Council Elections - Barnet Council audit shows £100 million of arrears, overpayment and debt

In May, Barnet will hold council elections. All of the parties will be making statements, promises and claims. The Council have been run by the Conservatives since May 2002. Do they deserve another four years? Can you trust them to run the council properly? Can you believe their promises? I've spent 14 years cataloging the changes they've made. As we approach the election, I'll be bring you key information so that you can make an informed decision. The outcome will have a real impact on your finances, the state of roads, schools, care for the vulnerable, childrens services etc. Today we look at the papers for tonights meeting of the Audit Committee. This is the committee that ensures that the council is run properly. 

I was intrigued to read the audit review papers, which will be discussed at the Council's audit committee tonight. I was shocked to read that the Council Adit has shown approx £100 million in arrears, overpayments of housing benefits and debt on issues such as parking charges (see the council papers Item 7 Appendix A & Item 8 Appendix 2)

I was rather surprised to see that despite these huge amounts of money, the work to identify and resolve issues related to these issues is'still in progress' for many of the items. There is also a suggestion that some council customers are taking advantage of various arrangements. I am not quite sure what this means or how concerned we should be, but these are huge amounts and as Council tax payers we should be concerned. Of course some of this will be collected, as noted in the section on parking.  

I have to wonder why there is such high overpayment of housing benefit? This is taxpayers money and an orgainsation that is paying out over £28 million too much should take a long hard look at itself. It is clear that housing debts will have risen due to lockdown rules, which meant it was far more difficult for the council to enforce non payment judgements.

My biggest concern are the statements that "The Council does not have the data to establish which customers taking advantage of any deferred payment arrangements may be in financial difficulties and historical collection rates may only offer some indication of potential future loss for these customers."

In laymans terms, this means that the risk cannot be properly assessed.  My key concerns below are in red italics. These are from the councils own reports

The report also states that Barnet's auditors cannot complete work within the statuatory deadline. The report states

The 2015 Regulations require that the final approved accounts are published no later than 30th September of the financial year immediately following the end of the financial year to which the statement relates. 

BDO advised Audit Committee in July 2021 that they were not able to commence the audit until September, it was therefore not possible for them to conclude their audit in line with the statutory deadline. 

BDO presented a draft completion report to Committee in December 2021 and this report  provides a further update on the findings and recommendations following further progress on the audit. 

The audit is yet to be completed but BDO anticipate providing an unmodified opinion on the Council’s financial statements subject to the clearance of the outstanding matters detailed in Appendix A.

There are Council elections in May, we are going into them with work still ongoing on the Audit. 

Last week, the Barnet Tories issued the following tweet. Don't you think it would be sensible to have a full picture of the financial state of the Council before making such promises? At the last Council Election, the Tories made similar promises regarding Council Tax. It has risen by 14% in four years. Keeping taxes low is a sensible aspiration. Making promises when you don't know if you have the cash to keep them is dishonest and irresponsible. The evidence is there that there is chaos in the finances and audit.  Every day it seems more likely that whoever wins the elections in May, they wll have a ticking financial bomb to deal with.

Conservative-run Barnet is set to be the only council in North London to freeze council tax, helping residents with the cost of living. pic.twitter.com/WMtlm5Iqki

— Barnet Conservatives (@BarnetTories) February 10, 2022

----- Key extracts from the reports -----

Risk description 

The Council recognises an allowance for the non-collection of receivables (arrears and debt), primarily in respect of council tax, NDR, housing benefit overpayments, housing rents and parking charges. The Council assesses each type of receivable separately in determining how much to allow for noncollection. There is a risk over the valuation of this allowance if incorrect assumptions or source data are used, or an inappropriate methodology is applied.There is an increased risk of customer default over collection of receivables where the losses are measured using either the Incurred Credit Loss model for statutory debt (eg council tax and NDR) or Expected Credit Loss (contract receivables). For some receivables, the Council may have suspended recovery action or offered deferred payment terms, and some customers that may be taking advantage of these arrangements may be in financial difficulty.

Results

Our audit work is still in progress as detailed on the following page, where we also note our review of the appropriateness of the allowance for non-collection for each type of significant receivable.Management has applied historical default rates (incurred losses) using system data to determine the credit losses on both the statutory debt and on trade receivables that fall within the scope of IFRS 9. The Council does not have the data to establish which customers taking advantage of any deferred payment arrangements may be in financial difficulties and historical collection rates may only offer some indication of potential future loss for these customers. However, this is unlikely to result in a material difference in the amount of credit losses recognised as the provision for incurred credit loss for statutory debts such as collection fund and business rate are significantly high.

Council tax arrears (Collection fund £48 million the Council’s share £38 million) 

The Council has recognised an allowance of £24 million for non-collection of its share of the council tax arrears of £38 million. The Council’s share of the arrears has increased by £3 million and the credit loss allowance has been increased by £6 million. The credit loss allowance is estimated using recovery rates achieved for aged arrears in recent years for each year up to 5 years old. For debts over 6 years a flat provision rate of 78% is applied. Our audit work to check that the data used to calculate collection rates for arrears up to 5 years old is correct and the provisioning rates have been correctly applied to aged debt at 31 March 2021 is still in progress. We have also extended our review to cover actual collection rates for debts over 6 years to assess the appropriateness of the flat rate % applied to debts over 6 and that provision falls within an acceptable range. 

NDR arrears (Collection fund £22.5 million the Council’s share £7 million) 

The Council has recognised an allowance of £5.5 million for non-collection of its share of the NDR business rates arrears of £7 million. The Council’s share of the arrears has stayed the same as prior year and the credit loss allowance has been increased by £1 million. Previously the provision has been estimated using historic collection rate information from last three years however this year the provision has been estimated using information from the last 2 years, which has resulted in an overall increase of £9 million. Our audit work to ensure that the provision amount is reasonable is still in progress.

Housing benefits overpayment debt (£28.2 million) 

The Council has recognised an allowance of £26.8 million for non-collection of housing benefit overpayment on total debt of £28.2 million. In the prior yearan allowance of £24 million was raised against arrears of £25 million. The provision is estimated based on historical benefit overpayment recovery data. Our review of the methodology to ensure we are satisfied that this falls within reasonable range for non-collection of debt is still in progress.

Housing rents arrears (£14.6 million) 

The Council has recognised an allowance for non-collection of housing rents arrears of £11.4 million on total debt of £14.6 million. In the prior year a provision of £10.3 million was raised against rent arrears of £13.4 million. The provision is estimated using historic collection data. Our review of the methodology to ensure we are satisfied that this falls within reasonable range for non-collection of debt is still in progress.

Parking arrears (£11 million) 

The Council has recognised an allowance for non-collection of parking arrears of £8.3 million on total debt of £11 million. In the prior year a provision of £7 million was raised against rent arrears of £10.7 million. The provision is estimated using historic collection data. Our review of the methodology to ensure we are satisfied that this falls within reasonable range for non-collection of debt is still in progressSundry receivables (£198 million) Sundry receivables includes £157 million of government debtors that does not need to be included within the expected credit losses model since Government debt is not considered to be at risk. An expected credit loss allowance of £6 million has been provided for against the remaining £41 million of sundry receivables. 

The majority of the receivables are still within current payment terms and our preliminary view is that these debts are not considered to be at risk of non-collection and the credit loss allowance could be overstated as a result. We have requested an analysis of the expected credit loss assessment to ensure that amount raised as the expected shortfall in cash from credit loss is reasonable