Barnet - An Organisation In Denial

This sums up my feelings after last night's Financial Performance and Contracts Committee.


I had asked 34 questions and fellow blogger Roger Tichborne had asked another three yet most of  the answers were crafted to tell us nothing about what we had asked. Mrs Angry and Mr Mustard were also there to document the goings on but I think all four bloggers found the meeting entirely unsatisfactory.

Residents need to be aware of what a financial mess Barnet Council are in but the use of words in the reports discussed last night would have created a different perspective. Overspends were "reduced" not by cutting the amount spent but by topping up from reserves. In total last year we used £21 million from reserves to balance the budget, something which clearly isn't sustainable.

One of the serious problems occurred in the Capita run joint venture Re. Last year the external auditor identified a problem with £4.6 million of guaranteed income from Re that had not been paid. At that Audit meeting the S151 Officer who is the head of finance reassured everyone that the money would be recoverable. I had my doubts when the Capita partnership manager called the amount "disputed". I asked again about this money and whether it was going to be recovered at the performance and contract management committee  on 27 February just 4 weeks before year end. The reply from the council then was “The benefit to the council of additional income under the RE contract is guaranteed and does not, therefore, impact on RE’s budget performance” Four weeks later at year end and following legal advice they decided that it wasn't recoverable and it was written off. I don't doubt that writing it off is the right thing to do but what makes me so cross is that for nine months the council was in denial that it was a problem. We were also told that another £2.6 million of contractual liability had to be paid to Re and that it been "omitted from the forecast in error" but corrected before year end. Well technically that may be true but it wasn't corrected 4 weeks before year end. This tells me two things. One: take everything Barnet says with a massive pinch of salt and Two: we have a contract with Re which seems unenforceable and is costing Barnet a fortune. Set out below shows the impact of these late amendments on the accounts.

On gainshare, the nice little earner for Capita, we were promised back in January that this would be dealt with by this committee. Six months on and it is now being passed around a number of committees like a toxic pass the parcel. In my previous blog I gave one example of the sleight of hand which is the gainshare process. However the argument from Barnet Tories has always been that we may pay Capita for gainshare but we are saving money. I have always disputed this and last night I asked a question as to whether the savings were real. The wording of the response tells you everything you need to know about this process which assesses "contractually compliant savings". What that means is that who ever wrote the contract made it very easy for Capita to claim gainshare whether or not they provided any added value to the procurement process. I have a very serious example of where Capita have claimed a gainshare which I suspect most people will find morally wrong but because the contract allowed it Capita have claimed it and Barnet have paid it.

On the rest of the CSG contract Capita are failing on a number of key performance indicators (KPIs) but it doesn't matter because it doesn't count as a contract fail. 

If I was Richard Cornelius I would be taking legal advice as to whether we had grounds to sue the lawyers who acted for Barnet when this contract was being drafted because it is so heavily weighted in Capita's favour. I did suggest back in 2013 that Barnet should get a third party lawyer to review the contracts but as always that was dismissed. It may be a decision Barnet are now regretting.

At the end of last night's meeting I felt that I had just wasted 2 hours of my life. A meeting of complacency, and casual indifference with few questions from Tory members. Mr Mustard's tweet summed it up:

I didn't get any feeling of urgency about dealing with the massive annual overspend.

— Mr Mustard (@_MrMustard) July 2, 2018

Set out below is the speech I gave, sadly falling on deaf ears.

"Narrative too positive – needs to reflect true picture"

"Doesn’t highlight use of reserves. With this the £4 million overspend changes to an underlying variation of £8.5 million"

"CSG narrative not full picture  been told the true picture is much higher overspend"

"Family services net variance wrong"

"Satisfaction with website artificially inflated especially planning"

"Figures don’t match those published by NHS digital"

"Problems with payments Council owed £2 million"

Not my words but those of the Strategic Commission Board on 6 February discussing papers coming to this committee. I asked Richard Cornelius if he was aware of these issues before the year end – he said no he wasn’t but that they should have been reported.

You as a committee can only scrutinise what you are given and if you aren’t given a clear picture you can’t make the right decisions. I do not think you got a clear picture then and I am worried you aren’t getting a clear picture now. I’ve submitted 34 questions yet many of the answers show an organisation in denial, scared to be honest. We are in a financial mess and you all need to be honest as to how it is going to be addressed.

Back in February I asked you a specific question about the Re guaranteed income and you said “The benefit to the council of additional income under the RE contract is guaranteed and does not, therefore, impact on RE’s budget performance. Performance against the guarantee will be reconciled and published as part of the annual accounts process”. Yet now we find that was wrong.

In January former Audit Committee Chair Hugh Rayner said they were referring Gainshare to this committee. I asked about this in February and you said "Both referrals to PCM committee from Audit Committee (on benefits realisation and gainshare) will be formally noted at this PCM committee, and then scheduled into the forward plan. Now you are saying that it has been pushed to Policy and Resources and will be brought to the appropriate committee in due course". This smacks of pass the parcel.

I have not one ounce of confidence in this committee and will not do so until you start answering straight questions with straight answers. Get a grip, stop spinning and start sorting out this mess.

Barnet Audit Fiasco Part 2 - Capita penalised £55,000 but disaster looms after 2020

Last night we had the re-run of the Barnet Audit Committee, this time with a largely complete audit report. I blogged about the previous meeting here.

Most of the issues identified at the previous meeting still exist but we now had a largely complete report with just a few odds and ends in need of completion. Before the meeting got under way the Chair of the committee Cllr Hugh Rayner made a statement, one which was critical of Capita's performance and one which sought to build bridges with the external auditor after the unjustified pummelling they received from certain Conservative members at the previous meeting. He said that the reason for the late production of the audit report was not just the external auditor's (BDO) fault but the format in which Capita had provided the information to BDO "almost as if Capita were talking to BDO in a foreign language". He noted  that there would be a service credit (a penalty) to be paid by Capita of £55,000, some or all of which may have to be paid to BDO for all the extra and unbudgeted time they expended to get the accounts into a usable format. He praised BDO "for doing a magnificent job in difficult circumstances". Cllr Rayner went on to say that he was satisfied by the financial state of Barnet but not about the process of collecting financial data and that he was commissioning a review to be carried out by the Section 151 Officer to understand what happened and to bring that review to the November audit meeting.

I mention all of this as it seems unprecedented in Barnet's history and suggests some very serious problems have been encountered. Normally this would not have been so openly addressed so it is refreshing to see Cllr Rayner be so open and transparent about this.

Next up were three of the Barnet Bloggers, Barnet Eye and myself who addressed the committee, and then Mrs Angry as well for the questioning. As is so often the way, comments are received in silence and questions dealt with in a perfunctory manner. Often answers are supplied but not necessarily to the question asked. A copy of the questions and the answers provided can be read here.

After the questions, the Partner from BDO went through their report page by page. The key issue that became apparent is that the auditor can still provide a true and fair judgement on the report if the variation is less than 1.5% of the total council budget which the auditor said was in the region of £13 million pounds. That may seem a small amount in audit terms but that is a massive amount in terms of the amount raised through Council Tax (9%) and to set it in context the cuts to the library service were aimed at saving £2.3 million.

This becomes more important when the issue of bad debts were discussed. This included a debt of £4.6 million from Re, the Capita joint venture. It appears that this is a shortfall against guaranteed income targets. The auditor said that he was satisfied with the management representation that the debt is recoverable even though nothing has been billed and no confirmation of liability has been received from Re. At this point the Partnership Director from Capita spoke to say that he "acknowledged the disputed £4.6 million" but that would be subject to debate. My interpretation is clear, that the chances of recovering all £4.6 million are slim to nil. When the auditor was questioned he made the point that all of it or none of it might be recovered but because it was below the 1.5% threshold it didn't matter from an audit perspective. The auditor has covered his backside and preserved the auditors professional indemnity cover by getting management to make a signed representation that it is recoverable but the sum is still at risk. Interestingly Cllr Finn made the point that Capita compiled the accounts which recognised the debt and Capita owed the money therefore they must recognise the debt. Unfortunately, it doesn't work that way although it highlights the massive conflict of interest of having a contractor that owes money who also prepares the accounts.

There were many disturbing comments raised during the meeting but perhaps two of the most shocking were both on the same subject, one made by the auditor and one made by an independent member of the audit committee.  First of all the external auditor said when discussing the use of reserves that in the medium term till 2020 the council could manage its budget drawing off reserves but after 2020 the council "will need a complete re-write of what you do" if there is any hope of balancing the budget. This was then reinforced by the independent member Richard Harbord. Now Mr Harbord rarely speaks up and some may wonder why he is on the committee but he is a local government finance expert having previously been a local authority CEO and is a regular contributor to a local authority finance website Room 151. He confirmed that indeed after 2020 local authorities "haven't got the faintest idea how they will be financed in any way shape or form". He made the point that so many changes to local authority finance need primary legislation but the legislative timetable was full because of Brexit. The Director of Resources also made the point that they don't have enough funding to meet next years requirements and that is why further cuts are on the way. It looks like we are in a complete mess and based on both Mr Harbord's and the external auditors comments this must be the biggest single risk to the future of the council.

Towards the end the external auditor was asked how Barnet rated compared to other local authorities in the preparation of their accounts. I suspect some councillors were expecting a positive answer but no. Some clients could be worse than this "but taken in the round I would put you on the not so good step of the range I am dealing with".

To be clear, the audit process has been a mess, there are "loads of issues" as noted by one committee member, which need to be addressed. There will be a review document in November but it will be essential to see how any action plan addresses these problems. My concern has always been that having such a key function as finance run by an external contractor, Capita, creates divisions, barriers and risks that key financial actions will not be undertaken properly. The fact that Capita are in effect being fined £55,000 for their miserable performance at this audit must raise doubts about their ability to continue to provide the financial function for the council. At some point in the very near future I believe that councillors will need to consider taking the finance team back in house where there can be proper control and insight into this vital function. The interchangeability of Capita and LBB staff makes for confusion and a real chance that matters get missed or fall down the cracks between the two organisations.

I will report back after the November meeting but watch out for a series of blogs coming up in the next week or so.