'the ford over the river where the alder trees grow'

 


Year-end accounts 2006/7

Reproduced below are the documents relating to the complaints made regarding the Town Council's Year-end accounts for 2006/7

Chair of Finance's Statement

The District Auditor on behalf of the Audit Commission has decided that NATC's accounts for 2006/7 are not contrary to law and there are no issues on which he will issue a report in the public interest. He has, however, expressed a view the consequence of which has led him to make the following recommendation:

AUDITOR'S RECOMMENDATION

The Council currently has loans which are not represented by equivalent capital expenditure. It should:

Council is now required to decide:

Basis for Auditor's recommendation

The District Auditor's view, and it is important to understand that it is not even an opinion, let alone a statement of fact, is that the previous Council, with the complainant, Mr. Atkins, as Chair of Finance used a PWLB loan to finance expenditure for which the loan should not be used. The consequence of this is that current and future taxpayers are (or will be) paying loan repayments and interest for which there are no on-going benefits in terms of assets which were financed by these loans.

Finance Chair recommendation

The Chair of Finance recommends that the District Auditor's recommendations are not accepted. The auditor puts forward a specious argument, appearing good on the surface but not in reality, and it was probably made in the hope of appeasing the complainant. Ignoring for the moment that the auditor expresses the view that the loans were misused, the only way this Council can repay any PWLB loan money is by increasing the precept or borrowing more money to finance the repayment and a penalty charge of some £8000, which in itself means, and to quote the auditor, "current and future taxpayers are (or will be) paying loan repayments and interest for which there are no on-going benefits in terms of assets which were financed by these loans." Consequently acceptance of the recommendations does not resolve the issue it worsens it in that current and future taxpayers will be paying a penalty charge for which there are no on-going benefits.

More detailed reasons appear below and for completeness an evaluation of the points he asks to be considered in detail is included. It might be argued that we should accept his recommendation and debate the detailed points contained in that recommendation but to do so would mean accepting his 'view' in the first place which, as has been said above is specious and not justified.

In reality the current council's interpretation and presentation of the 2006/7 accounts have been signed off and effectively been given a 'clean bill of health'.

Resolution: To reject the recommendations of the District Auditor in respect of New Alresford Town Council's accounts for 2006/7 and take no further action.

Detailed analysis of District Auditor's recommendations

As mentioned above the auditor puts forward a specious argument in asking the Council to repay part of the PWLB loan which is not in itself sustainable as it does not resolve the issue he is trying to address, namely: "current and future taxpayers are (or will be) paying loan repayments and interest for which there are no on-going benefits in terms of assets which were financed by these loans." Acceptance of his recommendations in full will, in fact, worsen the tax-payers position as they will have to pay an £8700 penalty charge for which they will get absolutely no benefit as the only practical way to repay the loan is to borrow more money. An alternative is to substantially increase the precept which puts the burden, unacceptably, entirely on the current year tax-payer.

The auditor also expresses the view that the loans were misused and this is also open to question. In essence the cost of the extension to the Arlebury Park building was financed from three areas:

The auditor's view, which is not based on any matter of fact, or documentation, either before or after the event, is that the money should have been used in the reverse order to that listed above. That is to say the capital costs should first be taken from the precept money, then from the grant and finally from the loan and any money, from that loan, not expended on capital should be repaid. Even in the auditor's own words, "this will be a subjective decision", and would probably not be the interpretation of any reasonable man. It also makes an assumption, for which he provides no actual evidence that the Football Foundation Grant was given solely to cover capital expenditure.

The reasonable interpretation is that the PWLB loans were obtained to cover the capital cost of the new extension supported by the Football Foundation grant which was given with some conditions (all met) but none limiting the use of that grant to capital expenditure. Similarly, the money held in reserve for the project by the Council was not specifically earmarked for capital expenditure

Whilst there has never been any question of taxpayers money being improperly used it should be noted that, if the auditor's view could be regarded as in any way reasonable, under the financial stewardship of Mr. Atkins, the previous Council spent up to £70,000 that they didn't actually have when in reality they had insufficient funds to meet their then current liabilities. It should be remembered that the Council had incurred substantial and growing legal costs and liabilities; rooted in Mr. Atkins legal actions for libel, and as a result during the following financial year the Council had insufficient funds to meet its actual liabilities.

Analysis of detailed recommendations

Establish the cost of early repayment of the loan

An enquiry of the PWLB in July indicated that there would be a penalty charge of £8700 if £69,000 were repaid at that point in time.

Consider the equity of the current position

In considering the equity of the position we are considering the fairness of the current position. Leaving aside whether it was fair of the previous council to spend money it didn't have, assuming one accepts the auditor's views, it clearly isn't fair to load taxpayers with an £8700 penalty that is totally unnecessary especially as we do not change the financial position of the Council one iota other than increasing its liabilities.

The only logical conclusion is it is best to take no action.

Decide whether it should repay some of the PWLB loan so that the balance more closely matches the capital expenditure incurred.

This statement is a reflection of the ectopic thinking that could only stem from the tortuous and specious arguments entered into by the District Auditor. The reality is that whichever way it is looked at the cost of the new extension was in excess of £600,000, even the complainant accepts that. The PWLB loans for this project are £410,000, which incidentally, is the total of all our loans outstanding. It is clear from these figures that borrowings only represent two-thirds of what must be regarded as the minimum cost of the project and can only be interpreted as representing a realistic 'match' against the expenditure incurred.

Conclusion

It has to be said that is has taken three years for the Audit Commission to come to this dubious conclusion albeit they have given the Council a clean bill of health as to its interpretation and presentation of the 2006/7 accounts. It could be argued that they have been negligent in their handling of this matter having prevaricated for some two years before finally becoming pro-active. The final cost to this Council and, therefore, the taxpayer has yet to be finalised but it should be noted that Mr. Atkins in making further complaints, this time about the 2008/9 accounts, said that the Council's provision of £5000 was completely inadequate to cover the cost of handling the complaints made by him and Mrs. Pam Stevens for the 2006/7 year alone. The burdening of the Alresford Taxpayer with high costs continues with the Council having to bear a high administration overhead in handling the unabated stream of complaints from the same source.

Roy Gentry
Chair of Finance
New Alresford Town Council

District Auditor's Report into objections by Mr Atkins and Mrs Stevens to the accounts for year ended 31 March 2007

Introduction

I am the District Auditor appointed by the Audit Commission to audit the accounts of New Alresford Town Council (the Council) in relation to financial year 2006/07. 1 accepted objections from two local electors, Mr R Atkins and Mrs P Stevens, (the Objectors) raising concerns about the following:

.          expenditure on the Arlebury Park Project, which was part funded by Public Works Loans Board (PWLB) loans, and the lack of an accrual for the amount a payment of £11,668 to a contractor in relation to the Arlebury Park Project that was not included in the 2006/07 accounts;

.          the inclusion of the balance of the grant from the Football Foundation (£28,000) as a debtor in the 2006/07 accounts.

Under section 16 of the Audit Commission Act 1998 (the Act) local government electors have the right to make an objection to the accounts as to any matter in respect of which I can;

.          seek a declaration from the Court that an item of account is contrary to law;
and

.          issue a report in the public interest.

Decision as to whether I should exercise my powers to apply to the Court or issue a Report in the Public Interest

I have considered the documentary evidence provided by the Objectors. I have also considered the representations made by the Objectors and the Council.

In summary it is my view that the Council used PWLB loan for items which do not relate to the reason for taking out the loan. However I do not consider that the consequences of this are sufficient to justify an application to the Court.

It is also my view that the accounts for 2006/07 incorrectly include a debtor of £28,000. I do not intend to require the council to adjust its accounts for this amount.

As a result my decision is that I will not:

.          apply to the Court for a declaration that there are items of account that are contrary to law and seek rectification of the accounts in accordance with section 17 of the Audit Commission Act 1998 (the Act); or

.          issue a report in the public interest under section 8 the Act.

However there are issues raised by the objection which the Council should consider and I intend to summarise these in an audit letter to the Council and include relevant statutory recommendations under section 11 of the Act.

In this document i set out the reasons for my decision.

 

The Objections

The objections relate to the Arlebury Park Project. The Objectors' concerns are set out in their letters dated 4 June 2009 and 15 July 2009 and focus on whether the Council has used all of the PWLB funding received in relation to the Arlebury Park Project for the purposes intended.

The Objectors' concerns regarding the Arlebury Park Project are that:

.         At 31 March 2007 the total cost of the project is less than the total funding received from the PWLB and the Football Foundation. The Objectors allege that the under spend is £77,000, that this amount is repayable to the PWLB and should be shown as a creditor in the accounts;

.         A payment of £11,668 to a contractor on the Arlebury Park Project (Trevor Ingram) should be shown in the 2006/07 accounts as this amount had been committed at 31 March 2007;

.         The balance of the grant from the Football Foundation, £28,000, is incorrectly included in the accounts as a debtor. The Objectors allege that the conditions of the grant were not met until 2008/09, so it should not be included in the 2006/07 accounts.

I have been invited by the Objectors to consider these matters in relation to the 2006/07 accounts and I have done so. I now consider that I have sufficient information before me to enable me to set out my views.

Powers and Duties of the District Auditor

The relevant powers and duties of the District Auditor are set out in the Audit Commission Act 1998 as amended.

Section 17(1) and (2) of the Audit Commission Act 1998 state:

(1) Where

(a) it appears to the auditor carrying out an audit under this Act, other than an audit of accounts of a health service body, that an item of account is contrary to law, the auditor may apply to the court for a declaration that the item is contrary to law.

(2)  On an application under this section the court may make or refuse to make the
declaration asked for, and if it makes the declaration then, subject to subsection (3),
it may also-

(c) order rectification of the accounts. Section 8 of the Act requires that

In auditing accounts required to be audited in accordance with this Act, the auditor shall consider-

(a)   whether, in the public interest, he should make a report on any matter coming to his notice in the course of the audit, in order for it to be considered by the body concerned or brought to the attention of the public, and

 

(b) whether the public interest requires any such matter to be made the subject of an immediate report rather than of a report to be made at the conclusion of the audit.

Work Carried Out

In reaching my decision I have carefully considered the objections made, all the relevant documentation and all representations supplied to me by the Objectors and by the Council, whether or not explicitly mentioned by me.! have shared all relevant documents with both parties, and I have taken legal advice where necessary. I have also made further enquiries of the Council and I have met with the Objectors to clarify the basis for their objections. In dealing with these objections I have not commented on every issue raised by the Objectors, but have dealt with those matters which I consider to be significant.

Background

In 2000 the Council decided to undertake a project to build council offices and an extension to changing rooms at Arlebury Park. It borrowed a total of £160,000 from the PWLB to finance the likely costs of this project, and in addition had a reserve of £26,400 set aside for the project. This project did not proceed, although capital costs of £6,692 are recorded in the accounts of the council for the year 2000/2001, representing abortive initial project costs.

In 2002 the Council embarked on a new project referred to as the Garden Extension. The unused PWLB loan and reserve was carried forward to meet the costs of this project. Although the actual costs of this project are the subject of dispute between the Objectors and the Council (leading in part to this objection), it is agreed that there was an unused portion of PWLB loan at the conclusion of this project. This amount was not returned to the PWLB but held in an earmarked reserve.

In 2003 the Council commenced a larger scale project at Arlebury Park to create permanent council offices and extra sporting facilities. The Council obtained grant funding from the Football Foundation of £285,934 and a further loan from the PWLB of £250,000. In addition it had the unused portion of the previous PWLB loan available to fund this project.

The project has now been completed and the Football Foundation has confirmed that all its requirements have been met, with the final balance of the grant having been paid to the Council. In total the Council has borrowed £410,000 from the PWLB and is repaying this amount annually over a period of 25 years, in line with the loan agreements.

The central issue to this objection is whether the Council borrowed more from the PWLB than it incurred in costs of the projects, and I consider this below.

Consideration of the Evidence

I set out in the following paragraphs the objections and the key evidence I have considered.

 

Objection 1: At 31 March 2007 the total cost of the project Is less than the total funding received by the Council. The under spend of £77,000, is repayable to the PWLB and should be shown as a creditor in the 2006/07 accounts.

The Objectors contend that the total expenditure on the Arlebury Park Project is £77,000 less than the total funding received from the PWLB and the Football Foundation. They believe that this under spend is repayable to the PWLB and should be shown as a creditor in the 2006/07 accounts.

Findings

The Council provided to the Objectors two schedules of payments which it regards as relating to the project costs. These schedules total £708,752. The Objectors dispute the accuracy of these schedules and claim that a total of £63,235 does not relate to the projects. The analysis of the amounts disputed by the Objectors is as follows:

 

Reason for Exclusion

Amount (£)

 

 

Work on aborted plan which was not attributable to the PWLB loan

12,283

Work which was carried out for the Arlebury Park Sports and Social Club under the council's lease commitments

14,825

Items not connected with the PWLB loan

16,355

Items of a revenue nature which cannot be funded by PWLB loan

6,025

Furniture, carpets, computers and moveable items not covered by PWLB loan

11,398

Replacement and repair work on the old building not attributable to the projects.

2,349

 

 

TOTAL

63,235

The Objectors allege that the total cost claimed by the Council (£708,752) should be reduced by the amount of £63,235, giving a revised total cost of £645,517.

Furthermore the Objectors allege that the amount to be funded from PWLB loan should be the balance of expenditure, after the grant of £285,934 from the Football Foundation and the £26,400 initially held by the Council in earmarked reserves for the project. This gives a figure £333,183 compared to PWLB loan taken out of £410,000, a difference of £76,817 (rounded to £77,000).

I have not attempted to decide whether each of the items disputed by the Objectors is correctly included in project costs.  I believe that in many cases this will be a subjective decision and would entail a disproportionate amount of time and cost. In considering whether the Council has borrowed in excess of the amount it needed for the project, I have considered other evidence of total project costs and financing.

The Council prepares annually detailed statements of accounts, which are not subject to audit but are presented to the Council and the public as a record of their transactions. Within these accounts the notes set out the capital expenditure incurred on the Arlebury Park projects. I have compared the schedules of payments provided by the Council with the figures recorded in these accounts for the period 1 April 2000 to 31 March 2006. For this period the schedules total £148,870, whereas the accounts record a total of £115,638. This difference of £33,232 supports the Objectors' assertion that not all of the payments listed on the schedules relate to the projects for which external funding was obtained.

Included in the schedules of payments are items incurred in the year 2000/2001 which total £25,450. At that time only the abortive first project was underway and the Council's detailed accounts record expenditure on this project as being only £6,692. Again this supports the Objector's assertions.

A Council newsletter, produced around December 2007, includes a note to the effect that an amount of between £25,000 and £63,000 may have to be repaid to the PWLB. The note goes on to explain that this money is not available as it had been used to pay for litigation costs. This indicates that the Council recognised that the PWLB loan had not been fully used on the project.

The objectors assert that when applying for the loan from PWLB of £250,000 the council stipulated that they intended to contribute £127,000 toward the cost from its earmarked reserve. This amount included the unspent PWLB loan from previous projects and the intended contribution of £26,400 from Council resources. In my view the Council is entitled to change its mind about the funding of the project and may choose to use external loans rather than internal funding. Although i have not been provided with any evidence of a Council decision to this effect, I do not believe that utilising external loan in place of the £26,400 of Council reserves leads to unlawful items of account.

Based on the evidence I have seen it is my view that the PWLB loan taken out by the Council exceeded the amount of the costs attributable to the Arlebury Park projects. I estimate this difference to be between £50,000 and £77,000.

What are the Consequences?

The effect of borrowing in excess of the cost of the scheme would be that either the Council holds an amount in reserves, or it has spent it on items which should not have been funded by loan. From the evidence it appears that the latter is the case. In consequence future council tax payers will bear the cost of repaying the loan for which there is no on-going benefit obtained. To correct this position the Council would have to repay the surplus amount to the PWLB. This is likely to incur an early repayment penalty.

Decision

As the external auditor it is not within my power to order the council to repay the loan. To achieve this end would require me to apply to the court for a declaration that there is an unlawful item of account. It would then be open to the court to order rectification of the accounts if it thought it appropriate. In my view the cost of the court action is not justified in these circumstances.

However the council should consider its debt position. It should review, in the light of any early re-payment penalties, whether some or all of the PWLB loan should be repaid early.

 

Objection 2. A payment of £11,668 to a contractor on the Arleburv Park Project (Trevor Ingram) should be shown in the 2006/07 accounts as this amount had been committed.

Objection 3. The balance of the grant from the Football Foundation, £28,000, is incorrectly included in the accounts as a debtor. The Objectors allege that the conditions of the grant were not met until 2008/09 so it should not be included

in the 2006/07 accounts.

\

The Objectors contend that the work done by Trevor Ingram related to 2006/07 and should have been accrued in the 2006/07 accounts. In relation to the Football Foundation grant they contend that the conditions of the grant from the Football Foundation were not met until 2008/09, and no grant or debtor was due at 31 March 2007. They allege that the Council has incorrectly accrued for the balance of the grant.

The Council asserts that at the time of the compilation of the 2006/07 accounts there was no Council minute to approve these works and it was not therefore appropriate for an amount to be accrued. The Council also states that it accrued for the balance of the grant after meeting with Football Foundation representatives and concluding that no forfeiture was required at 31 March 2007.

Findings and Decisions

I have been provided with a copy of the invoice from Ingram & Co (Southern) Ltd attached to a letter from Mr Atkins dated 9 January 2008. The invoice has a tax point of 14 December 2007 and is for £9,930 plus VAT. With VAT being at 17.5% at that time the total invoice was £11,668. The invoice detail states that the work was carried out in April to July 2007. My decision is that this amount has correctly been excluded from the 2006/07 accounts.

However the payment relates to work on the Arlebury Park project. The Council has stated that at the time of the compilation of the accounts there was no Council decision to approve these works. As such it would appear that the scheme was not complete and therefore it was not appropriate to include a debtor for the balance of the Football Foundation grant. My decision is that the amount of £28,000 should not have been included as a debtor in the 2006/07 accounts.

Since the production of the 2006/07 accounts circumstances have moved on and hence this issue no longer affects the accounts for the current year. I do not intend to require the Council to adjust its accounts for this item, but I will refer to it in my opinion on the accounts.

Alun Williams
District Auditor

 


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