 million on the Network Recovery Plan how can we have any confidence that the money has not been wasted on inferior works?

• It would appear that Area Committees are being given budget for projects to sign off without a breakdown of how the fee budget has been arrived at. Why didn’t councillors ask for budget breakdowns before agreeing the budgets and does this call into question the process of decision making at Area Committees?

• Capita Re bill LBB for Special Projects based on the time incurred by Re staff at agreed rates. This timesheet data is collected on Excel spreadsheets. Both Capita Re and LBB agree that there are no arrangements in place to ensure that the spreadsheets are accurate. As such how can you have any confidence that LBB has not been ripped off by Capita Re staff logging time they haven’t actually incurred?

• This problem with timesheet recording was identified in 2016 and recommendations were made to resolve these problems but they were not all taken up. If there is no follow up to recommendations what is the point of undertaking reviews?

• The report notes the difficulty of assigning payments for each special project against specific invoices as there may be multiple Special Projects on one invoice. It may be of interest to the Audit Committee that when I inspect Capita’s invoices each year during the Inspection of Accounts period I ask for and have received the detailed breakdown for each Special Project and how that reconciles to each invoice. It does take rather a lot of time to collate the data but it can be done and I do it.  If I, as a resident, can collect and collate that information to understand how much Capita are billing us for each project why can’t you?

• As one of the Advisory Findings it notes that during their review Internal Audit found one payment that appeared to relate to Highways expenditure which was for £367K, and was one of two invoices with a total of £500K. This was entitled ‘Procurement Savings LOHAC to Dec '15’ and purportedly related to the London Highways Alliance Contract (LOHAC). The report notes that the payment related to a contractual issue regarding the Alternative Delivery Model for Education and Skills rather than a Highways payment and was therefore outside the scope of their audit.  I specifically queried these two LOHAC payments of £500,000 in June 2018  and was reassured that rather than duplicate payments they related to two separate years but did relate to the LOHAC contract. Subsequently I was told by the External Auditor that only one payment was made on the LOHAC contract. What Internal Audit appears to be saying now is that two payments did take place, that one of the payments did not relate to the LOHAC contract but to the Alternative Delivery Model for Education and Skills but was still paid. As such it suggests that the information provided to me in July 2018 regarding these two payments was inaccurate. Can you clarify whether this payment will be investigated separately and does it provide yet more evidence that there is inadequate scrutiny of payments on the CSG and Re contracts?

• In report of the Accounts Payable system run by Capita (the 59 page report not attached to the meeting agenda but available only via a hyperlink included within the officer’s report), it states that 2 of the 15 payments reviewed did not have dual authorisation of the purchase orders attached even though this is a requirement for payments over £1 million. How can the systems have allowed this to happen, is this a longstanding problem, and why has it not been addressed before now given the contract has been running for more than 6 years?

• Can you confirm that the stationery order from Office Depot for £3,556.80 was duly received and was not stolen?

• How can purchased for greater than £25,000 have been authorised by persons who only had a £25,000 limit and does that mean the system has a fundamental weakness in allowing unauthorised persons to sign off purchases, similar to the problems identified in the major fraud case by Grant Thornton?

• Processes to identify duplicate payments on a wider scale across Integra through the commissioning and procurement of software, AP Forensics, is in progress, but has not yet been implemented despite being discussed since 2018. What is causing the delay: Capita’s failure to put enough resources into the project; LBB’s failure to manage Capita; or the incompatibility of Integra with other software systems?

• Given that fuzzy logic matching as a technique for detecting invoice fraud has been in use for almost 20 years why has it taken so long to be used in Barnet?

• Given that the data matching exercise identified 7 bank accounts associated with an on-going fraud investigation, can you provide a sense of the scale of this fraud, which must be sizable if it involve 7 different bank accounts, and have Audit Committee members been briefed confidentially of the nature and details of this fraud? In terms of scale, is it hundreds, thousands, tens of thousands, hundreds of thousands or millions of pounds that is involved?

• How can a payment of £858,000 have been made without a supporting invoice?

• In regards to training of Accounts Payable staff, given that Internal Audit have a contractual right to inspect evidence of its operation, for example, the courses assessed, how evaluated and the resulting training identified had been requested by Internal Audit but that Capita have failed to provide the information, surely this amounts to a contractual breach and leads one to draw the conclusion (right or wrong) that Capita has something to hide?

• If the BACS reconciliation system could not mitigate the risk of fraud what reassurance can we have that no frauds have taken place using the method identified?

Agenda Item 9

• Given that BDO were unable to conclude their audit by the 31^st July deadline has this led to any formal action by Government for missing the deadline?

• The delay in concluding the audit was identified as being due to issues over valuations of land, buildings and dwellings, where additional work was required by the valuer and amendments made to the financial statements as a result. Can you clarify if Capita Re carry out the valuations and what steps will be taken regarding valuations to ensure that the deadline is not missed again next year?

Agenda Item 10

• Can you clarify why management has not corrected the financial statements for the material misstatements identified in the Annual Audit Letter given they are very significant sums?

• The auditor’s letter notes that there is an unrecoverable VAT sum of £898,000 which arose from an accounting error resulting in an under claim of input VAT. Who was to blame for this accounting error, LBB or Capita, why wasn’t the VAT claim double checked given the sums involved were so large and why wasn’t this flagged up by financial control systems?

• At 31 March 2019, mobilisation costs for CSG of £2.535 million and Re of £17.621 million remain as prepayments to be recovered from ongoing payments to Capita. However the External Auditor has not been provided with an agreed contract variation or written confirmation from Capita that the remaining balance of mobilisation costs can be transferred to the ongoing contract payment schedule and have requested that management confirm this in the Letter of Representation. Has this Letter of Representation been provided or have we lost out on the £20 million being repaid?

• The audit letter states on page 43 that “the updated MTFS shows an anticipated budget gap of £65 million over the period 2019-24”. However the MTFS published at Policy & Resources committee earlier this month shows a budget gap for the four year period 2020/21 to 2023/24 of £78.4 million and the five year period 2020/21 to 2024/25 of £118.7 million. Can you clarify if the External Auditor was provided with the latest version of the MTFS dated 10 September 2019 and if so why the difference in values?

Gagging - The questions I would have asked if I wasn't gagged

Since the introduction of the new gagging rules, residents are no longer allowed to make public comments or submit them in writing and are limited to just one question per agenda item. I intend to publish the questions I would have submitted to demonstrate that these questions still need to be asked. Set out below are the questions I would have submitted to the Financial Performance and Contracts Committee on 28 October. Scrutiny is a vital function and without residents questions it is an incomplete process.

Agenda Item 7

• The leisure budget is overspent by £719,000 because of the on-going problems at Finchley Lido which has now been closed since March. Does this overspend include the £245,520 the council has spent on phase one propping of the roof at the Lido while investigation works take place or is that in addition to the £719,000. What have been the results of the investigative works, what is the likelihood that the Lido will remain closed after December and what are the estimated costs or repairing the roof so that the Lido can reopen?

• Why were the counter fraud operations overspent by £731,000 before reserve movements?

• In CSC 0-25 the manpower costs were overspent by £362,000 with 13 agency staff in place. What steps have been taken to reduce the dependence on agency staff and how much will it save if all those agency staff can be converted to permanent staff?

• The CSG managed budget is £2.36 million overspent. Of that sum, £411,000 was due to the delay in moving out of NLBP to Colindale. Who was at fault for the delay, the contractor or the council and if the contractor, is it possible to recover this cost through contractual penalties?

• Why are we picking up the bill for the £469,000 shortfall in document solutions service given that this is a service provided by Capita?

• Is the £690,000 shortfall associated with Brent Cross income shortfall and running costs a one off problem or an early indicator of wider problems with the Brent Cross redevelopment?

• If the £1 million overspend on the Re projects management fee relates to the fee increase for the deferral in 2017/18 to 2019/20 can you clarify why this wasn’t accrued for in 2017/18?

• Frontline waste is £1,162,000 overspent. The explanation includes reason such as replacement of the fleet but surely these are capital expenditure, not revenue? The detailed evidence suggests that the rounds reorganisation saved no money whatsoever and in fact appears to have cost an additional £250,000. Given you have already missed the deadline to consolidate services into one depot, that the Oakleigh Road depot is about to undergo a period of major works to address subsidence problems known about from day one and which are likely to increase operating cost, are you sure that the year end forecast is reliable or merely an aspiration?

• The highways service is currently predicting an underlying overspend £654,000. Given the recent internal audit “No Assurance” rating for Highways and examples where invoices weren’t properly reconciled, work wasn’t properly checked and invoices weren’t certified for payment by the appropriate budget manager, how certain are you that the shortfall will not be considerably more by year end?

• Given that this financial year, the net forecasted overspend is £9.423m excluding reserve movements and that according to the MTFS the council will have a budget deficit of £118.7 million over the next five years, is Barnet facing the inevitable risk of bankruptcy unless you take radical action to get the finances on a more secure footing?

 Agenda Item 9

• As the contractual dispute with the main building contractor was resolved in July, why are we not allowed to know the scale of the payment made by the council given it could be up to £5 million and will have to be identified at some stage in the accounts?

Agenda Item 10

• Given that TPR felt that even after issuing a Warning Notice, they were not confident there would not be further delay without their involvement, they issued an Improvement Notice. What steps is this committee going to take to ensure that Capita’s role as the pension administrator is much more rigorously monitored by the Council?

• What was the outcome of the Annual Benefits Statement exercise?

• Why are there no KPI’s for pensions, will KPI’s be implemented as a matter of urgency and does the lack of KPI’s mean that there is no contractual redress against Capita for their catalogue of failures on pensions administration?

• Given that Accounts Payable operated by Capita has received a "Limited Assurance" rating from Internal Audit, will this committee explain why they chose not to bring Accounts Payable back in-house along with the finance function in April 2019 and will this decision be reconsidered as a matter of urgency?

• Given that you expect that overall phone and email volumes for the year will be less than 500,000 contacts for the first time since the start of the contract does that reflect the fact that many residents have given up trying to use the telephone system because it is so poor or it is because the strategy of savings opportunities from “telephony service degradation” agreed by the Senior Management Team at the Strategic Commissioning Board, are working?

• The report on HBPL does not identify if the contract is overspent. Can you confirm that the contract is in line with the budget forecast and if not, by how much is it overspent?

• Why does the Cambridge Education contract which provides vital services to schools, including 1.1 million school meals, warrant just 8 words of text and does that mean that there are no problems at all with the service provided by Cambridge Education and its subcontractor ISS?

• In the Barnet Group report it notes that the repairs target is not being met. I understand that the contract with Mears (who carry out the repairs) is being terminated one year early and the service will be brought back in house. What is the risk that the backlog of repairs will increase between now and when the contract is brought back in house in April 2020 and how can that situation be avoided?

Agenda Item 11

• The forward works programme states that you will set out details of the 6 and 7 year contract reviews at the December meeting. Why has this been left so long given that we are already in year 6 and have you renegotiated the contract to change the terms of reference for the year 7 review which relates to the extension of the RE contract?

It will be interesting to see if any of these questions get asked at the meeting - I suspect not.

Supplier Payments for September - a Bumper Month for Capita

Barnet Council may think that by gagging me it has stopped me from scrutinising what they do but trust me, that is not happening. The September supplier payments are out and yet again it has been a bumper month for Capita being paid £7.78 million on the CSG contract and £3 million of the Re contract.

Set out below is the running tab for Capita which has now hit just a fraction under £438 million since the contract started and £165.6 million more than the contract value.

Agency staff costs are settling down to £1m per month but there does seem to be some discrepancy between figures publish on different parts of the council website.

There were large payments to The Barnet Group and John Graham Construction who are building the two new leisure centres in Barnet.

In the next week I will be blogging the questions I would have put to the Financial Performance & Contracts Committee and the Audit Committee had I not been gagged by Barnet Tories.

The Collapsing Depot Part 2 - Scrutiny Process Gagged

Three weeks ago I wrote about the saga of the chaotic bin collection changes and the problems with the Oakleigh Road Depot. I didn't think things could get worse but in Barnet that is always a foolish assumption to make. On Thursday we had a Policy and Resources Committee. One of the late additions to the agenda was a report about the problems at the Oakleigh Road Depot with a further exempt report kept secret from the public. The public report gave outline details of the problem, which in summary is that there is a massive crack in the main roadway caused by part of the site slipping down the slope on which the depot is built, and pinned the blame on Willmott Dixon. The solution is as follows and will take 6 months to undertake:

"The current remedial works proposal constitutes a contiguous piled wall, from the rear of the footpath and stretching from the gatehouse in the North and to the South of the fuel station. This piled wall will be reinforced with reinforced capping beams and ground beams. In addition, this wall will be secured by ground anchors driven to a depth of over 16 metres".

They have known about this problem from the week the depot opened and they have already had to introduce a one way traffic system at the depot to avoid driving over the massive crack. As part of the solution, vehicles will have to refuel off site at local garages to avoid unnecessary traffic around the depot fuel tank.  It will also cause some residual waste and recycling rounds to move to Saturdays, to spread traffic movements more evenly across the week. The Council will also have to suspend the winter green waste collections approximately four weeks earlier than usual and require the extension of the opening times of Summers Lane recycling and reuse centre.

What the public report didn't mention (but was in the exempt report) is that, there are plans to reduce the use of the other waste depot in Harrow with all refuse vehicle run out of Oakleigh Road. So not only do we have restrictions but they are also going to increase the number of vehicles using the depot. As part of this relocation Barnet are planning to buy the site immediately behind the depot to accommodate the additional vehicles

Under the new gagging rules residents are apparently not even allowed to submit a written comment of 100 words or less, only a question. Personally I think this is not what was agreed at the originating committee but has been "fine tuned" by officers in the updated constitution. My banned comment was as follows:

"In June 2015 Capita prepared the detailed plans for the site and commissioned site investigations as appended to the planning application.  In June 2016 Capita acted as consulting engineers on a major soil stabilisation project. Capita project managed the depot construction. The site was known to be dominated by made ground. This report seems to entire ignore Capita’s role in this project and the significant fees they have received. There are numerous questions that need to be asked as to how this problem arose. I request this committee to commission an independent investigation into why this situation has arisen".

I also asked four questions which are also banned so I have asked for the to be answered under the FOI act although any responses will of course come far to late to inform decisions made at the committee. These included:

1. Is there any risk that surface water containing fuel from vehicles can pass directly through the surface cracks and into the ground water without being capture by the oil & fuel interceptors and has the ground water been tested to see if this is happening?
2. Has the ground movement had any impact on the vehicle fuel storage tank and have any tests been undertaken to ensure there is no risk of fuel leaking from the fuel storage tank?
3. The site has one or more attenuation tanks. Has any investigation been undertaken to ensure that the integrity of these tanks has been unaffected by the ground movement?
4. There is a large culvert running under the site. Have any investigations been undertaken to ensure that the culvert has been unaffected by the ground movements?

Now some councillors may say these questions are a waste of money answering, some may say they are politically motivated but from my perspective they are really important, especially when there are residents who live literally metres away from the depot in Coppies Grove.

Given the plan is to extend into the site behind the depot adjacent to the railway line, the reason  for asking these questions is to ensure that we understand how these problems arose and make sure they don't reoccur when the site is expanded.

@BrokenBarnet had one question accepted about this at the committee meeting which was as follows:
Will Capita face any contractual penalties for failures in construction, or project management, in regard to the Depot?  and the response was "There is currently no evidence to suggest that Capita has any liability to the Council in respect of this matter".

Now this ties in with my banned comment where I set out evidence that Capita were significantly involved having carried out a detailed site investigation report back in 2015 and acting as consulting engineers to a soil stabilisation project on the site. In the committee report Capita's name isn't mentioned once yet they were heavily involved in the site investigation and knew of the problems that might cause the subsidence. In their 2015 report they noted that the site and surrounding area originally sloped to the north. However, when the site was originally developed, to create a suitable development platform, fill was imported to raise levels across the majority of the site. This "Made Ground" forms a “wedge” of fill which generally thickens to the north of the site, is up to 7 metres deep and is made up of  clay and sand plus a mixture of "oversize brick, concrete, metal, wood and plastic". They also found pieces of a sheet of asbestos, hydrocarbons and water ingress into the boreholes at quite shallow depths. Photos of the boreholes are in the report with a couple included below:

Now all of those things should have been ringing alarm bells if the site was to be used daily by a large numbers of heavy vehicles. As part of the depot development, soil stabilisation works were carried out with Capita acting as the consulting engineers.

In addition, it is important to understand that Capita were the project managers for the depot development so should have been aware of the issues of the site throughout the construction by Willmott Dixon. Barnet say there is currently no evidence that Capita have a liability to the council on this matter but I would suggest there is evidence that should at least be examined, especially if Capita are to project manage the extension of the depot.

What this also suggests is that less than 12 months after a massive and disruptive waste round reorganisation that was predicated on having two depots, one at Oakleigh Road and one in Harrow,  we now face having to review all of those rounds again, once we are back to a one depot solution, this time in the East of the Borough.

The shutting down of any debate on this is a very serious matter but Barnet seem happy that there is absolutely no public scrutiny of a critical and expensive public service. This seems to be the Barnet way and it is unacceptable.