External auditors examining the accounts of the former East Northamptonshire Council say that their checks have uncovered fraudulent payments.
Ernst & Young were employed by the authority to ratify the 2019/20 accounts, which were due to be considered by councillors following a significant delay.
But auditors discovered that the council had not carried out a bank reconciliation during the financial year - and when one was finally carried out, the fraudulent transactions were discovered. The auditors will look at how council managers investigated that fraud.
They are also considering whether the arrangements put into place by the council during the 2019/20 financial year relating to the £4m Geoff Monks court case were appropriate to deal with the risks that could emerge from the civil action.
And the draft accounts show that the £4m payment due to be made to Dr Monks after an abuse of process by ENC officers will be included retrospectively on the 2019/20 balance sheet rather than in the North Northamptonshire Council accounts for this financial year.
ENC was scrapped along with seven other district and county councils when two unitary authorities took over the running of civic affairs last April.
Several sets of outstanding accounts were delayed by issues including Covid. But now those accounts are being brought forward to be signed off by the new North Northamptonshire Council.
At Monday's (January 31) Audit and Governance Committee meeting at Swanspool House in Wellingborough members will be asked to consider the contents of the report.
In 2019/20, ENC had a budget of £12.1m for its 93,000 residents - ten per cent of whom have a deprived income.
The accounts detail an increase in business rates of 35 per cent in three years thanks to Rushden Lakes and distribution centres including Primark. But they also warn of 'substantial losses' that will be incurred in future years' balance sheets because of the coronavirus pandemic, leading to a likelihood of them being forced to dip into reserves.
In his report to the audit committee, Ernst and Young Key Audit Partner Neil Harris states: "As part of our Value For Money reporting we are considering the adequacy of the council's arrangements for financial reporting as the council did not perform a bank reconciliation throughout 2019/20.
"Following the completion of the bank reconciliation in 2021 management have identified fraudulent payments. Due to the fraudulent payments made in the year under audit we have engaged with our forensics team to assess management's investigation into the fraudulent payment."
Mr Harris added that work in this area remains 'ongoing' and its outcome will be reported to a future meeting. He added that the auditors will also assess the risk that the 'financial statements may be materially misstated as a result of fraud.'
He said: "We are yet to conclude on audit work in relation to the Monks Case.
"We are awaiting management's accounting assessment which will set out their proposed treatment of the case in the 2019-20 financial statement.
"Our expectation is that management will include this an adjusting post balance sheet event with the final legal settlement accrued in the 2019/20 financial statement.
"We will also consider the arrangements in place at the council to review the financial, legal and reputational risks and exposure from this case during the 2019/20 financial year and determine whether there were any significant weaknesses in arrangements that will lead to a modification to our Value for Money reporting."
During the 2019/20 financial year, the council was being led by Conservative Cllr Steven North, who recently stepped-back from his role on the executive of North Northamptonshire Council. The Chief Executive was David Oliver who took early retirement when East Northants Council was closed. Chief financial officer at the time Glenn Hammons has since moved on to work at Bristol City Council.
None of the management team are implicated in the report by the independent auditors.
The meeting will take place at Swanspool House on Monday at 2pm.