Whitby Harbour: Payback Time?

Whitby Harbour: Payback Time

• – an “In My View”article by NIGEL WARD, setting forth his views on recent meetings: Audit Committee (Thurs. 22^nd July 2021) and Extraordinary Meeting of Full Council (Fri. 23^rd July 2021).

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Background

Readers may be aware that, following a Formal Objection to the Accounts of SBC for 2015/16 (and subsequent years) – on the grounds that revenues from Whitby Harbour and its adjacent ‘lands’ have, contrary to legal requirements, been directed to the General Reserve Funds (and NOT ring-fenced for the maintenance and development of the Harbour) – the Council’s External Auditors (MAZARS) have served a Statutory Recommendation calling on the Council to make an Application to the Court to rule on the extent of the ‘lands’, the volume of revenue concerned and the Council’s accountancy methodology over a considerable number of years.

For the avoidance of doubt, the accountancy aspects of the Objection fall within the remit and professional responsibility of SBC s.151 Officer and Financial Director Mr Nick EDWARDS.

The responsibility to ensure that the Council acts within statutory requirements resides with the Monitoring Officer and Director of Legal Services, Mrs Lisa DIXON.

“Another Fine Mess”

The Council has attempted to address this latest “fine mess” within the purview of meetings of the Audit Committee (Thurs. 22^nd July 2021) and an Extraordinary Meeting of Full Council (Fri. 23^rd July 2021).

It will be a matter of some regret – at least to SBC Leader Councillor Steve SIDDONS [Lab.] – that these meetings fell hard on the heels of a disastrous interview the Leader gave to BBC Look North on Thursday 21^st July 2021, in which he succeeded in confirming that the widely-held suspicion that he is completely inadequate to the task in hand is by no means unfounded.

Moving on . . . 

Audit Committee Meeting (22/07/21)

I watched the YouTube ‘live stream’ of the Audit Committee virtual meeting (via Zoom) held on Thursday 22^nd July ‘live’. The business transacted may have been obscure to many viewers but it did include certain items of interest – of interest insofar as they had the potential to illuminate the sole substantive Item on the Agenda at the Extraordinary Meeting to be held the following day; namely, what action the Council should take in respect of the External Auditor’s  (MAZARS) Statutory Recommendation (covered in detail in my article “The Rape of Whitby Harbour” (pub. 7^th July 2021).

The ‘Public Questions’ section of the Agenda featured a Question from prominent Scarborough businessman, Mr James CORRIGAN, which elicited some ‘clarification’, as follows:

• The Council has confirmed that it would be necessary to modify its spending plans should the Court determine in favour of the Objector (the Fight4Whitby group), severely impacting services and future projects;
• A ‘note’is to be entered in the most recent accounts to explain the issue, but no practical provision has been identified or set out, going forward.

The significance of this is that, should the Auditor determine a ‘material uncertainty’ (which surely this present catastrophe must be), then the question arises as to how the Council can fulfil the legal requirement to set a balanced budget.

Only the opinion of the co-opted independent member of the Audit Committee, Mr Jim BRACE (i.e. that Full Council should accept the External Auditor’s Statutory Recommendation and apply to the Courts to rule on the Objection(s) and the Council’s accountancy methodology) avoided the can being kicked down the road without comment. Curiously (or not), Finance Director Mr Nick EDWARDS remained silent throughout – as did Harbours Portfolio Holder, Councillor Janet JEFFERSON [Ind.].

Of even greater significance was Agenda Item 9 REVIEW OF ACCOUNTING TREATMENT – MINIMUM REVENUE PROVISION (MRP), which elicited the following information:

• At first sight, this ostensibly rather dry and technical Item disclosed that the Council is now changing its accounting methodology so that less costs can be reflected now – in the present financial year – but pushed into the future (so our children to pick up the tab). Furthermore – and this is most significant – this change is to be back-dated five years to boost the General Reserve to the tune of £1 million – a spit in the ocean in terms of the Council’s ultimate liability should the Objector’s claim be upheld;
• This change may not be illegal, but is of sufficient concern to prompt Audit Chair Councillor Andy BACKHOUSE [Ind.] to ask Mr Rob WALKER (MAZARS attending representative) for his views. Mr WALKER prevaricated, stating that other local authorities have done this, but with the caveat that he would scrutinise the matter in finer detail before offering a definitive opinion;
• The Chair was under no illusion that this change in methodology was closely linked to the Whitby Harbour Objection(s) – i.e. although it was never  explicitly stated, it was clearly an apparent attempt to mitigate the catastrophe;
• In fact, accounting policies should only be changed in order the more accurately to reflect the Council’s financial position – not to mitigate a serious error. In effect, if the reason for the change is solely to improve the appearances, that would not be valid. Technically, this is a change of accounting estimates covered by para. 10.15 of Financial Reporting Standard 102, which states:

“A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities.Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors.”

In lay terms, I understand this to mean that the accountancy methodology should never be amended solely to make things look a little more ‘kosher’.

Moreover, this change in accounting policy may prove a significant factor in the Court’s determination, as the timing of the change may be construed as clear demonstration that the Council expects to lose.

So the salient question is this:

Has the Council adopted this change in an attempt to mitigate the extent of the expected negative impact on the General Reserves when the Fight4Whitby Objection(s) is/are upheld?

This key question, over the heads of most members, was to arise within less than 24 hours.

Extraordinary Meeting of Full Council (23/07/21)

I attended the meeting (YouTube video here) in company with two others, vastly more knowledgeable on accountancy issues than I.

The meeting was opened by the Mayor, Councillor Eric BROADBENT [Lab.] at 11:06am.

Apologies for absence were received from (by grouping; Cabinet Portfolio Holders in bold type):

Councillors S. CAMPBELL, Liz COLLING, Joanne MAW, & T. RANDERSON [Lab.] (4)

Councillors J. GRIEVE & P. KERSHAW [Ind.] (2)

(i.e. 6 Councillors from the Lab./Ind. alliance  – the administration)

Councillors J. ATKINSON & P. POPPLE [C.I.M.] (2)

Councillor Marion WATSON [Con.] (1)

Councillor Eileen MURPHY [Y.C.I.A.] (1)

Councillor Helen MALLORY [Unaff.] (1)

Total: 11

There may have been other absentees. I do not recall seeing Councillor Sue TUCKER [Lab.], for example – whose absence would extend the total of absentees to 12. In any event, one quarter of the total Council membership (46) failing to represent their electors on what is undoubtedly the most significant Council issue arising for many, many years is nothing short of deplorable.

What a missed opportunity to call a Vote of No Confidence in Councillor SIDDONS and his Cabinet when a determining number of his misguided ‘supporters’ (6) were, for one reason or another absent – and perhaps hoping, with one eye on the forthcoming elections to the new North Yorkshire Unitary Authority, to distance themselves from this final SBC fiasco.

Also conspicuous by his absence was SBC CEO Mike GREENE – who must by now be wondering what sort of a jar of worms he inherited from Gentleman Jim DILLON

Public Question Time

Once again, it was Scarborough businessman Mr James CORRIGAN (whose technically detailed series of public interest Questions lodged over the course of the SIDDONS administration have, I am given to understand, been prepared by one of the north’s pre-eminent law firms, Lupton Fawcett LLP, in conjunction with impeccably qualified and experienced forensic accountants), who has to date invested (I am assured) something in the order of SBC CEO Mike GREENE’s annual salary in pursuit of the truth. Now that is what I call ‘acting in the public interest’.

In simple terms, Mr CORRIGAN asked if the Council had considered the requirements of the Whitby Urban District Council Act 1905 prior to notification of the Fight4Whitby formal Objection to the 2015/16 accounts.

Mrs DIXON responded by stating that the answer to Mr CORRIGAN’s Question was contained in her Recommendation to Council.

It is not.

Mr CORRIGAN then pressed Mrs DIXON to clarify whether or not the Council had considered the Whitby Urban District Council Act 1905 before or after the Fight4Whitby Objection to the 2015/16 accounts was received by the Council.

Only then did Mrs DIXON confirm that it was after the Objection – a tacit admission that, hitherto, she had been ‘asleep at the wheel’ since her appointment in 2012/13. But I doubt that more than a small handful of Councillors registered this astonishing admission.

As I subsequently commented to my colleagues:

“How can the Council whose inception (under the terms of the Local Government Act 1972, which came into force on 1^st April 1974) included its replacement of Whitby Urban District Council, conceivably have been unaware of the requirements of the Whitby Urban District Council Act 1905, specifically the requirement to ring-fence the revenues from Whitby Harbour and its ‘lands’?”

Mr CORRIGAN concluded by asking:

“Was this incompetence – or negligence?”

In my view, Mr CORRIGAN might well have added:

“Or was it deliberate? Was it, in fact, a ‘fudging’ of the accounts for the purpose of salvaging an otherwise unbalanceable budget?”

Following his Public Question, Mr CORRIGAN presented the Council with a book famous in accountancy circles – a gift to the Council – then took his leave.

The Mayor commented that the book would make nice bedtime reading. Disrespectful of Councillor BROADBENT? Try insolent!

A number of Councillors have now confirmed that the book is “Accounting for Growth: Stripping the Camouflage from Company Accounts” by Terry SMITH (ISBN: 9780712652803) – known colloquially as “The Fudger’s Bible” – highlighting the abuse of accounting techniques to make companies look much better than, in reality, they actually are. The book features several examples of major collapses following the use of the very same techniques (including the change of depreciation accountancy) now adopted by SBC.

Chapter 12 deals with changes of depreciation policy . . .

Councillor  CHANCE’s Amendment

Listen carefully to Councillor David CHANCE [Con.] announcing an Amendment to Mrs DIXON’s Recommendation to Full Council:

Now compare the two.

Or rather, allow me to explain the crucial distinction as I see it.

Mrs DIXON’s Recommendation is as follows:

Mrs DIXON is asking members to make Application to the Court in respect of the car park land (as itemised above) and nothing else, whereas MAZARS statutory Recommendation seeks a declaration from the Court in respect of the entirety of ‘the harbour undertaking’:

However, it is made clear in historical documentation that the ‘harbour undertaking’ comprises not only the riverbed of the Esk estuary, to the high tide mark, all the way to the Ruswarp Weir, but also the reclaimed land between the former Bell Island and the western bank (as well as the shoreline for 1½ miles to the west of the West Pier and 1 mile to the east of the East Pier). Thus, the harbour ‘lands’ may ultimately be declared by the Court to include the Spa/Pavilion, the beach chalets, Battery Parade, the new toilets, the Fish Quay, Dock End (including the former TIC building, now “The Star in the Harbour”), and perhaps even the former railway goods yard and the Co-Op.

Quite obviously, whichever (or all) of these plots of land encompass a great deal more than merely  the four car parks set out in Mrs DIXON’s Recommendation. Certainly, Mrs DIXON’s Recommendation paints a very different (and much reduced) picture to that of MAZARS.

One is reminded of Mr CORRIGAN’s parting shot:

“Was this incompetence – or negligence?”

I will gloss over Councillor BACKHOUSE’s perhaps well-intentioned attempt to amend Councillor CHANCE’s original Amendment.

I will also gloss over Leader SIDDONS’ incomprehensible intervention, which reminded many of his bungled Look North interview. Another “dog’s breakfast”.

The tremulous quality of Mrs DIXON’s voice betrayed her apparent anxiety that the likelihood is that the roof is about to fall in on her and Mr EDWARDS, who once again sat speechless throughout . . .

Interested readers may view the video and draw their own conclusions. I can comment only on my own.

The upshot is that, despite Labour attempts to block the Amendment, Councillor CHANCE won the day; the Council’s Application to the Court will reflect the MAZARS Recommendation.

The people of Whitby owe hearftelt thanks to Councillor CHANCE and the Fight4Whitby group.

The people of the Borough of Scarborough owe heartfelt thanks to Mr James CORRIGAN.

And finally, hats off to the ‘suit’ on the yacht for applauding the dunderhead on the pier (at 00:38 secs):