Part 2: Folkestone & Hythe District Council Financial Irregularities.
Folkestone & Hythe District Council are looking for a new statutory s151 Officer. According to the Candidate Breifing Pack on Penna Recruitment & the Council’s website, the role of s151 officer will come under the title of Director of Place with a salary of up to £116,000, plus relocation.
Section 151 of the Local Government Act 1972 requires local authorities to make arrangements for the proper administration of their financial affairs and appoint a responsible person for these arrangements. In short they are responsible for the finances and audit of the Council.
Folkestone & Hythe District Council current s151 Officer is Mr. Tim Madden (pictured).
Tim has been s151 of the Council since Sept 2014. He had done a previous stint with the Council between July 2012 and August 2013 as Interim Head of Finance, leaving and returning a year later.
As the man with the statutory responsibility for the money and ensuring the Council and the parties it is responsible for (East Kent Housing & Oportunitas) he was tasked with ensuring all three entities had robust and sound financial control systems in place to prevent overcharging and fraud
The East Kent Audit Partnernship (EKAP) report released on the 3rd Oct 2018 “established the Council’s payment processes (invoices being submitted by the contractor (P & R) direct to the councils finance departments) did not reflect the process set out in the contracts (with each of the councils). This resulted in contractor (P & R) submitting invoices which are not valid under the contract”; and being paid in full by the Council. The amount of this irregularity is well in excess of £200,000.
The Council and others believe they have discovered “a pattern of charging that appears to be a systemic fraud” by P & R Installation Company Limited
The Council’s robust financial systems did not identify the overcharging in 2017/18. We know they were not that robust as it was impossible for the Council to discover overcharging as they stated to our public face in a request for information from the 2017/18 accounts with the following:
The Council does not hold a list of all overpayments and I am therefore not able to provide it to you. We have explored the available routes but we neither hold this information nor are able to generate it.
The Auditor for our Council is Grant Thornton, in their Audit Findings issued to the Audit & Governance Committee on 30th July 2019 said they have:
identified a new significant risk relating to the management of the contract with P&R for the provision of central heating, gas and hot water repairs.
The Council has identified weaknesses in the management of the contract with P&R for the provision of central heating, gas and hot water repairs. There have been a number of problems with the contractor during the year and potential overpayments have been made to P&R. These payments relate to the prior financial year. [emphasis ours]
So the auditor is saying overpayments relate to 2017/18. But how? As the Council “neither hold this information nor are able to generate it.” even though it was they who paid P & R?
The Councils accounts for 2017/18 were signed off as hunky dory by the Audit & Governance Committee, after being audited by Grant Thornton.
The Auditor’s 2017/18 Letter to the then chairman of the Audit & Governance Committee, former Cllr David Owen (pictured), who was also the Council’s representative on the EKH Board between: 17 October 2016 – 1st Oct 2019 set out a series of question which former Cllr Owen responded to :
There have been no specific fraud risks during this financial year.
The Council can take a very good level of assurance in respect of all its main financial systems.
The Auditor asked:
Are you aware of any related party relationships or transactions that could give rise to risks of fraud?
The Council responded: NO
This would mean then the accounts for 2017/18; which have been signed off, by the auditor Grant Thornton and the Audit & Governance Committee, contain misstatements, as overcharging was happening yet none of the Council’s robust financial systems could pick them up.
Our sources inside the Council and and East Kent Housing are adamant that overcharging by P & R continued well into the 2018/19 financial year.
Grant Thornton cannot ignore the EKH Chartered Surveyor’s report in Feb/March 2018, or the GCS desktop audit report which too concluded that in July/Aug 2018 overcharging was evident. Nor can they ignore the Oct 2018 East Kent Audit Partnership report; which too was of the opinion that the overcharging was deliberate rather than error. Throw in the fact the Council’s believe the overcharging could constitute fraud; and Grant Thornton look like they can only arrive at the same conclusion as everyone else. That being: a systemic and damaging fraud appears to have been going on for some time, yet none of the Councils robust financial controls could identify overpayments.
But the auditor Grant Thornton was satisfied every thing was tickety boo. Now the Council’s response is not quite true as we have found double payments/overpayments in their payment to suppliers data previously.
Now let’s not forget the Financial Reporting Council announced sanctions against Grant Thornton for bad auditing on Dec 10th Dec 2019.
Grant Thornton in March was “placed under increased scrutiny due to sustained poor results.” Poor is an understatement: 26% of Grant Thornton’s audits reviewed in the past five years required “significant” improvement, while another 15% required some sort of improvement. So we, like the FRC are concerned about the quality of audit undertaken by Grant Thornton as they aren’t “looking for fraud” and in 2017/18 they didn’t find any.
Coming back to the beginning then, the man charged with ensuring all parties belonging to the Council – East Kent Housing & Oportunitas – Tim Madden, missed the potential fraud because the Council “neither hold this information (overpayments) nor are able to generate it.” Is this why the Council are looking for a new s151 officer? Is Tim being moved on because of these failings?
Finally it’s clear the Council’s financial system were not robust. Nor was the auditor in our honest opinion fit to undertake the audit given their known reported track record by the FRC. Neither Grant Thornton or the Council were capable of spotting public money leaving the Council’s coffers in breach of the Councils contract with P & R. Neither were fit for purpose it would appear to us, but we’ll let you mull that over.
The Shepwayvox Team
Dissent is NOT a Crime
So does that mean that approx £200,000 that may have been paid out fraudulently, has been shared out between, who knows who?
The Council are clearly in a hurry to fill this vacancy if one studies the briefing pack. There have obviously been clear failings within the Council over the management of the P&R contract and Grant Thornton are potentially culpable as well. There may be interesting discussions already taking place between the Council, its insurers and Grant Thornton over the signing off of the Council’s accounts and the efficacy (or lack thereof) of its internal financial controls and oversight procedures. Is Tim Madden now on gardening leave or, has he already left his post?
Keep up the good work.
So if they cannot generate overpayment data, nor hold it, how many other contracts with the council might be receiving overpayments without them “knowing”?
Potentially the local rate payer could have lost millions over the years.
If Folkestone & Hythe Council does not have effective financial controls in place does this explain why it levies higher amounts of Council tax and business rates when compared with other local authorities in Kent? The over payments on the P&R contract may be a symptom of an even deeper malaise within the Council which has worsened as a result of staffing cuts in which experienced staff have departed and been replaced by inexperienced contract staff.
It is no longer possible to sweep these issues under the carpet and not report them to Councillors.
Dr Susan Priest should be considering her own position very carefully.
Councillors are a major factor in the scenario that has allowed fraud to become so prevalent, it’s the councillors that have failed to take the issues to the Police as they are in my mind afraid of highlighting their own misconduct in a public office, surely by not acting and therefore failing to prevent,they must be responsible for at least some of the fraud?