External auditors investigating Northampton borough Council’s handling of a £10.25 million loan to the Cobblers say the council did not have “robust” due diligence processes when it approved the funds.
In January, KPMG were enlisted to look at whether the borough council followed the correct policies and procedures in loaning Cobblers the money in 2013 and handing the funds over in stages.
So far the firm has released only slim details of its findings.
But a progress update revealed in papers to Monday’s audit committee, show KPMG’s report is likely to reflect badly on the council - with the auditors confirming it will “issue an adverse value-for-money opinion.”
KPMG says it is “unable to state that Northampton Borough Council had proper arrangements to ensure it took properly informed decisions,” in regards to the granting of the loan.
It also goes on to express concerns for the council’s overall loaning ability.
The papers read: “Due to the circumstances surrounding the loan and the ultimate loss of £10.25 million of taxpayers’ money by the authority...we are currently not satisfied that external or internal scrutiny provides sufficient assurance that the authority’s current arrangements in relation to loans is adequate.”
And it adds: “Our initial findings indicate that there is an insufficiently systematic, robust, and objective due diligence process, and framework within which decisions can be made or documented.”
KPMG’s external report - one of two being conducted around the council’s dealings with the Cobblers in 2013 and 2014 - has seen the company meet with key officers at the council including the chief executive and meet with audit committee members.
It has also gone through a series of reports, minutes and other supporting documents regarding the loan as part of the review.
A firm release date for the report is not known.
Councillor Mary Markham, leader of Northampton Borough Council, said that, while she accepted KPMG’s recommendations and the seriousness of their comments, she stressed that they relate specifically to the handling of the loan to NTFC, not to the council’s financial management in general.
Councillor Markham said: “I accept the comments in KPMG’s report and welcome the feedback on our processes. The reason I asked for two audit reviews and involved Northamptonshire Police in our investigations is to ensure that we learn the lessons from the failure of the loan to the football club, and to ensure it does not happen again.
“We have already put a number of improvements in place to tackle the issues raised in this report, and we intend to make further changes in how we do things as we review our processes in the wake of the loan.
“I will put in place a rigorous system with a set process that must be followed in every case, which identifies who is responsible for every stage of the process and records that each stage has been followed and properly signed off.”
Councillor Markham said she acknowledged “that this is a very serious issue”, but that she believes it is an exception.
She said: “We are using all the means we can to try to recover the £10.25million owed to the council, but this must be balanced against the £450 million of transactions that the Borough Council handles efficiently every year. We also manage assets worth £725 million.
“We will take on board all of the comments and make the improvements necessary.”
The council says that improvements it has already put in place include:
- Carrying out enhanced due diligence checks, including external scrutiny, for new loans issued, such as the loan to the University of Northampton
- Using a new checklist, on advice from KPMG, to ensure all aspects of loans are properly considered
- Initiating a thorough review, using external experts, of our governance, risk management and due diligence processes