EXCLUSIVE: Auditors reveal Northampton Borough Council could not '˜locate' the business case presented by Saints for a £5m loan

Northampton Borough Council gave a loan to a firm even though the collateral was a parent company with a 'higher than average risk of failure,' and could not 'locate' a copy of the business plan given by Saints for a £5 million loan, auditors have found.

Wednesday, 9th November 2016, 6:00 am
Updated Wednesday, 16th November 2016, 4:51 pm
The official opening of the Barwell Stand at Franklin's Gardens in February this year. Northampton Borough Council gave the Saints a £5 million loan to build the stand.

In September, the authority’s systems for checking potential loan recipients before handing over millions of pounds came under fire, with opposition members describing the council as a bank giving out money “willy-nilly”.

In September, auditors KPMG revealed the borough did not have measures in place to ensure a would-be recipient had a strong trading performance, good cash flow and the right working capital requirements, before loan money began changing hands.

And KPMG said it was “unable to state that Northampton Borough Council had proper arrangements to ensure it took properly informed decisions”, when it handed over the loan to Sixfields in 2013 for a stadium development that was never completed.

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That £10.25 million debt had to be written off last year, with the council now trying to recoup the funds by developing the land around the stadium.

KPMG has now released a fuller report into its findings, which will be discussed at next Monday’s audit committee.

It reveals that for the £5 million loan given to the Saints rugby club to develop Franklin’s Gardens, the authority was “unable to locate a copy of the loan business plan”, when asked by KPMG. The business plan had been provided by the Saints.

“This represents a significant risk as the authority is unable to substantiate key decisions,” the auditors said, “including the facts underpinning its decision to grant the loan.”

The borough council says all of its loans are guaranteed and all its current active loans are being repaid.

For another loan the collateral secured against it was a guarantee by the applicant’s parent company, KPMG has found.

However a credit check on the parent company indicated it had a “higher than average” risk of business failure, with the loan offered “far exceeding the suggested maximum credit limit on both the parent and the loan applicant.”

KPMG says it is “unclear if the authority had assessed and mitigated the risk” at the time.

The council was also not able to find a number of key documents or evidence during the audit process.

However KPMG said it was satisfied the authority’s financial statements were accurate.

In September, then leader, Councillor Mary Markham (Con, Park) said the council had taken on board KPMG’s criticisms.

She said: “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.”

In light of the latest report a Northampton Borough Council spokesman said: “We accept the comments in KPMG’s Annual Audit letter, which will be considered by the audit committee on Monday.

“All the current loans that have been made by Northampton Borough Council are guaranteed, and the loan agreements are being met in full.

“We are learning from the failure of the loan made to Northampton Town Football Club and await the reports from both our internal auditors, PWC, and the detailed review being undertaken by KPMG.”