Is Barnet Council up to the job of managing its suppliers – including Capita?

By Tony Collins

Tonight (27 July 2017) Barnet Council’s audit committee meets to discuss the interim year-end findings of BDO, its external auditor.

BDO identifies a “significant risk” in relation to the council’s contract management and monitoring. There are “numerous issues”, says BDO.

Barnet is well known in the local government community for having adopted a “commissioning council” concept. This means it has outsourced the vast majority of its services, leaving officers and the ruling Conservative group to set policy and monitor suppliers.

Capita is a main supplier. Its responsibilities include cemeteries, ICT and collecting council tax.

BDO’s report for tonight’s council meeting says that, with the council’s services now being delivered through various outsourcing arrangements, “it is important to establish strong contract management and monitoring controls”.

It adds that such controls “allow the Council to ascertain whether or not it is receiving value for money from the use of its contractors, and to take remedial action where issues are identified”.

On this point – contract management and monitoring –  BDO says,

“During the course of 2016/17 we have noted a number of internal audit reports which have raised significant findings in this area.

“In addition, further concerns have been identified through our own audit work. As such, we have recognised a significant risk to our use of resources [value for money] opinion.”

BDO’s findings are interim. It cannot finalise its final statutory report until many questions are answered and errors, financial misstatements and lapses in disclosure are corrected in Barnet’s draft financial accounts.

The auditors comment in their report on the “number and value of errors found” and the “level of misstatement in the current year accounts”.

These are some of BDO’s findings so far:

• Large advance payments (about £44m in prepayments) as part of the Customer Service Group contracts with Capita. Not all of the payments were set out in the payments profile of the original contract. Significant payments were made at the start of the contract (and in subsequent years) to cover capital investment and transformational expenditure. The financial profile of the contract anticipates the advance payments being used by 2023. One advance payment of £19.1m in December 2016 covers service charge payments relating to the first three quarters of 2017/18. The council receives a £0.5m discount for paying in advance. The council also paid for some projects in advance. BDO finds that there was proper council scrutiny of the decision to make the payments.
• Barnet overspent on services in 2016/2017 by £8.3m.
• There’s a budget gap prior to identified savings of £53.9m over the three years to 2020.
• There’s a substantial depletion in the council’s financial reserves.
• Will claimed savings materialise? “Savings targets remain significant and achievement of these will be inherently challenging, as evidenced by the overspend in 2016/17.”
• Net spending on the Customer and Support Group contracts with Capita increased to £34.4m in 2016/17 from £26.9m the previous year.
• More than 100 officials at Barnet receive at least £60,000 a year and twelve at least £100,000.
• Some councillors have failed to make formal declarations. A “poor response rate as compared to other authorities” says BDO’s report.

Comment:

You’d think a “commissioning council” – one that outsources the delivery of most of its services – would, above all, have a firm grip on what its main suppliers are doing and what they’re charging for.

In fact BDO’s report for tonight council meeting rates the council’s contract management and monitoring at “red”. BDO has identified “numerous” issues.

It’s easy for Barnet Council to issue press releases on the tens of millions it claims to have saved on its contracts with Capita.

But BDO possesses the facts and figures; and it questions the council’s “use of resources” – in other words “value for money”.

At the outset of its joint venture with IBM, officials at Somerset County Council spoke of planned savings of £180m over 10 years. In fact the deal ended up losing at least £69m.

Barnet blogger “Mr Reasonable” who has long kept a close eye on payments made by Barnet to Capita doubts that the council is up to the job of properly scrutinising Capita. We agree.

It was clear to many in 2013 when Barnet signed contracts with Capita that the council was unlikely to find the money to acquire adequate contract monitoring expertise and resources, given that its suppliers were required to deliver such a wide range of complex services.

Barnet Council’s most adept scrutineers, rather than local councillors, have proved to be its dogged local bloggers who include Derek Dishman (Mr Mustard), John Dix (Mr Reasonable), Theresa Musgrove (Mrs Angry) and Roger Tichborne (The Barnet Eye).

Had ruling councillors taken local blogger warnings more seriously, would they have specifically avoided becoming a “commissioning council”?