Shapley Heath Finance Masquerade

Posted on August 6, 2021August 27, 2021

Closer examination of the evolution of the Shapley Heath budget and spending has revealed disturbing weaknesses in budgeting and financial control. This comes in addition to the errors in reporting the FY21/22 overall budget and the smoke and mirrors surrounding the reporting of the FY20/21 budget and variances.

In summary, for Shapley Heath in FY20/21, they set a budget of £167K and then increased it to £500K. Then they cut it between July and September. Spending year-to-date somehow declined between July and September. Then finally, the budget was cut to zero. They eventually spent £186K for the full year, but had to transfer £283K to reserves to fund the spending. Why the £97K discrepancy, perhaps it is overhead allocations yet to be recharged?

In case you are wondering if this is just a one-off issue because of the special circumstances of Covid, think again. In FY18/19, they set a zero budget, then in November 2018 approved a £50K budget. They had overspent this by December and ended up spending £90K for the full year.

This can only be described as lax financial control. It’s just a masquerade where they pretend to set a budget, spend whatever they like and then gain approval after they have spent the money.

Here are the details:

Shapley Heath Finance Masquerade: FY20/21 Original Budget

They set an original budget of £167K. This comes after returning £787K to reserves from FY19/20 after the Inspector threw out their plans for a new town.

Shapley Heath Finance Masquerade FY20-21 Original Budget

First Variance Report to July 2020

By July 2020, the full year budget had miraculously increased to £500K. Spending had already reached £65.5K. Because the budget had increased, this was recorded as a favourable variance against budget.

Shapley Heath Finance Masquerade First Variance Report to July 2020

Variance Report to September 2020

By the end of September, the budget to date had reduced from £167K in July to £34.2K. This perhaps reflects the revised budget agreed in July. However, a revised service-by-service budget wasn’t provided at that time. Miraculously, spending to end September had fallen to £47.7K from the £65.5K spending to end July. This was now recorded as an unfavourable variance. The unfavourable variance reflected unplanned spending of £13K on a Covid survey. Quite what this has to do with a potential new development several years down the line is anyone’s guess.

Shapley Heath Finance Masquerade Variance Report to September 2020

Variance Report to December 2020

The budget was not reported for the year to December 2020. At this time they only reported variances to budget. By this time, the variance to budget (which one?) had increased to £37K. they had hired two extra people and Chelgate PR. Strangely, the spend on the Covid survey had fallen to £8K. There was also a “variance to forecast” report, but Shapley Heath didn’t appear in it.

Shapley Heath Finance Masquerade Variance Report to Dec 20

Outturn Reporting

The outturn reporting gets even more odd. The official report presented to Cabinet shows £283K transferred from reserves to fund FY20/21 spending on Shapley Heath. Yet, in an answer to a question to council in late July, spending of £186K was claimed (it maybe the extra costs come from overhead allocation recharges yet to be reported).

Shapley Heath Finance Masquerade Outturn Reports

Full-year budget set at zero

All this spending has been incurred despite the full year budget being reset to zero. It is difficult to describe this as anything other than a complete mess.

Shapley Heath Finance Masquerade Full Year FY20-21 Budget Change Feb 21

FY18/19 No Better

And just in case you thought this was a one-off aberration caused by Covid, FY18/19 was no better. They originally set a zero budget. A £50K budget was approved in November 2018. This was overspent by December, with spending at £51.5K. At the time the December figures were reported in March 2019, it was expected total spending for the year would be £67.4K. The full-year outturn is now recorded as £90K. Nearly double the requested budget. What a shambles.

Shapley Heath Finance Masquerade FY18-19 Overspend on Budget Change

Hart Budget Smoke and Mirrors

Posted on August 1, 2021August 27, 2021

Hart Budget Smoke and Mirrors

This post is about the changes Hart keeps making to its reported budget and the way it changes the terminology to describe the budget.

Hart Values

Let’s start with their values. these include the two emboldened values shown below.

Behaving with integrity, demonstrating strong commitment to ethical values, and respecting the rule of law.
Ensuring openness and comprehensive stakeholder engagement.
Defining outcomes in terms of sustainable economic, social and environmental benefits.
Determining the interventions necessary to optimise the achievement of the intended outcomes.
Developing the entity’s capacity, including the capability of its leadership and the individuals within it.
Managing risks and performance through robust internal control and strong public financial management.
Implementing good practices in transparency, reporting, and audit, to deliver effective accountability.

Hart Original and Revised Budget for FY20/21

For completeness, let’s compare the original budget with the revised version agreed in October 2020. All looks fairly normal.

Hart FY20-21 Budget Changes Original to Revised So Far So Good

Hart Budget FY20/21 Variance Report to October 2020

Again it looks fairly innocuous. But note the subtle change in terminology from Cost of Services to Net Cost of Services and the addition of an additional “Total” line.

Hart FY20-21 Budget Changes Revised to Oct 20

Hart Budget FY20/21 Variance Report to December 2020

At first, this looks OK. But note another change in terminology.

Hart FY20-21 Budget Changes Oct to Dec 20

Closer inspection shows the terminology between the October revision and the December variance report has been reversed. What was “Cost of Service” is now “Net Cost of Service”. Net Expenditure has switched from the main total to a sub-total.

FY20-21 Hart Budget Smoke and Mirrors Revised to Dec 20

Hart Budget Smoke and Mirrors – Outturn Report

Things really start to go awry now. Part of the terminology of the December 2020 variance report is retained. But the numbers completely change. If you compare the “Net Cost of Service”, the budget for FY20/21 has apparently increased from £9.5m to £11.1m. However, if you compare the visually equivalent lines, the budget has been cut by £335K from £11.4m to £11.1m. What on earth is going on?

FY20-21 Budget Smoke and Mirrors Changes Dec 20 to Full Year Outturn

Hart Budget Fy20/21 Outturn to Accounts

Then when you look at the accounts, the numbers stay the same, but the terminology changes yet again.

Hart FY20-21 Budget Changes Outturn to Accounts

It’s difficult to believe that even those producing the numbers know what is going on. It’s almost certian the employees working to these numbers are completely confused. I am sure that Councillors and certainly this attentive member of the public doesn’t have the first idea what they are doing. If anyone thinks this meets the standards of robust internal control, strong public financial management and transparency, then I have bridge to sell you.

Hart loses £1m down the back of the sofa

Posted on July 29, 2021August 16, 2023

Sorry for another post highlighting Hart’s dire financial position. But the bad news keeps on coming. Not content with the budget car crash, playing the Shapley Heath shell game and disappearing into medium term black hole, they have now lost over £1m on the waste contract.

Yes, £1,088K has gone missing from the Waste Contract and nobody knows where it is. Perhaps it’s down the back of the sofa or maybe it’s been sucked into the black hole. Apparently this loss is being investigated by external consultants. It seems highly irregular that nearly 10% of Hart’s entire budget should have gone missing. Indeed, if they still had the money, last year would have been in surplus, not in deficit to the tune of £784K.

We had previously thought that with the Covid disruptions, a deficit last year would have been entirely forgivable. But now it has transpired that the deficit last year was a spectacular own goal, revealing massive weaknesses in financial controls. The waste contract is supposed to be “passthrough” where expenditure is matched by income.

The missing money was reported to Overview and Scrutiny in June.

Hart Loses £1m down the back of the sofa

HAWBDC Basingstoke Waste Contract £1.121m un-invoiced at year end reported June 2021

It was also reported to Cabinet earlier this month. It isn’t clear how the variance managed to change from £1.121m to £1.088m between mid-June and early July. Nor how un-invoiced costs can morph into an overspend. But “fluid” reporting is becoming a hallmark of the Council. Indeed, if it were only “un-invoiced costs”, why not simply issue the invoices, rather than start an investigation?

HAWBDC Basingstoke Waste Contract £1.088m overspend reported Jul 2021

Hart Loses £1m: Audit Trail

However, the loss shouldn’t come as a total surprise. There is an audit trail of how Hart managed to lose £1m down the back of the sofa.

Let’s start with the passthrough budget.

HAWBDC Basingstoke Waste Contract Pass through budget from Budget book

This clearly shows a net overall cost of zero, where income exactly balances costs.

The first sign of something going awry came in the budget review to the end of July 2020, reported in October.

HAWBDC Basingstoke Waste Contract £896K variance as of July 2020

Costs of nearly £896K had remained un-invoiced due to officers shielding from Covid. Understandable perhaps, but a massive sum nonetheless.

By September 2020, reported in December, the situation had got worse.

HAWBDC Basingstoke Waste Contract £1.48m variance as of Sept 2020

£1,48m of invoices had still not been sent, but Cabinet and public were reassured that they would catch up in the coming months.

By December, reported in March 2021, over £1.5m of invoices remained unsent.

HAWBDC Basingstoke Waste Contract £1.52m variance as of Dec 2020

It took until June of this year to report to O&S that there was a significant problem and come clean that an investigation was required (see above).

The subject came up at Audit Committee this week. There is to be an internal audit of Waste and Street Cleaning.

Waste Internal Audit not starting until September

However, we understand from the video of the meeting that this work isn’t due to start until September. So, the internal audit team won’t start to look at this until over a year has elapsed from problems first being apparent. That doesn’t seem urgent enough to find out what happened to nearly 10% of the entire budget.

Growing Black Hole at the Heart of Hart’s Finances

Posted on July 27, 2021August 16, 2023

More evidence has emerged of Hart’s Finance car crash. The black hole at the heart of Hart Council’s medium term finances is growing. They recently published their draft accounts for last financial year which updated the medium term financial plan (MTFP).

This shows that the expected deficit for FY22/23 has expanded to £1,175K and the deficit for FY23/24 will be £1,413K.

The Black Hole at the Heart of Hart's Finances

Hart Council Medium Term Financial Plan

This represents a massive deterioration compared the the forecast provided in last year’s accounts and to Cabinet as recently as December 2020. At that time they forecast zero deficit in both years.

Hart MTFS presented to Cabinet December 2020

They got closer to reality at the time of the budget in February 2021. However, the FY22/23 deficit has grown from the £1,018K estimated at that time.

Hart Council budget deficits 2021/22 and 2022/23

Even these horrifying numbers are optimistic. They assume £499K of as yet unidentified savings will be made in FY22/23 and £796K in FY23/24.

If they manage to make the savings, then the deficit will still be 10.7% of their budget in FY22/23 and 12.5% in FY23/24. If those savings don’t materialise then the deficits will be 15.1% and 19.6% respectively. These are huge numbers. Even more troubling is that there doesn’t appear to be any formal committee set up to deal with the issue. However, they have recently bought an office block in Basingstoke. The income they receive may help to close the gap.

Crumb of Good News in Hart’s Finances

The only crumb of comfort is that the estimated deficit for this financial year has fallen from £381K when the draft budget was signed off to £179K in the MTFP. This seems to reflect that they have received £270K of extra income for Shapley Heath (£130K) and Recycling Credits (£140K) not included in the draft budget. However, this extra income should have seen the deficit falling by £270K, not £202K.

Shapley Heath still burning money

It is galling to see that money is still being squandered on the entirely unnecessary Shapley Heath project when the overall financial position is so dire. The Council are fiddling while our money burns.

We have asked questions about these and other issues to be answered at Council on Thursday 29 July. They can be found here.

Shapley Heath Financial Shell Game

Posted on July 25, 2021August 16, 2023

Hart’s lack of financial control has also infected the Garden Community project. Their accounting for Shapley Heath has descended into a shell game. They set a zero budget, then we have to guess where they have hidden the actual spending. Let’s go through it.

Shapley Heath Zero Budget

Hart recently published the final budget for the current financial year. This also included the budget for last year, FY20/21. The budget for the new settlement at Shapley Heath was set at zero as can be seen in the image below. Note that in public sector accounts, positive numbers are spending and negative numbers are income.

HASETT – Shapley Heath Final Budget FY21-22

It was made up of ~£68K for employee costs and car allowances, offset by a somewhat implausible identical receipt from GL Code 44047 – Consultants Projects. It is not clear why they were expecting consultants to pay them money. In common with the other service areas, no overheads were allocated.

Shapley Heath Declared Spending

Yet, the transparency report shows spending of £63.7K on consultants in “New Settlement” for FY20/21:

Shapley Heath Financial Shell Game: New Settlement Transparency Report FY20-21

It is not clear how they managed to authorise this spending against a zero budget. On the face of it, it’s contrary to the Constitution. Budget regulation 3 limits spending to within the approved budget:

Hart Council Constitution Budget Regulation 3

Budget regulation 5 allows transfer between budgets.

Hart Council Constitution Budget Regulation 5

But this is limited by Financial Regulation 12 to £10,000 without Cabinet approval or £50,000 with Cabinet approval. We can find no record of Cabinet approving a change in the budget for Shapley Heath. In any event they have spent more than the transfer limit.

Hart Council Constitution Financial Regulation FR12

In addition FR10 says that they cannot incur unbudgeted expenditure without approval of full Council.

Hart Council Constitution Financial Regulation FR10

So, even the spending of the £63.7K appears to be in breach of the Constitution.

Shapley Heath Additional Work

Furthermore, the Shapley Heath Opportunity Board papers show that four Baseline Studies had reached the status of “Finalised” by 8 March. This is before the end of the financial year. These must have cost money, but do not show on the Transparency Report nor on the Contracts Register.

Shapley Heath Baseline Studies as of 8 March 2021

So, they have spent an unknown, but large amount of our money against a zero budget.

Shapley Heath Financial Shell Game: Transfer from Reserves

We can get an idea of how much they actually spent from the report recently presented to Cabinet. Buried on page 108 is an analysis of funds transferred from reserves.

Shapley Heath Financial Shell Game £283K Transfer from Reserves

Shapley Heath £283K Transfer from Reserves

This shows £283K was transferred from reserves for “funding 2020/2021 work on the New Settlement at Shapley Heath”. Note that the same report says that they incurred a deficit of £784K in the financial year (p103).

We will be asking questions at Council next week about how it was possible to spend £283K against a zero budget while running a massive deficit. Hart are fiddling while burning our money.

The questions can be found here.

Hart Finance Car Crash

Posted on July 24, 2021August 16, 2023

We are becoming increasingly concerned that Hart’s finances are experiencing a slow motion car crash. This post will cover three significant issues we have identified from the current budget. Tomorrow, we will cover the Shapley Heath financial shell game. Later next week we’ll take a look at the growing black hole in the medium term finances. Plus, there’s the loss of £1m on the waste contract. Today’s three issues are:

Changes to the actual spend in FY18/19 and FY19/20
The budget doesn’t add up and so is not internally consistent and can’t be relied upon
Big changes to the approved draft budget in the final published version apparently in contravention of the Constitution

Hart Finance Car Crash: Changes to Actuals

Hart Finances Out of Control – Changes to Actuals

As can be seen the actual total spend for 2018/19 has fallen from £5,387K to £5,020K between the two reports, a significant difference of £367K. Similarly, the spend for 19/20 has fallen from £11,241K to £10,877K, a difference of £364K. It isn’t clear whether this change in the management accounts will cause a restatement of the statutory accounts.

In the private sector, restatement of prior year accounts would be regarded as a profoundly serious matter. In Hart Council, it seems to have passed without comment.

Hart Finance Car Crash: Budget Does Not Add Up

Hart Finances Out of Control – Budget Does Not Add Up

We highlighted back in February in a letter to all councillors and an email to the JCX’s that the draft budget did not add up. Nobody cared at the time. Apparently, they still don’t care because the final budget doesn’t add up either. The sum of the spending in the service areas for GL Codes 10000 , 44069 and 90012 is not equal to the total for those GL Codes in the “Subjective” summary. In short, the budget does not add up. It appears as though HANEED (Housing Needs) is missing from the detailed service areas. This may account for the discrepancy. This service area is budgeting £813K of spending and nobody has noticed it’s missing. This is just sloppy work.

We have highlighted this anomaly to officers, but have yet to receive a reply. It’s difficult to see how it can be relied upon to be accurate.

[Update]: The budget has now been updated and the errors identified have been corrected [/Update]

Big Changes Between Draft and Final

Hart Finances Out of Control – Big changes between draft and final budget

In addition, there have been big swings in the budget for each service area between the draft and final versions. Total net spending has reduced by ~£37K, probably partially explained by extra grant income. However, total spending in Corporate Services and Community Services has been significantly reduced, largely offset by a big increase in Technical and Environmental Services and a smaller increase in Place.

These large variations appear to be in contravention of Hart’s Constitution. Once the budget has been agreed at a full council meeting, it is set in stone. It can only be varied in a limited way without further approval from Council.

Budget regulation 3 limits the officers to spending within the approved budget:

Hart Council Constitution Budget Regulation 3

Budget regulation 5 allows virement (transfer) between budgets.

Hart Council Constitution Budget Regulation 5

But this is limited by FR12 to £10,000 without Cabinet approval or £50,000 with Cabinet approval. These changes are larger than the transfer limit. Changes this large should have gone back to full Council for approval.

Hart Council Constitution Financial Regulation FR12

In addition, FR10 says that they cannot incur unbudgeted expenditure without the approval of full Council.

Hart Council Constitution Financial Regulation FR10

In other words, whoever runs Corporate and Community Services have been authorised to spend more money than they now have in their budget. The heads of Place and Technical Services are not authorised to spend all of the money in the final budget. It’s a complete mess.

Hart Council is fiddling while our money burns.

We have asked questions about these and other issues to be answered at Council on Thursday 29 July. They can be found here.