Council issues complaint against auditors amid row over public interest report

Luton Borough Council has raised a formal complaint with the Institute of Chartered Accountants in England and Wales (ICAEW) against its external auditors over a row about the accuracy of a public interest report.

EY issued its public interest report last month (6 September), which raised concerns about value for money at the council.

However, Luton has since argued that the document is "full of factual inaccuracies" and not fair or balanced.

EY has meanwhile said it stands by the conclusions in the report.

In its public interest report, EY concluded that Luton suffers from a culture of "insufficient recognition of the importance" of promoting effective governance, producing high-quality financial statements to deliver value for money, allowing sound financial management, or providing external accountability.

It went on to say that the still incomplete 2018/19 audit has been impacted by "persistent and ongoing" capacity and capability challenges in the authority's finance team, the impact of Covid-19, as well as the length of time that has passed since the balance sheet date.

It added: "We have reported the impact of these issues on the audit extensively throughout the audit and raised associated recommendations for improvement that have been accepted by the authority.

"However, the Authority has not adequately addressed these points over a period of almost four years."

EY also made an overall assessment of value for money arrangements at the authority that concluded there had been a "material non-compliance with law and regulation".

This finding prompted Luton's monitoring officer, Mark Turner, to issue a section 5 report.

The section 5 report said: "As set out at paragraph 5.1 of the external auditor's report reference is made to a failure to comply with the relevant procurement regulations.

"I accept this finding but also note the actions taken at the time that it was first identified and subsequently to rectify the issue.

"I do not, therefore, concur with the external auditor's conclusion that this is indicative of significant weaknesses in the Authority's VFM arrangements at the current time."

Turner later wrote that actions already taken by the council "are considered by me (as monitoring officer) to be sufficient to address the concerns raised by the auditors".

A full council meeting on Tuesday (15 October) considered Turner's section 5 report alongside another report from Luton's chief executive, Robin Porter, which rebuffed all five of EY's recommendations.

The auditor's first recommendation called on Luton to create a culture that "better recognises the importance" of sound governance, managing risks effectively and maintaining a sound system of internal financial control and reporting.

Responding to this, the chief executive's report said the council had maintained a culture of focus on finance, on financial prudence, and on appropriate governance and control.

EY also recommended that Luton investigate and seek to understand "the underlying causes of the high level of turnover within the finance function of the Authority and take appropriate and urgent action to address this".

However, the chief executive's report labelled this recommendation as "factually incorrect".

He said: "The current churn rate for the Finance team is 8.9%, with a churn rate for last year of 6%, indicating a stable team.

"This compares to the Local Government sector average of 14% (20/21) and an accountancy sector average of 18%."

The chief executive also dismissed the third recommendation, which asked the council to improve its governance arrangements over its financial reporting, as "factually incorrect".

EY urged Luton to provide training to members of the Audit and Governance committee to help them challenge financial statements.

It also called on the council to implement CIPFA guidance on Audit Committees, and recruit two independent members to the Audit and Governance Committee who had experience with financial accounting and experience of external audit.

However, the chief executive said the council regularly provides training to its committee members and noted that two "highly experienced" independent audit and governance members were appointed in February 2024.

The fourth recommendation called on Luton to recruit additional appropriately qualified and experienced permanent staff to improve capacity, capability and stability in the authority's finance team.

In response, the chief executive's report said the council benefits from its section 151 officer having 37 years' experience and a boost in its financial capacity from 81 people in 2020 to 91 this year.

It also noted efforts to conduct a review of its finance function throughout the council and its financial team in response to the findings of a corporate peer review.

Luton also challenged EY's final recommendation that asked the council to improve on how it responds to recommendations for improvement and quality assurance with respect to the financial statements.

The chief executive's report said: "We have consistently responded to and dealt with any issues raised by EY.

"As part of the EY draft Disclaimer in October 2023 two new findings were raised, which have subsequently been addressed by Luton Council. We have not had any feedback from EY on our responses."

Cllr Rob Roche, Portfolio Holder for Finance, said: “We strongly believe that the decision of EY to publish a Public Interest Report is deeply flawed. 

“The report is damaging to our reputation and contradicts a recent government-commissioned independent assessment into our finances that concluded that the local authority is financially well-run.”

He added: “We believe we are left with no choice but to raise a formal complaint with the ICAEW, not only because it is full of inaccuracies and ignores evidence we’ve provided, but because we owe it to our teams who have worked so hard to stabilise our finances over an extremely challenging few years for local government.”

Adam Carey