Further details about the system defects in Croydon Council’s financial management systems have been made public through the reports to its General Purposes & Audit Committee meeting on 14 January, by the external auditor Grant Thornton and the Internal Audit Team. This includes new information about Brick by Brick. The Committee also received a report on the work of the Anti-Fraud Team. The Corporate Risk Register which the Committee received is essential reading if you want to understand the complexity of the Council’s financial crisis.
Grant Thornton’s Concerns
- Self authorisation of journals. ‘We have identified from our journals testing that a number of journals have been initiated and posted by the same individual. Although our testing showed that none of these journals were indicative of fraud, there is a control weakness that could give rise to the posting of inappropriate journals where no automated control or separate review is in place to ensure that a separate individual posts the journal from the individual who initiated the journal. No material issues were identified from our journals testing performed at early testing however the above constitutes a control weakness which will be presented within our audit findings report.’
- Inaccurate FTE data. ‘As part of our early testing of payroll, we identified that Full Time Equivalent (FTE) reports provided were inaccurate. As an example, an individual who was a contractor and not London Borough of Croydon staff, they were included within the FTE report as they were required to be input onto ‘my resources’ (HR) system in order to access the finance and ledger systems to perform migration of data work. The input of FTE should have been included as 0 on the HR system however had been input as 1 and therefore was input incorrectly. We were unable to gain assurance that the residual individuals included in the FTE reports were included correctly and therefore we were unable to use the FTE report as a key source for our planned audit approach (substantive analytical review) and we revised our audit approach to substantive sample testing of individual council staff. No material issues were identified from our payroll testing performed at early testing however the above constitutes a control weakness which will be presented within our audit findings report. Conclusion We have altered our planned audit approach as deemed necessary based on the findings above to respond to risks resulting from control weaknesses identified. A formal recommendation will be presented in our audit findings report alongside management responses on all control weaknesses identified during the course of the audit.’
- Transfer of property assets from the Council to the pension fund. ‘We have confirmed verbally with management that the transfer of properties from the Council to the pension fund did not occur in the 2019/20 financial year and has not yet occurred at the date of drafting this report. We are awaiting written confirmation. The written confirmation is needed for us to conclude whether this remains a significant audit risk to the financial statement audit for 2019/20
- Users self assigning responsibilities without formal management approval. ‘Where administrative staff require additional functionality, they should be required to request this through the formal change management procedures. Any such access granted should be end-dated accordingly. Management should implement monitoring controls to identify instances where members of staff have assigned themselves additional responsibilities and any non-compliance with the abovementioned process investigated.
- We have identified that there has been assignment of forecast approver roles within the projects module by project managers. We will review appropriate controls with Finance and Oracle. 2) The majority of self-assignment occurred during or just after implementation. We have now removed access to the IT security manager role from 3rd Party support staff. 3) We will restate the message that that the internal My Resources support team must not self-assign roles and must follow the normal user access request process if they require additional responsibilities. We will also introduce monitoring controls via a report to identify instances where members of staff have assigned themselves additional responsibilities and any non-compliance. This report will be sent to the Head of Finance and HR Service Centre for review and investigation of any non-compliance.’
The following questions arise.
- Are these new problems occurring in 2019/20?
- If they are new what are the reasons for them happening?
- If they are problems varied forward from 2018/19 why had they not been identified by the auditor previously?
Internal Audit Team Report Priority Concerns
Fairfield Hall and Brick by Brick Audit
- The licence for access to carry out works in respect of property at Fairfield, College Green issued to BXB did not include specific contract conditions relating to quality or deadline for delivery.
- The conditional sale of the Fairfield Car Park agreement was still in draft at the time of the substantive internal audit fieldwork in February 2020.
- The Executive Director Place, a director of BXB, was the chair of the Fairfield Board meetings which is a conflict of interests.
Parks Health & Safety
The Council’s Internal Audit report to the General Purposes and Audit Committee meeting on 14 January states that aspects of parks health and safety are priority issues to be sorted out.
- A Parks Strategy was not in place
- Weekly reports of playground area visual inspections were missing in a number of instances
- Fire risk assessments for most of the parks and green spaces (where applicable) required review and, where appropriate, update
- The list of responsibilities for the various teams/services involved in parks/green spaces was generic, lacking any role details of processes
- 69 (out of 116) parks had not yet been visited to conduct risk assessments
- The central Action Log only included action plans for 5 parks (of the 47 that have been visited)
- The Park Programme Board terms of reference was not up-to-date
Age Assessment Judicial Review
The Council’s Internal Audit report to the General Purposes and Audit Committee meeting on 14 January states that aspects of the monitoring of costs of Age Assessment Judicial Review, are priority issues to be sorted out.
- The 2018/19 recharge for 50% of the legal costs incurred for age assessment judicial reviews to the UK Border Agency was overstated.
- There was a lack of monitoring and reporting of appropriate statistics on the outcomes or costs of age assessment judicial review cases.
- The ‘Age assessment information sharing consent form’ did not fully provide the information as required by the Data Protection Act (DPA) 2018 and GDPR to comply with transparency requirements.
- Statistics, such as the average cost of and success rate in pursuing age assessment judicial reviews, was not known or used in the assessment of whether to pursue these cases.
- Formal lessons learned exercises were not conducted following each successful or unsuccessful age assessment judicial review.
- Statements of legal charges were not provided in a timely manner.
Debt Recovery In-House
- It could not be evidenced in all cases that sufficient actions had been taken to recover outstanding debts. Furthermore, consistent records of customer developments were not being maintained.
Asbestos
‘A priority 1 issue was identified as there are some 7,762 housing assets, assets for which there was no identifier of whether asbestos was either identified, strongly presumed, presumed or was not found. Discussion established that this number included assets such as roads; however, examination of the listing noted that there were also general rent dwellings, service tenancies and garages included Response March 2020: The asbestos policy and plan has now received Director sign off. Workshops and asbestos awareness training for relevant staff are to be arranged over the next couple of months.’
Anti-Fraud Team Action
The Council’s Anti-Fraud Team’s ‘investigations relate to a broad section of service areas within the Councils including’: Environmental enforcement, Trading Standards – trademark and rogue trader cases, Planning – enforcement case, Licensing, Internal cases, Safeguarding cases, and Business rates evasion by fraud
The Anti-Fraud Team investigated 213 cases between 1 April and 30 November, and used powers under the Prevention of Social Housing Fraud Act six times. The Team has 10 full-time equivalent staff members, and costs £328,107.
At the request of the Committee meeting on 2 December 2020, the committee requested details of the numbers of internal investigations, involving staff or contractors, undertaken by the team over the last 5 years:
- Open/current 19
- Investigated but no further action needed 42
- Not investigated 11
- Investigation and action taken 48
No figures are given for the amounts of money recovered by the Team.
Other than fraud the Council still does not appear to investigate the costs of crime, something I have been arguing for since 2015.
Risk Register
- UASC. ‘The number of unaccompanied asylum seeking children and care leavers looked after by Croydon remains significantly higher than the national average, leading to substantial financial pressure on the Council. **The voluntary structure of the scheme means there is always vulnerability. Croydon is responsible for all new presentations to Lunar House as a locally based service**.’
- 2020/21 Budget. ‘The Council does not agree and deliver a balanced 2020/21 budget following the issuing of the s.114 notice leading to the Ministry of Housing, Communities & Local Government (MHCLG) imposing additional restrictions.’
- Governance and Risk Management. ‘Robust governance & risk management procedures/frameworks are not activated to safeguard the interests (financial & reputational) of the Council and it’s taxpayers within all subsidiary organisations where the Council has an interest. (Specifically in reference to Brick X Brick & Croydon Homes LLP).’
- Financial Control. ‘Poor financial control and ineffective governance arrangements leads to financial bankruptcy.’
- Government Funding. ‘Funding levels provided through the Government Grant are significantly lower than forecast or anticipated, resulting in considerable savings being required to balance the Council’s Medium Term Financial Strategy.’
- Social Care. ‘Social Care market supply disruption leading to market failure and inability to fulfil statutory requirements. Risk jointly owned with Commissioning & Procurement.’
- Adult Social Care. ‘The Council does not provide appropriate financial resource to meet the demand for Adult Social Care in line with all statutory obligations.’
- YoungPeople’s Social CARE. ‘Young people transitioning from 18-25 to 25-65 Social Care Services are disadvantaged due to operational restrictions: Specifically: • Unaffordability and budget overspend; • Delays in assessment, reassessment and review; • Increase in staff caseload. • Managing parental expectations; • Insufficient management oversight and scrutiny of proposed placements,’
- Resources. ‘The level of resource required to manage demand and reduce costs safely within time-frame is insufficient.’
- COVID. ‘Continuing increase in the infection rate leads to the Government placing further restrictions on residents & businesses resulting in a prolonged demand for emergency provision of services.’
- COVID. ‘The spread of the C-19 infection and the nature of the interventions implemented to reduce it widen health inequalities and increase demand on all Council services. ** e.g. overcrowded/poor housing – less effective self-isolation; those in deprived areas more likely to have underlying conditions; unsecure employment leading to great financial insecurity**.’
- Special Educational Needs. ‘Increasing population with complex learning needs and parental expectations leads to rising demand and financial pressure on SEN fixed budgets including pressure on High Needs Dedicated Schools Grant (DSG) budget, which can’t be funded from General Fund reserves. **The in-year overspend for 2019/20 was £5.434 million, with a DSG cumulative overspend of £14.558 million. The Department for Education (DfE) has confirmed the provisions in The School and Early Years Finance (England) Regulations 2020 establishing a statutory requirement for any DSG deficit balance to be held within the local authority’s overall DSG, meaning authorities cannot fund deficit from general fund without Secretary of State approval**.’
- OFSTED. ‘That a ‘Local Area (OFSTED) Inspection’ could issue a letter detailing improvement requirements/concerns in respect of the SEND Service. **The Education Directorate is coordinating the Council’s approach but the responsibility is jointly shared by Education, Health & Children’s Social Care**’
- School Deficits. ‘Increasing number of Council maintained schools moving into a financial deficit leading to default and arrears. **Currently there are 10 of our 50 maintained schools in deficit. Two schools account for a significant proportion (St Andrews at £2.716m and Virgo Fidelis at £2.5m) for which the Council holds liability.
- Children’s Services. ‘Effective action is not taken to address the underlying causes of social care overspends within Children’s Services, specifically in terms of both the demand and the resulting cost pressures.
- Adult Social Care. ‘Effective action is not taken to address the underlying causes of social care overspends within Adult’s Services, specifically in terms of both the demand and the resulting cost pressures.’
- Risk. ‘Ineffective management of identified risk leads to organisational failure.’
- Challenge, review, etc. ‘There is no effective challenge, review, investigation or ownership taken on all activities that the Council undertakes by the Executive Leadership Team, Cabinet and all Scrutiny Committees (including GPAC). **This risk specifically relates to financial strategy, treasury management strategy (including borrowing), capital investment strategies and appropriateness of continuing investment and association with BXB**.’
- Data. ‘The data provided from within the organisation via corporate systems and processes is inaccurate and incomplete.’
- Capital Programme. ‘The scale and ambition of the capital programme creates a requirement for borrowing that exceeds affordability.’
- Reserves. ‘The council’s financial strategy does not enable it to maintain the required level of reserves.’
- Investments. ‘The investment strategy and income generating properties do not deliver the required financial benefits. **Main Risks CPH (£1.75m), Colonnades (potential £700k), Davis House (£200k), BWH (Arcadis £750k) remainder portfolio (£100k). Issue compounded by the inability of landlords to take swift action through the courts to pursue non-payment remedies**.’
- HRA Estate. ‘The Council does not meet its obligations in respect of new and emerging legislation for the delivery of the General Building Works and Mechanical upgrade works across the HRA estate.’
- Whitgift. ‘The Whitgift Centre is not redeveloped as anticipated. Previous uncertainty in respect of retail behaviours has been exacerbated by Covid 19, which has further affected the likelihood of the risk materialising. The redevelopment was removed from the Unibail development pipeline in Feb 20 and there is no date for the redevelopment. The Croydon Limited Partnership (CLP) partners are both suffering from loss of income and are seeking to raise funding to strengthen their balance sheets.’
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