Luton Borough Council Accounts 2018-9 / Part 1

On the evening of Thursday 20th July, the Audit and Governance Committee of Luton Borough Council (LBC), held their Monthly Meeting.  

What drew us to this meeting was Agenda Item 13, the Draft Audit Results Report for 2018/19.  This report starts from Page 172 in the document pack linked below, and includes decisions taken on the issues LBC’s Auditors at that time, EY, had regarding the financing stance LBC took for its Development Consent Order (DCO) financing, and its Revaluation of the Airport.  

At 18:00 SLAE logged onto LBC’s you tube channel where all meetings are streamed, to see pictures of the Chamber, but no sound. 

The Councillors speaker system was obviously working, and those attending the meeting virtually were also getting sound, it was just the public feed that was in silence.  This was the third time in the past six weeks that important meetings we covered were in silence.  Odd that such a technical issue had not been sorted with some urgency by LBC?  

The report summarises the Audit Conclusion for 2018/19, subject to a final quality assurance review and professional practice consultations.  Once these are complete, EY anticipate issuing a Qualified Audit Opinion on them.  In ley terms a qualified opinion means that the financials are fairly represented, BUT they also contain material misstatements or omissions, and the statements should be regarded with caution.  

The first issue is that the material value of Capitalised Expenditure for this Financial Year on Luton Airport Expansion schemes in the LBC Group, does not meet Capitalisation Criteria under IAS40, as an Investment Property under Construction. 

LBC were not able to provide sufficient and appropriate evidence that the costs incurred to date on the DCO application are all, or partially, eligible to be classed as part of Phase 1 of that proposed expansion.  Those costs totalled £20.3 million, with the Auditors EY unable to conclude whether they have been reliably measured and accounted for as a Capital Asset in the LBC Group Financial Statement.  This is called a Limitation of Scope, in Auditing terms.  

The third issue was the valuation of Luton Airport.  In the original accounts there were concerns over Material Accounting and Disclosure errors.  As a result LBC undertook a Specialist Revaluation, and the new lower valuation has now been included.   The Auditor reported back to LBC’s Chief Financial Officer, and the Audit and Governance Committee in June 2022, that these accounts contained fundamental omissions in the accounting and valuation of Luton Airport and significant errors and inaccuracies in the updated critical judgements and post Balance Sheets Disclosure Notes.   As a result of significant weaknesses in the Council’s Procurement and Contract Management arrangements and related Breaches of Laws and Regulations, the conclusion is that LBC does not have proper arrangements to ensure it took properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people.   

Therefore, the Auditors propose to issue an adverse qualification of our 2018/19 Value for Money Conclusion.  

An Adverse Opinion is a professional opinion made by an Auditor indicating that a Company’s Financial Statements are misrepresented, misstated, and do not accurately express its financial performance and true health.

These are the accounts for 2018/19, we have four more years, and Covid-19 years at that to be reported.  What they contain will be even more concerning, as it would appear these initial concerns still existed as late as 2022?   Luton Airport Expansion — will it bankrupt Luton?  You decide.  

To keep our articles short and digestible, we will cover other issues in subsequent posts.

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