Spelthorne rejects claims of auditor concerns about its investments
0Spelthorne Borough Council has hit back at an “erroneous and sensationalist” Sunday Times article which said that auditors had raised concerns about its commercial property acquisition strategy.
The council has borrowed more than £1bn in recent years from the Public Works Loan Board to finance a portfolio of investment properties aimed at producing a return to fund services.
This week, the Sunday Times reported that auditor KPMG had “raised the alarm” over the way that the council had been buying property.
The article referred to a summary of the work that KPMG would undertake to complete its audit of the authority’s 2017/18 accounts.
The auditor’s report said: “There is a risk that such assets, which are outside the Authority’s core operations, are overvalued and not accounted for correctly within the financial statements.
“We will review the approach that the authority has adopted to assess the risk that the valuation of investment assets are not materially misstated and consider the robustness of that approach.”
KPMG said that it would assess the methodology used by valuers, the accounting entries relating to the properties and investigate whether there are any indicators of impairment.
In a response to the Sunday Times’ interpretation of this section of the report, the council said: “Selective comments have been taken from an audit report from July 2018 which was made publicly available and reported through our audit committee.
“Nowhere in the report do KPMG criticise the council or suggest that investment properties are actually overvalued.
“In fact it states that the council’s approach is ‘balanced’.”
The council also said that the Sunday Times article had confused references from the previous year’s KPMG report, which had raised some issues with the draft statement of accounts arising from the departure of the chief accountant and deputy chief accountant and the capacity of the interim team brought in at short notice to assist with the close of accounts process.
It said: “There were no comments directed specifically to the question of investment assets.
“In contrast, in the 2017 report KPMG state that the quality of the draft statement ‘was significantly improved from the prior year’.”
The article also quoted a senior source at the Chartered Institute of Public Finance and Accountancy (CIPFA) as being “extremely worried” about what might happen to essential services in the area if the property market took a downturn.
It quoted the anonymous source as saying: “Provision of adult social care and children’s services in the area now depends on the success of the BP business park and other property investments.”
In response, the council said: “This council does not have responsibility for adults’ or children’s services, and this obvious point has been missed by the journalist.
“We believe it is highly unlikely that this comment has been made by CIPFA and we will be following this up.”
Replying to a Tweet on the matter from Room151, CIPFA said: “We declined talking to Sunday Times for this article.
“The quote from a ‘senior source’ is incorrect, nor is it based on the written response we provided Sunday Times.
“We have contacted the editor to clarify and correct their mistake.”
Speaking before Parliament’s Housing, Communities and Local Government Committee earlier this week, MHCLG permanent secretary Melanie Dawes said: “There are only one or two councils that we are aware of that are really pushing the envelope beyond the guidance we updated recently with CIPFA.”
However, she refused to confirm that Spelthorne was one of these councils, saying only that the council “certainly has very high borrowing rates”.
She said that the department is not doing a particular review of the issue of council investment in commercial property but is keeping on top of the issue.
Dawes said: “It is a really difficult balancing act for us, not wanting to interfere where locally elected members are making decisions but wanting to look at risk.”
