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?