Folkestone & Hythe DC’s Audit Exposed: The £3.4m Princes Parade Write-Off Buried in ‘Clean’ Accounts

As the clocks tick toward 6:00 PM on Thursday, 29 January 2026, a hush will descend upon the Council Chamber. The members of the Folkestone & Hythe District Council (FHDC) Audit & Governance Committee will take their seats, straighten their papers, and prepare to digest a document that is part clinical diagnosis, part forensic crime scene report, and part bureaucratic confessional.

The main course for the evening is the Audit Findings Report (AFR) for 2024/25, served up by the external auditors, Grant Thornton. On the surface, the headline is a cause for champagne (or at least a lukewarm cup of instant coffee): the Council is set to receive an “unmodified” audit opinion. In the dry, dusty lexicon of accountancy, this is the Holy Grail. It means the books are clean. It means the numbers add up. It means the Council has successfully navigated the labyrinth of the Local Audit and Accountability Act 2014 without falling into a pit of spikes.

But hold your applause.

Beneath this veneer of respectability lies a subatomic chaotic soup of “The Good, The Bad, and The Ugly.” It is a tale of a multi-million-pound leisure centre that doesn’t exist, a procurement system that treats rules like mild suggestions, and a reliance on future software updates to fix present-day human failures.

So, grab your reading glasses and perhaps a stiff drink. We are going to perform a granular dissection of the Council’s finances, stripping away the jargon to reveal what is actually going on with your money.

THE UGLY: The £3.4 Million Monument to Nothing

Let us begin, with the elephant in the room—or rather, the lack of an elephant, or a swimming pool, or indeed anything at all. We speak, of course, of Princes Parade.

If you were hoping to swim laps or enjoy a leisurely stroll to a friends home at the Princes Parade development this year, you are out of luck, as you know. What you have instead is a £3.4 million crater in the accounts.

The audit report reveals a fascinating skirmish between the Council’s management and the auditors over how to account for this disaster. The project, once the jewel in the crown of the Council’s regeneration strategy, has been effectively scrapped. The planning permissions have expired, the contractors have gone home, and the dream is dead.

Here is where it gets technical—and expensive. Under International Accounting Standard (IAS) 36, assets must be “impaired” (accountant-speak for “written off”) if their value drops. The auditors looked at the Princes Parade project and essentially said, “This is worth nothing. You need to write it off now.”

Management, in a display of optimism that borders on the heroic, tried to argue that the formal decision to write it off would technically happen in the next financial year (2025/26). They wanted to kick the can down the road just a few inches further. The auditors, waving the rulebook of IAS 10 (Events After the Reporting Period), politely but firmly disagreed. They argued that the project was already dead in the water (pun intended) by the time the accounts were being signed, and therefore the loss had to be recognised immediately.

The result? A £3.4 million write-off of “sunk costs.”

“Sunk costs” is a lovely, sterile phrase. It sounds like a submarine maintenance expense. In reality, it means money spent on architects, consultants, surveys, and glossy brochures for a building that will never exist. It is £3.4 million of public money that has been effectively set on fire, providing heat to absolutely no one.

The auditor’s commentary on this is scathing in its politeness. They point out a failure in Value for Money (VfM) arrangements. Under the Local Audit and Accountability Act 2014, the Council is legally required to secure “economy, efficiency, and effectiveness.” Spending millions on a ghost project is, by definition, none of those things. The auditor notes that the decision-making trail was murky and the documentation insufficient.

They have recommended a “lessons learned” exercise. One hopes the lesson is more profound than “don’t spend millions on things you can’t build,” but in local government, one can never be too sure.

THE BAD: Procurement Waivers and the “Oracle” Excuse

If Princes Parade is the tragedy, the Council’s procurement practices are the farce.

In a functioning democracy, when a Council wants to buy something—be it a new IT system or a year’s supply of paperclips—it is supposed to run a competitive tender. This ensures that you, the taxpayer, get the best price. It is enshrined in the Public Contract Regulations 2015 , the Procurement Act 2023, and the Council’s own Part 10 – Financial Procedure Rules Contract Standing Orders and Auditing the Council

However, the audit reveals that FHDC has developed a bit of a habit of skipping this part. The report highlights a persistent issue with “Procurement Waivers.” A waiver is a “Get Out of Jail Free” card that allows officers to bypass the tendering process in exceptional circumstances.

The problem is that “exceptional” seems to be becoming “business as usual.”

The auditors found that waivers were being used far too frequently, often without adequate justification. They noted instances where contracts were extended or handed out without testing the market. This is a direct violation of the spirit, if not the letter, of the CIPFA Code of Practice, which demands transparency and fairness in public spending.

When challenged on this, the Council’s defence was almost charmingly cliché. They pointed to the coming arrival of Oracle Fusion, a new finance system due to land in April 2026. The argument, essentially, is: “Yes, we are bad at following the rules now, but once we get this shiny new computer program, the computer will force us to be good.”

It is the corporate equivalent of a dieter promising to stop eating cake as soon as they buy a new pair of running shoes. The auditor, clearly unimpressed by this “technological salvation” narrative, has slapped a recommendation on the table: Fix the culture now. Do not wait for the software. They have demanded that the Council resource its procurement team properly and actually enforce the rules written in its own Constitution.

The danger here is not just inefficiency; it is the risk of fraud. ISA UK 240 mandates that auditors consider how easy it is for management to override controls. When you have a culture of waiving the rules, you create a playground where “management override” becomes the norm, not the exception. The auditor didn’t find fraud, but they found a door that was left uncomfortably wide open.

ISAs vs. Reality

Now, let us don our lab coats and dive into the subatomic particles of the audit—the International Standards on Auditing (UK). These are the rigorous standards set by the Financial Reporting Council (FRC) that auditors must follow. To the layman, they are dry numbers; to the trained eye, they are a battlefield.

ISA (UK) 540: The Guesswork of Valuation

One of the biggest numbers in the Council’s accounts is the value of its property and land—over £180 million. But here is the secret: nobody actually knows what these things are worth. They are estimates.

ISA (UK) 540 (Auditing Accounting Estimates) requires auditors to be incredibly suspicious of these numbers. In a previous year, the Council’s valuer, Wilks Head & Eve, made a “material error” that had to be fixed with a “Prior Period Adjustment” (accountant for “oops, we got it wrong last time”).

This year, the auditors scrutinised the “desktop valuations”—where a surveyor guesses the value of a building without actually visiting it. The auditors challenged this, demanding to know how one can value a leisure centre from a desk in London. The result? A tense back-and-forth where the Council had to prove that its “indices” (mathematical trends) were accurate.

The breakdown shows that while the final number was accepted, the process is fraught with risk. A 1% error in these valuations swings the Council’s books by nearly £2 million. It is a high-stakes game of “The Price is Right,” played with your council tax.

ISA (UK) 240: The Hunt for Fraud

Under ISA (UK) 240, auditors must presume there is a risk of fraud in revenue recognition. Essentially, they assume the Council might be cooking the books to look richer than it is.

Grant Thornton, however, “rebutted” this risk. They concluded that FHDC has no real incentive to inflate its income because, unlike a private company, its goal is not profit but survival.

However, they did drill down into “Management Override of Controls.” They tested a sample of “journal entries”—the manual adjustments finance officers make to the ledgers. They were looking for the financial equivalent of a needle in a haystack: a transaction that moved money where it shouldn’t go.

The result? Clean. No evidence of systemic fraud. But the very fact that they had to dig this deep highlights the fragility of the system. In a Council where procurement rules are waived with a shrug, the line between “administrative shortcut” and “malfeasance” is perilously thin.

ISA (UK) 260: The Yellow Card

The report itself is a product of ISA (UK) 260 (Communication with Those Charged with Governance). This standard requires the auditor not just to say “pass” or “fail,” but to explain the quality of the pass.

If the Council’s accounts were a school exam, they didn’t just get an ‘A’. They got an ‘A’, but the teacher wrote a note in the margin saying, “Good work, but your handwriting is messy, you cheated on the practice test (Princes Parade), and you keep forgetting your pencil case (Procurement).”

This standard ensures that the Audit Committee cannot plead ignorance. The warnings about the Housing Revenue Account (HRA) business plan—which is facing huge inflationary pressures—are laid out in black and white. The auditors are effectively saying, “We are signing this off, but don’t say we didn’t warn you about the iceberg ahead.”

THE GOOD: A Miracle of Timing

We must, in the interest of fairness (and to avoid being accused of unrelenting pessimism), address “The Good.” And credit where it is due: Folkestone & Hythe District Council has achieved something that hundreds of other councils have not.

They have finished their homework on time.

In a national landscape where the local audit market is in total meltdown—with a backlog of nearly 1,000 uncompleted audits clogging up the system—FHDC is a shining beacon of punctuality. The government, led by Minister Jim McMahon, has set a “backstop” date of 27 February 2026 to clear the backlog. By getting this report to the committee on 29 January, FHDC has beaten the buzzer by a month.

They have also cleaned up their act significantly since last year. The report notes that 11 out of 13 previous recommendations have been actioned. The “misstatements” (errors) in the Draft accounts_2024/25 were few and far between. The finance team, led by the S151 Officer, has produced a set of accounts that are technically accurate and legally compliant.

This is no small feat. It requires thousands of hours of reconciling bank statements, pension fund data, and grant allocations. To produce a “true and fair” set of accounts in the current climate is a victory for the finance department, even if the operational side of the Council is still dropping £3.4 million balls.

THE COMPARATIVE ANALYSIS: Legislation vs. Reality

Let us pull back and look at the matrix of legislation that governs this chaos.

The Local Government Act 1972 (Section 151) This act requires every Council to have an officer responsible for the proper administration of its financial affairs. The “Section 151 Officer” is the goalkeeper.

• The Audit Verdict: The goalkeeper is doing a good job saving the shots, but the defenders (Management) keep scoring own goals (Princes Parade). The accounts are accurate, but the decisions leading to them were flawed.

The Accounts and Audit Regulations 2015 These regulations demand a “sound system of internal control.”

• The Audit Verdict: The internal controls are present, but the “waiver” culture punches holes in them. A control is only a control if you don’t bypass it every time it becomes inconvenient.

The CIPFA Prudential Code This code governs capital finance—how the Council borrows and invests.

• The Audit Verdict: The Council is compliant, but the “capital” spent on Princes Parade yielded zero “prudential” return. It was a speculative venture that failed, testing the limits of what the Code considers “prudent.”

CONCLUSION: A Clean Bill of Health with a Nasty Cough

So, what is the verdict?

If you read the headline, Folkestone & Hythe District Council is in great shape. An “unqualified opinion” is the gold standard. They are compliant, they are timely, and their arithmetic is correct.

But if you read the footnotes—the granular, subatomic details—the picture is less rosy. The Council is like a man in a tailored suit who has forgotten to wear shoes. The top half looks professional; the bottom half is exposed and vulnerable.

The £3.4 million write-off for Princes Parade is a staggering loss of public funds that cannot be glossed over with accounting terminology. It is a monument to failed ambition and poor risk management. The reliance on procurement waivers suggests a culture that views rules as obstacles rather than safeguards. And the dependence on future software (Oracle Fusion) to fix deep-seated cultural issues is a gamble that rarely pays off.

The Audit & Governance Committee has a job to do on January 29. They can choose to rubber-stamp the “unqualified opinion” and go home early. Or, they can dig their heels in. They can ask why the “lessons learned” from Princes Parade haven’t been published yet. They can ask why the procurement team is under-resourced. They can ask why, in a time of financial crisis, the Council is relying on waivers instead of the market to get the best price.

For the taxpayer, the takeaway is bittersweet. The Council is not bankrupt (unlike Birmingham or Nottingham). It is not hiding massive fraud. It is functioning. But it is burning money on dead projects and cutting corners on contracts.

It is “Good” enough to pass the audit. But is it “Good” enough for residents of the district? That is a question the auditors can’t answer—only the voters can.

The Shepway Vox Team

Dissent is NOT a Crime