Independent auditors have found “significant weaknesses” at South Tees Development Corporation (STDC). They are still investigating potential non-compliance with laws and regulations but have not found anything to report so far.
The auditors, Mazars, based in London, say they have not had time to complete their work on the STDC’s accounts because of a 13 December backstop date imposed by the government for the audit of public sector accounts for the financial years up to an including 2022-23.
For that reason they have not been able to determine whether the STDC’s accounts present a ”true and fair view.”
“[W]e have determined that there is insufficient time to complete our audit procedures so as to obtain sufficient appropriate evidence, and, in our view, the effects of the resulting lack of assurance is pervasive to the financial statements as a whole,” say Mazars.
“As a result, we intend to issue a disclaimer of opinion on the Corporation’s financial statements.“
They add: “Based on our review of the information received, we have no matters to report in relation to fraud and the Authority’s compliance with laws and regulations. We have not undertaken any further work in these areas and do not provide any assurance that the financial statements are free from material error.”
A draft letter to the auditors from Gary Macdonald, group director of finance and resources at Tees Valley Combined Authority Group (TVCA), which includes STDC, says he has disclosed all events of which he is aware which involve known or suspected non-compliance with laws and regulations.
STDC is far from alone in failing to meet the government’s 13 December backstop for completing its audit. Victoria Smith, TVCA’s group financial controller, says in a report that there is a significant backlog of outstanding external audits across the public sector. Last year, just one per cent of councils and other local bodies published audited accounts on time, she says: “This approach is consistent across the sector and it is expected there will be a significant number of disclaimedopinions nationally.”
Background
STDC was established by TVCA in 2017 to lead the regeneration of the site of the former SSI steelworks site at Redcar, believed to be Britain’s largest brownfield site. Tees Valley Mayor Lord Ben Houchen is chair of both TVCA and STDC.
STDC in turn set up Teesworks, a joint venture (JV) partnership with two local businessmen to undertaker the work. The JV partners now hold a 90% stake in Teesworks and STDC 10%. The regeneration project has received £560mn of public funding.
The independent Tees Valley Review was set up by the former government and reported in January this year that it had found no evidence to support allegations of corruption but it did make 28 recommendations to deal with issues of governance and transparency that it said needed to be addressed and found a number of decisions taken by the bodies involved that did not meet the standards expected when managing public funds.
STDC published an action plan in September to address the 28 recommendations, and Mazars is now recommending that the Corporation should implement the action plan and ensure that it monitors its delivery and achievement.
The Teesworks affair and the issues raised in the Tees Valley Review have been extensively reported by North East Bylines and others throughout this year.
Value for money
Though they have not finished their work on the accounts, the auditors have completed their value-for-money work on the STDC’s arrangements in financial years 2021/22 and 2022/23 to secure economy, efficiency and effectiveness in its use of resources. “Our reporting includes significant weaknesses in those arrangements.”
TVCA, say the auditors, did not have adequate arrangements for:
- Financial sustainability – specifically the arrangements to ensure that it identifies all significant financial pressures and has arrangements in place to mitigate them;
- Governance – specifically how it monitors and ensures appropriate standards such as meeting statutory requirements, how it monitors and assesses risk, how it gains assurance over the effective operation of internal controls, how it ensures it makes properly informed decisions supported by appropriate evidence and allowing for challenge and transparency.
- Improving economy, efficiency and effectiveness – specifically how it delivers its role within significant partnerships, monitors performance against expectations and ensures action is taken where necessary to improve.
The auditor’s report was discussed at meetings of the TVCA and STDC audit and governance committees this week. The documents can be found in full here.
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