Probe into allegations regarding integrity of senior Northumberland council management, bullying or the inappropriate use of funds to be discussed this week

Northumberland County Council’s CEO has described a delayed audit report, which raises several concerns, as ‘in part disproportionate and without basis’.

Thursday, 21st November 2019, 5:46 pm
Updated Tuesday, 26th November 2019, 5:16 pm
Northumberland County Council's HQ in Morpeth.
Northumberland County Council's HQ in Morpeth.

As previously reported, the local authority had to delay the final sign-off of its accounts earlier this year while external auditors looked into whistle-blowing allegations.

The audit committee was due to approve the council’s statement of accounts for 2018-19 at its meeting in July, ahead of the publishing deadline at the end of that month.

However, this was not possible as Ernst and Young (EY) had not completed its report, saying they needed to investigate a number of allegations which ‘relate to senior management and others that have significant roles in internal control’.

For the council’s part, there was frustration that bosses were only notified of these matters on June 25, despite the auditors having received the correspondence back in March.

Now, EY’s final audit results report is being presented to the meeting of the committee on Wednesday, November 27.

It concludes that the external auditors ‘did not find evidence to support the allegations regarding a lack of independence and integrity of senior management, bullying or the inappropriate use of funds for political purposes’.

But it adds that ‘in our view, there are management and cultural challenges facing the council that need to be urgently addressed’.

It goes on to say: ‘The council operates within a highly politically charged environment and we have observed a growing tension between the main political parties over the last few years.

‘Management has commented that the politics of the council can make it difficult to carry out their ‘day job’ and it is clear that the historical issues are still at the forefront of management’s mind.’

Among the other concerns that have been raised and which have resulted in an adverse value for money conclusion are the turnover of section 151 officers (essentially the authority’s chief finance officer) and ‘the maintenance of a sound system of internal control’.

However, the audit committee will also receive a four-page rebuttal from the council’s chief executive Daljit Lally, which, as well as addressing the issues mentioned above, describes some parts of EY’s report as ‘factually inaccurate’ despite requests to make corrections.

She adds: ‘Based on this, it is my view that EY has also not sought to properly authenticate a number of the ‘whistle-blowing’ claims made to them and have drawn their own conclusions on a number of matters which are unsupported by the evidence available.’

In her concluding remarks, Mrs Lally states that she considers her comments ‘to be relevant to the audit committee in order to ensure that the audit results report for the year ended March 31, 2019, is viewed in a fair and proper context.

‘As the ‘client’ for this report, I am unable to agree or support its conclusions which I consider to be in part disproportionate and without basis.’

Outside of this response, the chief executive said that there has been a difficult and strained relationship with EY partner Stephen Reid, to the extent that a request was made for another auditor within the company to be appointed as far back as October 2017.

The county council has now proposed to remove EY as its external auditors, although not in response to this latest issue, according to Mrs Lally, who said that a report was first drafted back in April this year before being put on hold when the alleged whistle-blowing complaints were revealed to the local authority.

A decision was originally due to be made at the full council meeting earlier this month, but additional time was requested so an extra meeting is set to take place on Wednesday, December 18, for a change of auditors to be approved.

In setting out the basis for its adverse opinion, the EY report highlights that the council has had three section 151 officers since May 2017 and is currently recruiting for a permanent appointment, stating that this ‘heightens the risk that the council is unable to demonstrate how they are able to secure appropriate administration over their financial affairs’.

In the CEO’s response though, it is pointed out that the authority has a ‘well-resourced central finance team which includes several very senior, highly experienced finance officers, including a deputy section 151 officer who is a long-serving employee and who has acted as section 151 officer throughout this period of time, which demonstrates appropriate continuity’.

It adds that an executive director of finance has now been appointed and is scheduled to start next month.

Next, the audit report raises ‘potential threats’ in relation to the chief internal auditor ‘taking on roles which could be perceived to be management functions’ and ‘the employment of a close relative of a senior manager by the shared internal audit service who worked on council audits’.

But the chief executive’s rebuttal says that the internal auditor’s attendance at certain meetings ‘is in a capacity which is entirely consistent’ with the relevant professional standards, as she ‘is undertaking a value for money review which is entirely consistent with her role and appropriate’.

It adds that ‘all appointments of staff within the internal audit team have followed the county council’s policies and procedures’ and explains there are ‘strict procedures in place’ where any potential conflict of interest is identified.

Finally, the auditors refer to ‘instances where the name of the section 151 officer has been added to public reports without their specific sign-off’, which could be ‘misleading’ and ‘creates a risk that decision are made on incomplete or inaccurate financial information’.

The council accepts that there were ‘a handful of occasions’ last year, when the section 151 officer was absent, in which the acting officer’s name was added in error during the report clearance process. However, this was picked up before the reports were made public and procedures were put in place to prevent it happening again.

The CEO’s response also reveals that EY is charging the council £20,102 for this additional work, having ‘incurred 26 days of time on this matter rather than the 15 initially estimated’, and that she has requested a detailed breakdown to ensure it’s ‘evidenced accordingly and considered appropriate for approval’. The council's total bill with EY for 2018-19 is £172,177.