Monday, 3 September 2012

Arrogance, Overspend, Complacency and the Audit Trail that Leads Nowhere

Imagine the scene. You want a loft extension for your house. You employ a builder but to safeguard your interests you also employ a project manager. “How much will this extension cost me” you ask the builder. “Approximately £20,000” says the builder. “OK”, you say knowing that the project manager will be keeping an eye on the bills. Eight weeks later the loft extension is still only half built and you are presented with a bill for £40,000 on account. Turning to your project manager you say," Hang on a minute, I thought it would be approximately £20,000 but it’s double that and it’s still not finished". “Yes”, says the project manager “but it wasn’t a fixed quote and they are lovely people”. You leaf through the invoices and there are bills for gardening work, resurfacing the driveway and hosting a barbeque for your neighbours. “Hang on a minute,” you say, “what is all this for”. "Well" says the project manager “it didn't cost that much and it needed doing so while they were here I thought I would just get them to do the work ”. 

Now I know this sounds like an implausible story but is very similar to the one being played out in Barnet right now on the One Barnet project.

Back in July 2010, Councillor Dan Thomas signed a Delegated Powers Report awarding the Implementation Partner Contract for a three year period to Agilisys working with iMPOWER. The value of this contract was in excess of £500,000 in the first year of delivery with circa £2,000,000 identified as potential contract delivery cost over a three year period.

In the last two years Agilisys have billed over £3.5 million and, at the current run rate of £275,000 a month, is likely to hit £6 million by the end of the contract next year. So Councillors were told it would cost "circa" £2 million it is already almost double that figure and by the end of the contract period will possibly be treble the figure agreed.

To his credit, Councillor Jack Cohen queried this contract at the Business Management Overview and Scrutiny Sub Committee in September2010  and as a result (and if I recall correctly, with the key vote of Councillor Mark Shooter) the Committee referred back the contract “to the Cabinet Member for Resources & Performance (Councillor Thomas) for reconsideration with particular reference to the precise role of the contractor and overall cost of the contract”.

Councillor Thomas subsequently decided to “retain the original decision without amendment”. In other words P*** Off!

I keep a watchful eye over the council’s spending and when I had the opportunity to query the accounts in July with Barnet’s external auditors, Grant Thornton, this contract was one of the particular issues I raised. I had two concerns:
  1. That councillors had been led to believe this contract was going to cost around £2 million and that it looked like on present spending it was going to cost £6 million. As such, were officers legally allowed to exceed this budget by so much without getting further approval for the spending by Councillors and did this make that spending ultra vires; and
  2. Part of the money paid to Agilisys was to develop the Council’s new website which was outside the scope of the original contract and therefore potentially in breach of EU procurement rules.
 Now, I’m not sure what I expected in reply from the auditor but it certainly wasn’t the response I received.
On the first point the auditor said, 

“With regard to your point on the level of spend, it is clear that the £2 million figure is an indicative one.  The Council's 2010/11 budget estimates costs of setting up the programme and projects at £3 million. The spend to date on the contract is approaching £4 million. Although ongoing spend and value for money is monitored by the Council's Corporate Directors' Group, there is nothing in the Council's constitution that requires the reporting back to members for this contract on the basis that there is no maximum contract value set. From the review of working papers, I am satisfied that there is no need for me to take formal legal advice as to the legality of the £4 million contract as I have not seen evidence that the council has acted outside of its powers. Based on these findings, I have concluded that the Council has followed its own rules in terms of the nature and level of spend under this contract and that there is no legality issue that would impact on my ability to certify the 2011/12 audit closed.”

So Councillors, there you have it. By adding the word “circa” to the estimate of costs it means that officers can spend what they like and they have no constitutional requirement to report back to you when it goes massively over budget. I wonder how the members of the Business Management Overview and Scrutiny Committee feel about this statement. They queried a contract that they were led to believe would be “circa” £2 million. Maybe an overspend of £100,000 or £200,000 might be acceptable within the term “circa” but given this contract may end up costing £6 million, I do not think that could be reasonably viewed as circa £2 million by any normal person. But the auditor says it’s OK, so tough luck.

Obviously this has made certain people at Barnet Council very uncomfortable so the auditor has added that:

 “I have discussed your second point around the governance of the level of spend on the contract and the Council agrees that it would be good practice to take an update report to the Cabinet Resources Committee. The Council is drafting this report which will update members on the level of spend to date, revised projections for level of spend over the three year period of the contract, value for money considerations (including an update on improved terms negotiated by the Council this year) and plans for the procurement of further support when the current contract ends next year. The report is planned to go to Cabinet Resources Committee at the end of September.”

So how comes it takes an ordinary member of the public to get the auditor to talk to officers to draft a report updating councillors that a contract is millions of pounds overspent? Is it something the 63 councillors paid just under £1.1 million a year should be doing? Is it something the Chief Executive paid £200,000 a year should be on top of? Either way it shouldn’t be down to me.

On the second point about Agilisys being given work to develop the council’s new website the auditor was, in my personal opinion, equally dismissive. I set out quite clearly that the Implementation Partner was awarded the contract on something called a framework agreement. This is a central government agreement with a number of suppliers for specific services and alleviates the need for councils like Barnet to go to a full open tender. The implementation partner contract was let on a framework for BusinessConsultancy Services  for which Agilisys is an approved supplier. I know it was let on a framework agreement because back in 2010 I specifically asked a question about it. There is a completely different framework agreement for Website Development  lot 6, for which Agilisys is not an approved supplier.

The auditor’s response was as follows:

“The element of spend that is with Agilysis is on business consultancy associated with the customer services transformation which is clearly a wider project than just website redesign. It makes sense that consideration of the website be dealt with as an integral part of the wider customer services project. I note that the technical element relating to pure web design included in the business case document is a small proportion of the overall project budget.

We therefore propose to take no further action in respect of your contention that this arrangement breaks EU procurement law. We remain of the view that no compelling evidence exists to suggest that this transaction represents expenditure which is outside the Council’s powers and for which we would seek legal advice”.

Given that Agilisys have been paid more than £300,000 specifically for the website development and this is above the EU procurement threshold, then in my humble opinion the fact that it is a “small proportion” of the £3.5 million paid to Agilisys to date is irrelevant.

I have reached an impasse in my dealings with Grant Thornton and I really wonder whose side they are on? I do not do this for political motives as I am not a member of any political party. I do this because I am a resident of Barnet and am utterly fed up with the cavalier way residents’ money is being spent without adequate regard for the checks and balances that I would expect to be in place.

As a disillusioned resident I have no confidence in the officers and the way they spend our money, I have no confidence in councillors keeping the officers’ spending in check and I am rapidly losing confidence in our external auditor to take issues like this one seriously. Something is deeply wrong in Barnet and if this attitude is replicated with the One Barnet contract, I can see the residents being right royally ripped off with absolutely no comeback.


  1. Mr Reasonable: you've said it all. The external audit process is, in my view, an absolute farce, and is failing the best interests of the residents and tax payers of this borough.

    Your analogy of the cowboy builders hiking up the bill is apt, and as I pointed out to Dan Thomas at a CRC committee - would you anyway build an extension on a house that is falling down?

  2. The Auditor has confused his apples and oranges John (let us hope he is better with debits & credits) as the budget of £3m for the year was doubtless the One Barnet transformation budget, not the Agilisys budget for which figures have never, to my knowledge, and I am the new boy on the block still, been published.

    Sorry just realised my fruit analogy is slightly wrong. It should be lemons and limes (both leave a bitter taste)

  3. Mrs A, even worse, the question Barnet should have been asking is do we actually need the contract in the first place. £3.5 million has in my humble opinion been pissed up against the wall. I run my own business and I carefully control every single pound that is spent because ultimately it is my money. In the Council, members authorise spending and Officers spend money with no sense of value because it is not their money something I have said before at the Audit Committee. That is why we need much more resident involvement in council spending because it is us, the Council Taxpayers of Barnet, whose money is being wasted.

  4. This is (as is usual in LBB matters) very worrying. As a former senior player in the world of audit, I feel qualified to comment on the performance of Paul Hughes and the Grant Thornton team. I had a rule of thumb which all my trainee auditors were taught from day one: "If it ain't simple, it ain't sustainable"; the corollary being "Beware of devices and complexities, add-ons, bells and whistles etc because therein lies the obfuscation of knaves and fools" (look for example at the complex derivatives etc which have destroyed the banking industry - though oddly not the bankers who practised them!) It seems that everything that is done in Barnet is shrouded in clauses, ifs, buts maybes, circa this and that, secret sub committees, FoI redactions, not-for-inspection transactions. Things which are as plain as day to intelligent and sane people (such as the bloggers) are explained away only with the most weasly, illogical, tendentious, sub-sub clauses and obstructive behaviour.

    The stakeholders (ie Barnet residents) are supposed to be represented and protected by the external auditor. However this auditor seems to go out of his way to hide behind complexities, excuses and devices. I understand that Grant Thornton (HIS stakeholder) has a very juicy contract with Barnet Council which, of course, does not undermine his independence. So I leave you with this question:
    Paul Hughes - knave or fool?

  5. Sorry to be late to the party, but Barnet Council has form when it comes to overspending. Back in 2002, when councillors and officers were granted an indemnity for legal costs in respect of the Underhill investigation, the costs were stated in a secret DPR as £60,000. The final bill was over £500,000. The then Deputy Chief Executive told the Cabinet that once indemnities were granted, they couldn’t be taken away and the council just had to keep paying and paying and paying….

  6. DCMD your comments are always welcome whenever they appear. What I can't understand is why they are allowed to get away with it time and time again. Are the councillors naive, reckless or just stupid but whatever the answer someone has to stop them repeating their mistakes at our expense.