Croydon Council’s historical financial and governance arrangements have led external auditors to highlight “significant weaknesses” in the authority’s past accounts.
A report by Grant Thornton outlined that the auditors expect to give a qualified, adverse conclusion on Croydon Council’s audit accounts for 2019/20 and have identified “significant weaknesses” in the authority’s arrangements for 2020/21 and 2021/22.
An adverse audit opinion is given when the auditor concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.
The report stated that Croydon has had “some success” through disposing of £140m of assets since 2020 and saving more than £90m throughout 2020/21 and 2021/22, however highlighted that concerns remain.
It said: “The scale of the legacy challenges is considerable though. Within individual areas of improvement work, there has been progress.
“However, new issues have continued to be uncovered. We anticipate an adverse value for money for 2019/20 and we anticipate concluding that there were significant weaknesses within arrangements for 2020/21 and 2021/22.”
Grant Thornton’s report highlighted that despite the savings the council still recorded an external debt of £1.6bn in November 2022, with £320m of that amount backed by assets which were in negative equity.
It said: “The council’s section 151 officer described much of the debt as ‘toxic’ and stated that it left the council unable to withstand other, wider shocks.”
Adverse audit conclusion
The report detailed that the reasons for the expected auditor’s adverse conclusion on Croydon Council’s 2019/20 audit accounts are due to its governance arrangements relating to the refurbishment of Fairfield Halls and the authority’s subsidiary companies, such as Brick by Brick.
It stated that the auditors’ Public Interest report published in January 2022 highlighted “historic failings in the council’s financial, governance and legal arrangements” for the refurbishment.
It continued: “Weaknesses in the procurement and contract management of the project [were] also identified. We found that significant amounts of money were spent without proper authorisation.”
The report will be discussed at a meeting of the council’s Audit and Governance Committee on 20 April.
Statutory recommendations
This comes as Grant Thornton issued “statutory recommendations” to Croydon Council in March due to the “inadequate arrangements in financial management” at the authority.
In the statutory recommendations report, Grant Thornton stated that the intervention is a reflection of the serious nature of the issues identified in Croydon’s third section 114 notice issued by Jane West, corporate director of resources and section 151 officer at Croydon, in November 2022.
The external auditor issued recommendations to the council, which included that the authority should resolve the accounting arrangements in respect of Croydon Affordable Homes [council-owned charitable trust] and invest significant extra resources in its finance capacity.
This news also comes as a report conducted by senior Local Government Association associate, Richard Penn, revealed that Croydon Council showed a lack of “sufficient scrutiny” and “risk management” regarding the £200m it loaned to a subsidiary company Brick by Brick.
—————
FREE weekly newsletters
Subscribe to Room151 Newsletters
Follow us on LinkedIn
Follow us here
Monthly Online Treasury Briefing
Sign up here with a .gov.uk email address
Room151 Webinars
Visit the Room151 channel
