Freesteel Blog » An audit is like an old set of mineworks

An audit is like an old set of mineworks

Thursday, July 24th, 2008 at 7:48 pm Written by:

A post on 4 July on the BBC Open Secrets blog about the Council finances briefly being open referenced the Orchard News Agency, which included on their updated table (without any helpful hyperlinks) of councils whose inspection periods are open.

An FOI request for the advertisement obtained the information.

It said (hyperlinks added):

NOTICE IS HEREBY GIVEN that pursuant to Sections 15 and 16 of the Audit Commission Act, 1998 and regulations13, 14 and 16 of the Accounts and Audit Regulations, 2003

1. From Wednesday 2 July to Tuesday 29 July inclusive, between 8.30am and 4.45pm any persons interested on application to the Assistant Executive Director (Financial Management), Room 14, Municipal Building, Dale Street, Liverpool L2 2DQ may inspect and make copies, at a charge of 20 pence per sheet, of the accounts of the above named Council for the year ended 31st March, 2008 and all appropriate records related thereto;

2.On or after Wednesday 30 July at 10.00am, the District Auditor, Mike Thomas, 3rd Floor, Millennium House, 60 Victoria Street, Liverpool L1 6LD will be available at the request of any local government elector for the area to which the accounts relate or their representative, to be questioned about the accounts and any such elector or their representative, may attend before the Auditor and make objections to the accounts;

3.No objection to the City Council’s accounts may be made under subsections 16 (1-3) of the Audit Commission Act, 1998 by or on behalf of a local government elector, unless the Auditor has previously received written notice of the proposed objection and of the grounds on which it is made. Where an elector sends a notice to the Auditor, the elector must at the same time send a copy of the notice to the City Council at the address below.

Now, this ad was not meant to be followed up, because when I presented myself between 8.30am and 4.45pm at said offices, nothing was prepared. I had an interesting conversation where I was was told that all the council accounts are posted on-line. This almost put me off track, but I persisted, since not all the books, deeds, contracts, bills, vouchers and receipts relating to them were available there. One of the interesting factors about this is the only exemption to this data is:

Nothing in this section entitles a person to inspect so much of any accounts or other document as contains personal information about a member of the staff of the body whose accounts are being audited;

While it is unclear if this exemption applies to staff employed by a contractor (not the Council) who are named in the books, deeds, contracts, bills, vouchers and receipts, it does not allow the usually unjustified blanket exemption of “commercial confidentiality” on the basis that somebody with commercial experience simply says so, and it is not in the public interest for anyone to cry: “bollocks!”

And since this data has been accessible through this mechanism for many years — even to competitors of the contractor in question — it proves that the information is (a) not confidential, and (b) provides no competitive advantage to those competitors or they would be queuing up at the council offices on day one to access everything they could. Therefore nothing which pertains to money regarding the council business can be denied under the Freedom of Information Act on the basis of commercial confidentiality.

Or at least that would be the case if some appeal court judge could be persuaded to say as much in an official ruling. For now, the closest I can find of the system approaching this point is this press report of a case between the guy running Orchard News Agency and Lincolnshire County Council in 2005, and they don’t mention the issue of FOI.

How did a public right like this slip in through in an Act of Parliament in 1998 at the time when corporate interests were running riot?

Answer: It didn’t. No point in searching for the debates on the “Audit Commission Bill” from TheyWorkForYou.com because it predates their database, which still only goes back to 2001.

So we fall back to the original Hansard search engine to get this written question from 18 February 1998:

Mr. Cohen: To ask the Parliamentary Secretary, Lord Chancellor’s Department if he will introduce a statutory code of practice in respect of the provisions in the Audit Commission Bill [Lords] which permit the Commission to datamatch personal data in the name of economy, effectiveness and efficiency; and if he will make a statement. [29114]

Mr. Hoon: The Audit Commission Bill is a Consolidation Bill, which does no more than restate the existing law in clearer form. It is not possible to amend the Bill by adding a provision for a code of practice.

This tells us that that the Act was just a tidying up and drawing together of a whole bunch of clauses from other Acts to put the duties of the Audit Commission into one place.

The clause detailing the rights of public inspection and the right to make objections known to the visiting auditor regarding actual details within the public finances appear as Section 17 of the Local Government Finance Act 1982, though without our modern Data Protection provisions that you can bet are likely to be used to deny access to entire documents on the frivolous grounds that they contain people’s names on them.

It’s important to retain the right of the Government to keep such records, sell them to supermarkets, lose them on laptops off the back of trains, and generally mishandle and (mis)use it for any purpose falling under the terms of “securing the efficient and effective provision of public services,” whilst at the same time denying a public right to find out anything that goes on in Government or who by.

Back to the point.

One thing that’s confusing we have an Act of Parliament, followed by some Regulations about the implementation of the Act. The Regulations explain how the Act is applied, including minor details about how the public can be ineffectively notified of their rights. Harry Cohen MP above was asking whether the Regulations would be updated with the consolidation act (the Audit Commission Act, which necessitated no debate). Mr Hoon said: No. They were updated five years later by the Accounts and Audit Regulations 2003, Section 16 of which says:

“Not later than 14 days before the commencement of the period during which the accounts and other documents are made available in pursuance of regulation 14, a relevant body to which regulation 11(2) applies, or in the case of a parish meeting, the chairman of the meeting, shall give notice by advertisement of the [date, place, time, etc]

Got that?

Right. Now it is possible to delve into the debates in Parliament around the time of 1982 by searching on millbank systems.

This throws up a very revealing speech on this particular clause by Lord Bruce of Donington. It seems that this is the point where the the Audit Commission was first established:

The Committee will be aware that under the 1972 Act, the approved auditor, which in practice meant a firm of chartered accountants, or a firm of accountants acting on behalf of local authorities, differed considerably from the position of the district auditor…

The position is going to be rather different now… If the Committee will refer to Clause 11 [which] states: “At each audit by an auditor under this Part of this Act any persons interested may inspect the accounts to be audited and all books, deeds contracts, bills, vouchers and receipts relating to them and make copies of all or any part of the accounts and those other documents.”

For reasons that the noble Lord knows quite well, while that is done the auditor or one of his staff has to be in attendance. The examination may be quite lengthy and time-consuming. At Clause 11(2) it says that the auditor is required to give an elector the chance to question him and he is required to answer. This once again is completely outside the normal audit process as is generally understood in the profession itself and may once again be very time-consuming.

In some local authorities the publication in the local newspaper of the fact that the accounts of an authority are available for inspection and the auditors are available to answer questions as from a given date to a given date, may attract no interest whatsoever. There may be other advertisements in the paper, not always on the same page as legal notices, which people find more attractive. Some local authorities may indeed “get away with it” — I do not mean it in that sense — nobody ever questioning the auditor at all.

The Committee might consider the case of other local authorities where sometimes political passions have been known to run high, either one way or the other, and a group — one or many — of local electors get very disgruntled with the way things are running. I can envisage a fairly continuous procession of one aggrieved person after the other — whether politically or actually aggrieved — going to the audit office or other prescribed address that is required in the notice and questioning them.

All good common sense.

In fact, when you get down into the detailed discussions and investigations in Parliament, there’s plenty of common sense in evidence everywhere. The political process then magically cleanses itself of the common sense where it is not beneficial to the powers that be.

To track this further, I’d have to go to the excellent Liverpool Central Library and leaf through the old volumes of Hansard, as well as any copies of the Bills which they retain, in order to determine if 1982 was the source of this public right, or if it was copied from the earlier Local Government Act 1972 (check out that Wikipedia page there).

Meanwhile, after two weeks of emailing back and forth negotiating (people in the Council checking with their lawyers), I got access to some of these here accounts. In particular the Mouchel Parkman 2020 Liverpool partnership transactions and some transactions from IPS Services (note: FOI for contract still overdue), all laid out on paper. I got one electronic spreadsheet of costs from the 2020 Liverpool thing (and learnt about the limited login system that the council officer had into their system, contradicting the “open book” provisions), but the IPS Services details appears to be printed out on paper and mailed to the Council hard-copy.

The chaps gave me plenty of time to discuss with them the whole concept of how it worked and explore the procedures. The summary is that experts with a high degree of business and accountancy training think its great, and other people who only have their common sense to rely on believe it’s nuts. The points seemed to be:

  • Ignore your intuition of flow of work, excess overheads resulting from not hiring staff directly, and other matters; you should focus on the Mouchel (pronounced Mou-shell) brand and how well you can imagine that they manage and motivate people in their organization, than if they were just doing jobs they felt were directly for the public interest.
  • According to the Mouchel Parkman spam on Wikipedia, the company was founded in Liverpool in the 19th century, and this work with the Council, which is done by former Council employees TUPEd across, is a way for it to get back to its roots. Yeah, right.
  • 2020 Liverpool is a partnership company between Liverpool City Council and Mouchel. The Council has an important stake in its success and wants the business to prosper.
  • Oddly, if the Council owned 100% of the Company then the zero-sum nature of the direct correlation of profit of the Company relating exactly to costs on the Council would be clear. But when the figure is only 20% (not even factoring in the undisclosed Mouchel Parkman management fee of a fixed percentage of the turnover), this decouples it completely, even though according to common sense analysis it should make it four times worse!
  • Ah, but 2020 Liverpool can bid for work in other places, not just from Liverpool City Council (from which it gets only 80% of its business).
  • The other 20% seems to involve designing the rebuilding of schools, ultimately funded by the Council (unless you buy into that whole sub-prime-mortgage-like PFI hogwash). It was confirmed to me that Council architects used to do this work before they were transfered to 2020, so pretending it isn’t part of Council business is being economical with the actualité. Anyways, if there was anything lucrative going, Mouchel itself go for the contract directly and cut out that oh-so-valuable stake of Liverpool City Council by simply relocating the 2020 staff to that part of the business.
  • Basically, the operation of the business can be finely tuned to meet and never exceed the aspirations of the Council. Losses and financial difficulties, however, commonly find their way back into the public finances, in spite of the fact that it’s never part of the plan — so there is no point in looking at it for predictions.
  • In spite of the Council having to ensure that a steady flow of work goes to 2020 to maintain the success of the business, one of the supposed advantages of procuring it this way is that it gets the staff off the Council’s payroll, so that when business declines they don’t have to keep workers idle or sack them, because Mouchel can relocate them to other parts of their bigger business — for example, to satisfy lucrative contracts it has bid for itself against the fictional interests of the pretend-person legal entity that it has managerial control over known as 2020.
  • Like those suspiciously common Very Bad Deals that occur throughout Government procurement of software, although the Council pays the entire up-front hourly costs of all work done for the design of an item of infrastructure, 2020, and therefore Mouchel, retains absolute copyright for all work done.
  • I was told this was a good thing, because if the 2020 can make more money by selling this same work to other customers, then the Council, which has a stake in the success of the Company, will benefit.
  • For business minds, this is enough to disconnect the fact that the electronic plans for a road traffic island in a junction in Liverpool will probably only ever be bought in the future by Liverpool City Council, and you have now made renationalization of the city planning department in 20 years time when the contract expires subject to a potential utter rip-off should the Council want any of the documentation of the infrastructure it paid for in the first place to design — even should someone who has the sort of common sense that comes from not being business trained has a say in the decision at the time.

I must check that last point out. I wonder if any of those great highly-skilled contract negotiators thought of this.

The habit of claiming that fractional revenues returning from theoretical and dubious business opportunities adequately compensates for delivering intellectual property into the private sector for free is not new.

Back in 2002 the e-Envoy, after selling out the whole of central government and then some to Microsoft, was interviewed:

Geraint Davies MP: Microsoft have been given the responsibility for the construction of the gateway technology, have they not?

Andrew Pinder: Microsoft have been one of a number of partners we have used to build that site although we own the intellectual property rights to that. They are a contractor along with Dell and a number of other contractors.

Geraint Davies MP If they sell it abroad to other governments we get a margin; is that correct?

Andrew Pinder Microsoft have asked us if they can use our intellectual property rights for building products for other governments.

Geraint Davies MP: Exactly how much are we going to get for that?

Andrew Pinder: We take a commission on their gross sales of that product through a contractual arrangement. 24% of their gross sales of the government gateway intellectual property will come to us. They have made two sales so far and have a number of other sales in prospect, so we have got a contract with Microsoft US to get that commissioned. We felt it was right, rather than just hold on to the technology ourselves because there was an opportunity to recoup some of the cost of building that technology through a licensing agreement.

Geraint Davies MP That 22% of the intellectual property must be bringing in money.

Andrew Pinder We rather hope that it will give us quite a lot of money, yes. In this particular respect we wish Microsoft every good wish in their sales efforts.

Ah. Wrong quote. Can’t seem to find documentation of a deal this bad, regarding ownership of IP. I was looking for information about the contract between EDS and the Inland Revenue where EDS owned all the source code, but I can only find this record detailing the suspicious success of that brand to obtain contracts, regardless of its track record.

Brand perception management. Evidence-free planning that can be trusted.

Must move on. Tune in next time. Or to one of these while I’m away.

It’s not enough to make a newspaper story (a limited genre of information presentation), but it is interesting and may lead to something important one day.

4 Comments

  • 1. Rufus Pollock replies at 16th August 2008, 4:19 pm :

    The deal with the Inland Revenue I think you are referring to was with Accenture (Arthur Andersen consulting arm) I believe. Details of this, together with various other interesting bits of information about UK Government contracts, may be found in Paul Foot’s article entitled “Medes and Persians” in the Nov 2000 edition of the London Review of Books which is online at http://www.lrb.co.uk/v22/n21/foot01_.html. The relevant quote comes at the end:

    The Public Accounts Committee didn’t produce their final report on the national insurance computer contract until the summer recess. On the matter of ‘intellectual property rights’ and the fact that they’d been handed over to the company by the previous Government they had a few words of mild criticism. Evidence on this was heard by the Committee on 15 March. Five people faced the Committee’s questions, including senior officials from the Inland Revenue, who had taken over responsibility for the computer contract, and Lis Astall, a partner in Andersen Consulting. The most searching questions came from the mild-mannered Labour MP for Croydon Central, Geraint Davies. Ms Astall told Mr Davies flatly: ‘The intellectual property rights are with us and we run the service.’ The exchange continued:

    Q. Could we keep on using your intellectual property rights for how long and at what cost?

    A. If the negotiation is successful.

    Q. How would the cost of the intellectual property be determined?

    A. As I say, at the end of the life of the contract –

    Q. Is there a formula?

    A. At the end of the life of the contract there is a clause in the contract which allows people to negotiate who will take forward the intellectual property rights and it is those principles which will be used at that point, so the negotiation will be conducted on those at any point the department wants a break point.

    Mr Davies’s reply to this classic example of Andersen-speak was forthright. ‘Clearly,’ he said, ‘Andersens have got us over a barrel on this

  • 2. Julian replies at 20th August 2008, 3:15 pm :

    Well dug out. I don’t know how you did it. The report Paul Foot refers to is:

    http://www.publications.parliament.uk/pa/cm199900/cmselect/cmpubacc/431/43102.htm

    But it doesn’t record any evidence of the sort quoted or a meeting on 15 March, strangely.

  • 3. Freesteel&hellip replies at 20th August 2008, 4:22 pm :

    […] of my FOI requests have matured while I was away, following my adventures with the Audit Commission […]

  • 4. Freesteel&hellip replies at 3rd October 2009, 10:00 pm :

    […] on I learnt about the Audit Commission Act which says that for one month every year, prior to the audit of a local council’s […]

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