Wednesday, 20 September 2017

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.

Friday, 15 September 2017

Barnet's Payments to Capita - the external auditor challenges £44 million pre-payment

Barnet's external auditor has produced their final (almost) audit completion report. One thing they make reference to on page 32 is the amount Barnet have paid in advance to Capita where it says;

"As at 31 March 2017, the Council has a prepayment balance of £44.7 million in respect of its Customer and Support Group (CSG) contract. This contract covers a number of front line and back office services including finance, ICT, HR, customer services, revenues and benefits, procurement,
estates, and corporate programmes. As this is a significant prepayment, we challenged management with regard to its basis".

I have been raising this issue every since the contract was signed so it is good to see that the Auditor has now questioned it. The first prepayment made but the council's continuing desire to throw money at Capita was compounded in November 2016 when councillors agree a further advance payment of £26.9 million. In July Barnet paid Capita  £4,026,345.08 (which included Capita employee benefits of £2.68 million) and paid Re £1,760,758.67.

Set out below is the running total paid to capita through the CSG and Re contracts from the start and you will realise how much extra Capita are being paid add-ons such as special projects, gainshare and contract variations.

Barnet keep talking about the savings that Capita have made. They may have made savings on the core contract but all the extras are costing a fortune and as a net figure I see no savings whatsoever.

Barnet Council Agency Staff Spend - reducing but still very high

Earlier this week I attended the Performance & Contract Management meeting at which I asked a number of questions about the procurement failure of the Enablement Homecare Contract. As is often the case, no criticism of Capita was allowed and even when Cllr Finn agreed with one of my points, he was stopped in his tracks by Cllr Zinkin who is the Praetorian Guard of the Capita contract. The debate then moved to the topic of Interim and Agency spend which has seen a decline from the high point of last finance year. It is nevertheless still very significant and, as Cllr Edwards pointed out, how is that agency spend going to be affected once Brexit happens?
To set this in context the chart below illustrates the huge growth in Interim and Agency staff spend over the last 5 years.

It was always envisaged that the Interim and Agency staff spend would decrease after the two large outsourcing contracts were signed whereas in reality it has continued to grow year on year to the point where it has become a massive embarrassment for the council. Steps have been taken to try and reduce this spend and my latest forecast for the year end spend look like the outturn will be around £16.5 million down on the £19.88 million of last year but still double what it was in 2011/12 and we still have 8 months of the financial year to run.

I would also note that the Interim and Agency spend has a nasty sting attached. At the year end 2016/17 the council stated that the agency spend was in fact £21.194 million a difference of £1.3  million over the spend shown in monthly payments. This did puzzle me until I carried out my inspection of the accounts when it became clear that Capita were paid £1.3 million in Gainshare payments for "savings" made on the interim and agency contract with Comensura. I have still not been shown the evidence to support the claims of these savings but Barnet is quite happy to pay Capita £1.3m on top of the £19.88 million paid to the agencies and that, I believe, is why the Council's figure is higher. I have raised this with the external auditor and I await his findings.

The last point to make is that Capita are the council's HR provider and one would have hoped they would have come up with some clever recruitment strategies to bring in more permanent staff and reduce the use of agency staff. Perhaps this is the re-run of their recruitment role for the Army  which has turned out to be a disaster. Or maybe they quite like the gainshare payments which are directly linked to the spend on agency staff - the more agency staff the more gainshare payment.

Tuesday, 12 September 2017

Is Peterborough the new Luton - Barnet outsources its homeless

“Peterborough is a growing city in the heart of rural east England with a population of approximately 200,000. The city and its region have an important place in the history of Britain and modern Peterborough is thriving.”

According to Rightmove, last year most property sales in Peterborough involved terraced properties which sold for on average £141,356. Semi-detached properties sold for an average price of £175,686, while detached properties fetched £272,491.

Wages in Peterborough are below the UK average but it is nevertheless a growing city.

So what you may ask? Well clearly the officers at Barnet Council think Peterborough is a great place to live because the Council are spending millions buying property there. With an official duty to house the homeless in temporary accommodation and with property prices growing ever higher in Barnet, the Council decided in May 2017 to spend £8 million buying properties outside the borough. Relocating people out of London isn’t something new. During 2015/16, 233 households were placed outside of London by Barnet Homes and Barnet purchased 48 properties of which 28 were in Bedfordshire - many in or around Luton.What’s new now is that Barnet are spreading the net much wider and further away from Barnet. These new properties will be let and managed by Barnet Homes.

Delegated powers reports reveal that 30 properties have been purchased so far of which 23 are in Peterborough. For those families who are housed there “temporarily”  it may be that they are glad to be in such a thriving, growing area. But I suspect that for many the 76 miles may seem a long way if they have children in school, or jobs, or a support network of family and friends in Barnet.

In the original report presented to the Policy and Resources Committee Barnet Home provided a summary of the housing situation in Barnet which makes grim reading and illustrates the failing of the current housing policy.

Interestingly the officer's report states that "women and members of Barnet’s black and minority ethnic communities are over represented among those living in temporary accommodation. Over 70% of households in temporary accommodation are from non-white households, compared to around 40% of the Borough’s population as a whole. Of those in temporary accommodation the main applicant is female in 65% of households." However the report also states that "a full equalities impact assessment was completed for The Housing Strategy 2015-2025 which identified that the Strategy would have a positive impact on all sections of Barnet’s Community". I struggle to see how shipping single mother families so far from Barnet is a positive step.

But I am sure you will all be saying "but it must save a fortune?" Well the report suggest otherwise.    
Existing temporary accommodation rental rates mean that for each new household placed in 2-bed emergency temporary accommodation costs the Council almost £2,400 net per annum. With bad debt provision and management costs factored in, this figure increases to approximately £3,400 net per annum, per household. Where rental properties are sourced outside London, these costs reduce significantly, however it still represents a net cost per unit of almost £1,900 per annum at current prices. By comparison, buying properties saves a whopping...... £3k over 30 years once borrowing costs are taken into account.

I am not an expert and if I have got this wrong please let me know but simplistically this is my understanding. The reason the saving is so small is that Local Housing Allowance in Peterborough is £115/ week compared to £255 in Barnet. This means that while rents in Barnet are high so is the Local Housing Allowance the government pays. The difference between the two is what Barnet pays.  So, yes, buying cheap property in Peterborough saves the general tax payer money in housing benefit but the savings for Barnet are comparatively modest.

That is where I might have ended this blog but as you will be aware I am interested in the details.  In the original report it stated that the best case for refurbishment costs and fees would be £23,669 and worst case £31,890.
So when the Delegated Powers report was published with the decision maker designated as Barnet's Deputy Chief Executive, the figures told a different story.

Only one property came in at or below the best case for other costs and fees and another came in just below the worst case estimates. The other 22 properties all exceeded the worst case and in total the average other costs came in at £44,717, £21k above the best case and £13k above the worst case. Even taking into account lower purchase prices, the average cost is still £11k above the worst case total cost. This matters because the savings set out in the business case justifying the relocation of families so far away from Barnet are relatively modest and at this level it calls into question whether this is a viable policy.

When I tried to ask Barnet Council for more information about these other costs they waited until my FOI was overdue and then told me Barnet don't hold this information and that all housing matters are dealt with by Barnet Homes. Well I for one hope that Cath Shaw, Barnet's Deputy Chief Executive, does know why these costs are exceeding the worst case and if she doesn't then that makes me worry even more.

Lack of affordable housing is one of Barnet Residents' biggest concerns. Barnet Council don't want poor people and are happy to ship those families most in need to Peterborough. We need a radical change but shifting the problem to another borough 76 miles away is not the answer.

Wednesday, 2 August 2017

Barnet Payments for June - Capita earn a fortune and a booze up on the Council

June was a particularly expensive month with a total suppliers payments bill of £70 million, double the average. A few payments stand out as follows:

Re (the Capita joint venture that runs, planning, environmental health trading standards and many other regulatory services) were paid £20.36 million. That includes their monthly contract fee of £ 4.2 million plus assorted small payments plus one large one for £15.92 million. I will have to investigate why so much was paid to Re and for what - the summary merely says "various"

Capita were also paid a fraction under £2 million on the Customer Support contract. I find this surprising  given that, as the recent audit meeting identified, "as at 31 March 2017, the Council has a prepayment balance of £44.7 million in respect of its Customer and Support Group (CSG) contract". Barnet keep saying they are hard up and have to make cuts to key services, yet they can afford to make a massive advance payment to Capita. We were supposed to receive a credit of £500,000 for making the advance payment last December but so far I have seen no credit for this amount (but I have seen a bill for £500k  in May - I wonder if they got it muddled up?).

Comensura , through which all agency and interim staff are consolidated, billed Barnet £1.53 million in June. There was talk of the Council making major inroads into the agency staff bill, but in the first three months of this financial year they have already spent £4.23 million which doesn't bode well.

At a more micro level, yet again the council's desire for town twinning meant a nice party at The Haven Bistro & Bar in Whetstone. This happened last year as you can read here. This year they spend £30 less but still managed  to run up a bill of £1,521.90. Given everyone is being asked to volunteer and councillors do receive a generous allowance, especially if they chair a committee, I would have expected each attendee to have chipped in £50 to cover the bill. But this is Barnet and they don't do things that way here.

Friday, 28 July 2017

A Night of Shame But Who's to Blame - Last Night's Audit Fiasco

  • Mis-statement of £153 million worth of internal recharges
  • Material omissions from the grant income note
  • Errors in the exit packages note
  • Failure to submit Pensions Financial Statement on time
  • Concerns about contract monitoring

These were just a few of the problems discussed at last night's Audit Committee exposing Capita's shortcomings as the outsourced finance department of Barnet Council.

It started last week when the papers for the audit committee were published minus the critical External Auditor's report. It is pretty hard for an audit committee to sign off the annual accounts if they don't have the external auditor's report to review. The deadline for public questions was 10am on Monday morning but there was still no external auditors report. Eventually at 5.30pm on Tuesday I was told the report had now been published. The significance of this is however much greater as not only was this the first opportunity for the public to review the report but it was also the first opportunity for Committee Members to read it. The report can be read here and my questions and the responses can be read at the bottom of the page.

Cllr Hugh Rayner is the new Chairman of the Audit Committee and this was definitely a difficult first meeting. He introduced the meeting and allowed me to ask my supplementary questions. They simply highlighted the very real shortcomings of Capita in the audit process. Most of the points in my supplementary questions are then covered within the rest of this blog but one point glossed over in the meeting relates to the failure of a number of council members to submit related party disclosures.  This is a key part of the audit process and the auditor remarked that it was poor compared to other councils. In my supplementary question I asked why they wouldn't name and shame these seven councillors. They replied that the number had now fallen to five (although the auditor said he was still awaiting seven disclosures). Given that members knew this was being raised tonight and still hadn't bother to submit their disclosures suggests a level of complacency that is insulting to ordinary residents.

Cllr Rayner then changed the order of agenda to bring Auditors report up next. He started by expressing his and the committees dissatisfaction with the audit process and fact that members had only 24 hours to read the report. He noted that the report had so many "ifs and buts" that it was difficult to make a value judgement and finally he noted the failure to mention the Children's OFSTED report which is of major importance as part of the audit process.

The external auditor then got their chance to speak, expressing their concern at being unable to provide a final report. A couple of reasonable questions from Cllr Hutton and Cllr Finn and then Cllr Zinkin weighed in. He was concerned about the process - yes we all agree with that - and called the report from the auditors a "complete shambles". Whoa hang on a minute. The incompleteness of the report seemed entirely down to the errors and omissions made by Capita yet no criticism of them?

Cllr Zinkin then made reference to the lack of any mention of the OFSTED report on Children's services. The response from the Auditor was that officers had not brought it to their attention that the report had been received and that they had only discovered the report yesterday on the OFSTED website. Such a poor OFSTED report will now mean that the auditor is obliged to qualify the audit report on the use of resources, something that as far as I am aware has not happened previously. Cllr Zinkin followed up with a damning statement saying that if the auditor wasn't aware of the OFSTED report what other things are they not aware of. The auditors' defence was that the accounts were in such a mess that they had to throw more resources at sorting them out first.  From my perspective Cllr Zinkin needs to stop attacking the auditor and throw some of his outrage in the direction of Capita whose errors, omission and failures precipitated the situation. At this point Cllr Finn weighed in and, no doubt using his experience as an accountant, steered Cllr Zinkin away from scapegoating the auditor. Yes they should have let the chair of the audit committee know what a mess the accounts were in but they shouldn't be held responsible for the mess. He recommended "giving Capita a kick" as they are paid lots of money and haven't performed.

Cllr Khatri then hit the nail on the head by highlighting that there are different organisations involved here, the council, Capita, (plus all the other outsourced services such as Re, Cambridge education, NSL etc) and the auditors. All along I have been saying that the fragmentation of so many critical services represents a major risk that one hand doesn't know what the other is doing and that important matters fall down the cracks in between all the different parties.

At the urging of Cllr Cooke the meeting then moved onto the meat of the report. The auditors expressed concerns about how certain items were expressed and concerns about the adequacy and complexity of the IT systems including the billing of CIL payments at the right time and how reports are produced. There was some debate as to whether these were old problems or had occurred since Capita took over the finance and IT functions. Despite suggestions by Capita that these were long standing, the Director of Resources confirmed that CIL billing is the responsibility of Re (the Capita JV) and the accounting system was changed when Capita took over the contract in 2013. Yes, Barnet had paid a fortune for a sophisticated SAP system which upon appointment was duly dumped by Capita in favour of their own Integra system which seems to be at the root of a number of the issues that have arisen.

Next the discussion turned to pensions. An independent actuary is used to assess both the liabilities and the assets of the pension fund to give a net position. In terms of the liabilities these were adequately calculated but in terms of the assets the actuary was not given the details of the investment portfolio in time and therefore had to make assumptions which turned out to be incorrect and there will material changes to the net pension position. Capita are responsible for preparation of the pension fund accounts.

Next up was the issues of exit packages, the payoffs to officers, whereby exit packages should be disclosed when they are agreed not when they are paid. Does this mean that a number of exit packages are still to be disclosed having been agreed before year end but paid after year end?

They then moved on to the issue of budget and the fact that the council continue to overspend, this year drawing £18.5 million from reserves and general fund to meet the shortfall. "You are overspending" said the auditor. Perhaps the Tory strategy of multiple years of council tax freeze is now coming back to haunt them and residents.

Next was the the issue of contract monitoring. Given how heavily the council rely on outsourced services the auditor was surprised that a number of matters on contract management had been picked up by internal audit when they should have been picked up in the first instance by contract management. This is something I have raised repeatedly with councillors. Let's hope they will now listen to the auditor saying it as well.

The net outcome is there will now be an additional audit meeting on the 19th of September to go over the final audit report and to pick up all the outstanding points of which there are many.

This was a night of shame for Barnet; failure to meet government deadlines, numerous errors and omissions, failure of communications between officers, Capita and the auditors, over complex and inadequate IT systems, problems with contract monitoring and unsustainable overspending. I suspect that if more members of the public were aware of all these shortcoming they would maybe take a different perspective on how well the council is run.  It is a mess and outsourcing of critical functions  such as finance and IT seems to be at the heart of it.

I am sure that Mrs Angry who was also in attendance will give a far more accurate and readable appraisal of the meeting and I urge you to read her blog as well.

Monday, 17 July 2017

Children at Risk: Time to take responsibility

A joint statement from the Barnet Bloggers
“There are widespread and serious failures in the services provided to children and their families in Barnet. Inspectors identified a legacy of widespread poor practice and ongoing systemic failures and services that neither adequately ensure the safety, nor promote the welfare of children and young people”. 
Ofsted Inspection Report on Barnet Children’s Service July 2017

Over nearly a decade of scrutiny by Barnet bloggers, we have investigated and reported the seemingly endless sequence of scandals, blunders, and political folly created by Barnet’s Conservative councillors. The incomprehensible tale of the MetPro fiasco, the disgraceful confiscation of travel passes for disabled residents, the cutting of vital respite care for children at Mapledown School, which cares for children with profound disabilities, the illegal CPZ parking charges, are only some of the many examples of administrative incompetence – and worse – that we have pursued.

In all this time, in response to all of these disastrous situations, not one Conservative member has taken responsibility for the failure in services to what are very often the most vulnerable members of our community.

No one could be more vulnerable than a child: especially a child in care, whose well being has become the responsibility of the local authority, standing as a corporate parent.

Yet now we see the emergence of a most damning report from OFSTED, one that slates the provision of care services in Barnet for such children: a report that should shame any local authority, and would – anywhere else but in Barnet.

“The vast majority of care planning is ineffective. There is a lack of focus on measuring progress for children or their outcomes. When there is no progress, this is not re-evaluated or escalated effectively. This leads to drift and delay. This is particularly stark for a significant number of children who are victims of chronic long-term neglect and emotional abuse, who do not have the impact of this risk recognised, responded to or reduced, despite spending long periods subject to child protection planning … ”.

“Young people who go missing from care receive a poor service, because social workers do not find out enough about the risks to them. This means that young people who go missing are not always kept safe enough from dangers, such as gangs or adults sexually exploiting them”.

In any circumstances where there has been proven wrongdoing, or a failure in standards, it is usually the case, in Barnet, that officers are held responsible, and those elected members tasked with the responsibility – and paid generous allowances for those duties –of overseeing the enforcement of their own policies remain distanced from the consequences of their actions. We believe that this is wrong, and that Councillors should be held accountable.

In this case, we believe, the fault lies in a serious failure in leadership, oversight and scrutiny by the Children, Education, Libraries and Safeguarding Committee, chaired by Conservative Councillor Reuben Thompstone.

The same committee was responsible for the Mapledown cuts – later reversed, after protests from parents, and a public outcry; and was also the instrument of approval for the devastating programme of cuts to our library service, presented to residents as mere ‘refurbishment’, but which has seen the closure of children’s libraries, and the removal of access for under sixteen year olds from any library operating the newly unstaffed hours.

It seems to us that under this Conservative administration, children are seen not as our most precious asset, but an easy target for cuts, and the lowering of standards meant to ensure their protection, and wellbeing.

In 2014 Tory members approved a cost cutting restructuring of Family Services which has resulted in the use of agency social workers soaring from none in 2013, to £3.05 million per annum in 2016/17.

With the average agency social worker staying just 202 days, there has been a constant turnover of staff, and throughout this period, Children’s Services have been under constant pressure to meet the budget savings forecast.

We believe that pressure on budgets for local social workers responsible for ensuring the safety of young people has lead to the near destruction of the service, and a situation where there are simply not the resources to ensure vulnerable young people are given the life chances they deserve.

This cannot possibly be in the best interests of the children of this borough.

We therefore make the following suggestions: 
  • That there must be a full open, transparent, and independent public inquiry into what went wrong.
  • This inquiry must include a forensic audit of all correspondence between the Conservative administration and officers, regarding Children’s Services, to ensure that political interference has not, and cannot in future, prejudice the standard of care.
  • This inquiry should be concluded prior to May 2018, to allow the people of Barnet to pass their own judgement on the administration.
  • We call for the resignation of the Councillor in charge of Children’s Services, Cllr Reuben Thompstone.

Derek Dishman
John Dix
Theresa Musgrove
Roger Tichborne