Northumberland County Council and its auditors set to part ways after 'breakdown in relationship'

At a meeting of the authority’s audit committee, long-standing councillor Ian Swithenbank said he had never seen such a disagreement between the council and its external auditors, describing the claims and counter-claims as like ‘a long rally in tennis’.

And a lengthy debate on Ernst and Young’s (EY) audit results report for 2018-19, which had been delayed after ‘whistle-blowing’ allegations were investigated, ended in the company’s partner Stephen Reid announcing that they were resigning from their role.

However, the council had already been intending to remove EY as its auditors, while chief executive Daljit Lally said that a request was made for another partner within the company to be appointed in place of Mr Reid as far back as October 2017.

EY’s announcement triggers a 28-day notice period for its resignation, while the full council is due to be meeting in 21 days’ time – on Wednesday, December 18 – to approve their removal.

It is unclear at this point which process takes precedent from a legal perspective, but it seems a new firm will be appointed to audit the local authority going forward.

As previously reported, EY’s report concludes that the external auditors ‘did not find evidence to support the allegations regarding a lack of independence and integrity of senior management, bullying or the inappropriate use of funds for political purposes’.

But it adds that ‘in our view, there are management and cultural challenges facing the council that need to be urgently addressed’.

It goes on to say: ‘The council operates within a highly politically charged environment and we have observed a growing tension between the main political parties over the last few years.

‘Management has commented that the politics of the council can make it difficult to carry out their ‘day job’ and it is clear that the historical issues are still at the forefront of management’s mind.’

Among the other concerns that have been raised and which have resulted in an adverse value for money conclusion are the turnover of section 151 officers (essentially the authority’s chief finance officer) and ‘the maintenance of a sound system of internal control’.

However, the audit committee also received a four-page rebuttal from Mrs Lally, which, as well as addressing the issues mentioned above, describes some parts of EY’s report as ‘factually inaccurate’ despite requests to make corrections.

Her response concluded: ‘As the ‘client’ for this report, I am unable to agree or support its conclusions which I consider to be in part disproportionate and without basis.’

At the meeting, she said that EY’s refusal to replace Mr Reid with another auditor had led to questions about ‘independence and integrity’, while also claiming that there was a ‘complete lack of transparency in the process’ of investigating the allegations.

Mrs Lally added that it was ‘disturbing and contrary to natural justice’ that the actual whistle-blowing allegations have never been put to the council, although it was explained that this was to protect the person(s) who had made the disclosures.

Committee members asked Mr Reid about the potential impact on his impartiality of both the call for his removal – which he was aware of – and the plan to remove EY as external auditors.

He explained that his report and conclusions were always subject to a review process within EY, including from a second partner, while a separate team in the company carried out the extra work in relation to the allegations made.

Mr Reid and his colleague David Lister responded to a number of other questions and points, although there were some issues on which they declined to comment.

Labour’s Coun Swithenbank said: “In my 42 or 43 years as a councillor, I have never seen such a disagreement between the council and its auditors. I think it will be concerning to residents of Northumberland.

“I hope when we leave here, we have a way forward to re-establish trust with whoever is our auditor. It’s like watching a long rally of tennis and that’s not apportioning blame.”

Drawing the debate to a close, Coun Nick Oliver, the Conservative cabinet member for corporate services, said: “I feel that this has been something of a fishing expedition. The overall basis for the adverse value for money opinion feels a bit light.”

The committee agreed to note the EY report, but did not either accept or dismiss the findings, and it was mentioned that some of the issues and recommendations would be looked at again.

Members also gave final approval to the council’s statement of accounts for 2018-19, which again put them at odds with Mr Reid, who felt they had not adequately addressed the concerns he raised in the annual governance statement.

The ‘whistle-blowing’ allegations are mentioned in the statement in passing and the authority’s management felt that was sufficient given that EY’s audit results report is in the public domain and also forms part of the council’s accounts.