A new report has identified concerns “of a very serious nature” in how Nottingham City Council controls its finances.
The report conducted by EY (Ernst & Young) comes after it was uncovered that the council had, over a number of years, breached the ring-fencing requirement for its Housing Revenue Account, which was unlawful. The wrongful spending of funds is estimated to cost up to £51m.
As a consequence of the council’s failure to maintain this ring-fence, in 2022 the Corporate Director of Finance & Resources commissioned an external review due to continued concerns surrounding the council’s compliance with accounting controls around ring-fencing.
EY were engaged to undertake this review, in respect of six ring-fenced areas, that would identify policies, procedures, financial records and data and carry out testing on a sample of historical transactions with a view to commenting on the operation of the controls in place and the overall control environment.
Whilst there is no suggestion of any fraudulent transactions, the EY report has now highlighted, for the period 2019 to 2022, a number of very serious concerns, with a weak control environment, ineffective systems, associated management information and a culture which is not focused upon compliance.
Issues include an inability to find documents, no purchase order or goods received note – prior to invoice, document retention, eligibility for charging employees to ringfenced accounts, no evidence of approvals, approvers being able to authorise above their set limits, and a culture where policy adherence and knowledge is weak.
A council audit committee document says: “As much as the findings quite rightly focus on the system and process failings, the cultural and organisational limitations should not be lost as it is a significant contributing factor in the matters raised. Rectification of the issues is much more than simply putting in new procedures.”
Conclusions drawn from the observations and output of the assessment include that the current state of controls in operation require urgent intervention to avoid the risk of inappropriate financial activity.
The document added: “Whilst urgent action is required to establish grip on NCC’s financial activities, it also needs to be recognised that the scale of change required to establish an effective control environment is a transformative process and will take a number of years to fully implement.”
The findings of the financial controls assessment underpin a conclusion that the council is operating with a considerably weakened control environment which is “not fit for purpose in allowing a Local Authority to enact effective financial stewardship.”
In response to the seriousness of the findings, the control weaknesses have been mapped to the council’s existing finance improvement plan and an assessment of capacity to deliver at pace completed.
A remediation project has been scoped and commissioned to deliver a 12-week focused controls remediation response.
The council has not yet published the report in full, which comes as an Improvement and Assurance Board remains in place, monitoring improvements at the council.
