Council’s finances ‘mismanaged for nearly a decade’

Martin Shipton

A town council’s finances have been mismanaged for nearly a decade, an investigation by Audit Wales has concluded.

In a scathing report, the Auditor General for Wales Adrian Crompton tells how in 2023 he issued a public interest report that drew attention to serious failures in governance and financial management by Ammanford Town Council in Carmarthenshire.

At that time he reported on:

The council’s failure to prepare annual accounts as required by law and thus its failure to account for almost £800,000 collected from local taxpayers from 2016-17 to 2020-21;

The council’s failure to maintain proper and complete accounting records; * The council members’ collective failure to recognise and take appropriate action on issues raised by its internal auditor;

The council’s disregard of a draft document setting out his initial audit findings that was issued to the council in September 2021.

Mr Crompton writes: “It is important to highlight that the Clerk and Responsible Financial Officer (Duncan Morgan) was on a long-term absence from April 6 2023 and did not return to work. The council dismissed Mr Morgan on April 12 2024.”

The council is legally required to make up its accounts to March 31 each year and to submit the accounts to the Auditor General for audit. Before the accounts are submitted for audit, the Responsible Financial Officer must certify that the accounts properly present its receipts and payments and its financial position; and the council must approve the accounts at a meeting of the council. This process must be completed by June 30 immediately following the year end.

“The council failed to comply with these requirements for both the 2019-20 and 2020-21 accounts which were only approved by the council in February 2022.My audit work identified significant deficiencies in the council’s financial systems and financial management. As a consequence of this, I will issue a qualified audit opinion on the accounts for 2018-19, 2019-20, 2020-21 and 2021-22 for the following reasons:

The council has not maintained proper and complete accounting records; • The council has been unable to provide contractual documentation or supporting documentation to evidence that it has followed its standing orders and financial regulations.

Adequate information has not been provided to councillors regarding the approval of payments made and I have been unable to confirm whether the payments were done so under proper authority.

“The Annual Return requires the council to make a formal declaration in relation to the arrangements it has in place for its governance and financial management. This is referred to as the Annual Governance Statement.

“I consider it important to note that the standards required to be disclosed by the Annual Governance Statement are the minimum standards that the electors of Ammanford Town Council should expect to be upheld.

“I draw attention to the fact that the council has, by its own admission, failed to meet these standards and has provided negative responses to many of the aspects of proper governance covered by the Annual Governance Statement. What is clear to me is that since 2016, even though its failings and deficiencies have been brought to its attention by both internal and external audit, the council’s past officers and its members have failed to ensure that it has established proper standards of financial management and governance.

“In failing to properly address the issues raised in the Public Interest Report and internal audit reports, council members have not sufficiently recognised or acted upon issues in relation to the adequacy of their governance arrangements.”

Lack of clarity

The report goes on to state: “A lack of clarity in the terms of engagement with a firm of accountants engaged to assist with the accounts resulted in additional cost to the council.The council commissioned LHP Accountants (LHP) to prepare its accounting statements for the 2018-19 to 2021-22 financial years. However, it is unclear whether this commission was approved by the council or whether the commission secured value for money.

“A lack of clarity of the terms of engagement for LHP may have led to a significant increase in the cost of services provided to the council. I am informed that the council engaged LHP in order to prepare the annual accounts for audit. However, for the three financial years between 2018-19 to 2020-21 the firm LHP accountants prepared accounting statements that were not in the form prescribed by the regulations.

“LHP provided the Clerk with a proposal document which details the services that they will provide. The proposal stated the services would be for ‘Annual Accounts – Prior Years’ and that they would ‘conduct our audit in accordance with International Standards on Auditing’.

“I was also provided with an engagement letter that referred to different services to those included in the proposal as it states that the firm would not be carrying out any audit work. The schedule of services within the letter of engagement are ambiguous and vague and do not set out clearly what the council was agreeing to.

“In my public interest report, I noted that the Auditor General’s certificate for the 2018-19 to 2020-21 accounts had been signed by a third party. I have now established that the signature was by one of LHP’s accountants. This provides further evidence of the lack of clarity and understanding of the council’s requirements to prepare the returns.

“I have not been able to identify when, or if, the council approved the appointment of LHP. It does not appear that the council followed any form of procurement process. In the initial proposal, LHP set out that the cost of the proposed services would be £1,500. In fact, the total cost to the council for preparing the accounts was £4,500. It is unclear why the final costs were three times the original estimate. Therefore, I am unable to conclude whether or not the council had established proper arrangements to secure value for money.

“My public interest report set out my concerns over the council’s use of a £5,000 cash withdrawal and the lack of sufficient supporting records … It remains my view that there are significant risks arising from the use of large sums of cash and the council should ensure that cash transactions are kept to a minimum.

“In relation to other payments, the council was able to provide accounting records for most of the transactions tested for the 2018-19 to 2021-22 financial years. However, it remains the case that a significant number of transactions could not be verified and in some cases, these transactions were not reported to the council.

“These unapproved payments include payments made to previous members and officers of the Council:

A payment to the previous Clerk (Annette Bell) for ‘expenses’ totalling £2,844.49;

A payment to SSE Enterprises for “Christmas Lights” totalling £6,432.58;

A payment to Julia Bell (a previous councillor and previous Mayor) for ‘Mayors’ and Deputy Mayors’ allowance’ totalling £2,277.64.

“Annette Bell initially denied receiving a payment for £2,844.49. However, we obtained from the bank a copy of a paid cheque for £2,844.49. The cheque was made payable to ‘Antoinette Bell’ and was countersigned by two councillors. Annette Bell later acknowledged that she had in fact received the payment, stating that this was for reimbursement of out of pocket expenses.

“She provided a heavily redacted personal bank statement showing a number of transactions that she stated were incurred on behalf of the council. Annette Bell attests that no councillor would sign a cheque without a schedule being attached with receipts for the services purchased and that receipts were provided to the councillors at the time of the cheque was written. Nevertheless, I could find no supporting receipts during the audit.

“Contract record keeping and thus contract management is poor. The audit team attempted to trace back expenditure transactions to original contracts and how those contracts were awarded, and it became immediately apparent that it would not be possible to confirm the expenditure to original documentation.

“The council has a Service Level Agreement (SLA) with Carmarthenshire County Council (the Unitary Authority) for the maintenance of recreation grounds and parks that are owned by the council. However, a copy of this SLA was not provided and it is unclear from the inspection of invoices what the SLA covers. It was later noted that the council had paid £9,920 for services with a third party (Shapewright Services Ltd) for services that should have been included within the SLA. The payment was never reported to the council.

“The lack of available records and the uncertainties around the expenditure incurred by the council means I am unable to conclude whether or not the accounts for 2018-19 to 2021-22 properly present the council’s income and expenditure.

“The deficiencies … mean that there are significant gaps in the council’s accounting records. I cannot conclude whether or not the council’s accounts for 2018-19 to 2021-22 are a complete and accurate record of the council’s income and expenditure. I will therefore issue a qualified opinion on whether these accounts present fairly the Council’s income and expenditure.”

Recommendations

Audit Wales has made three further recommendations as a result of its inquiry:

The council should review and maintain a contract register for all contractual obligations and communicate this to council members;

The council should ensure all contracts are awarded in line with its Standing Orders and Financial Regulations and maintain adequate accounting records demonstrating compliance;

The council should ensure it uses official communication channels for council business.