Auditors criticise council over due diligence process for series of loans
Auditors have severely criticised Northampton Borough Council over how it came to make a series of loans and over its accounting.
The council lost £10.25m on a loan to the previous owners of Northampton Town Football Club and also made loans to the town’s rugby club, the University of Northampton, a leisure trust and a local engineering firm.
KPMG’s audit report (accessible below) said its examination of the loans showed “there is an insufficiently systematic, robust, and objective due diligence process”.
Northampton lost £10.25m over the loan to the football club, which has been the subject of police investigations.
KPMG said: “Due to the circumstances surrounding the loan and the ultimate loss of £10.25m of taxpayers’ money by the authority (impaired in the 2015/16 financial statements), we are currently not satisfied that external or internal scrutiny provides sufficient assurance that the authority’s current arrangements in relation to loans is adequate.”
It went on: “We have concluded that the authority has not made proper arrangements to ensure it took properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people.”
Northampton advanced the loan to the club for improvements to its stadium and development of an adjacent hotel and homes, using the council’s ability to borrow cheaply to make the project stack up.
It was to be repaid through revenues from these two facilities and from the homes built on a nearby site.
The 1st Land company was established to carry out these developments, to which the club “unilaterally passed these funds”, and which subsequently entered administration.
Turning to the other loans, KPMG said these totalled £46m to the university and in all £7.2m for the remaining three.
“We are therefore unable to state that Northampton Borough Council had proper arrangements to ensure it took properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people. As a result we will issue an adverse value for money opinion,” it said.
Dealing with Northampton’s overall accounts, KPMG said it found “issues in relation to the working papers, both in relation to the delay in provision of some key working papers previously requested, and also the quality of evidence provided to support the financial statements, specifically in relation to fixed assets.
“There is an opportunity for improvements to be made in providing clear and concise audit trail of underlying transactions. This has caused significant delays and placed additional pressures on the audit.”
Council leader Mary Markham said: “I accept the comments in KPMG’s report and welcome the feedback on our processes. The reason I asked for two audit reviews and involved Northamptonshire Police in our investigations is to ensure that we learn the lessons from the failure of the loan to the football club, and to ensure it does not happen again.
“I will put in place a rigorous system with a set process that must be followed in every case, which identifies who is responsible for every stage of the process and that records that each stage has been followed and properly signed off.”
Mark Smulian
