Northants council's potentially fraudulent payments went unnoticed for two-and-a-half years

North Northants Council has also inherited more than £157,000 in legal fees, an audit meeting heard
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A bank account used by the now-defunct East Northants Council (ENC) paid out for a 'potentially fraudulent' mystery service with a direct debit for more than two-and-a-half years.

Described as 'fictitious' by external auditors, the payments were found after an audit of ENC's accounts as the reconciliation process took place for delayed accounts from the periods 2018/2019 and 2019/2020.

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In accounting, reconciliation is the process of ensuring that two sets of records are in agreement - to make sure that the money leaving an account matches the actual money spent.

The reports were prepared by external auditorsThe reports were prepared by external auditors
The reports were prepared by external auditors

The potentially fraudulent payments, via a third party, were revealed after scrutiny by the finance department of North Northants Council (NNC) with external auditors Ernst & Young.

At a meeting of the NNC audit and governance committee on Monday (January 31) Claire Edwards, assistant director of finance accountancy for NNC, admitted that the payments totalled £13,118.

She said: "We are still investigating if they are fraudulent. It was a direct debit set up - £13,118 was paid out. It was cancelled in July 2021."

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The council had been paying £100 a week via an intermediate third party, for two-and-a-half years. Ms Edwards compared the payments as like those for a service provider, using as an example Sky TV. The direct debit had been set up using the bank details of an ENC bank account to make the regular payments.

She said: "We have two layers - it's not an internal or employee activity. The key reason was because of the lack of internal controls. It needs done to be on a regular basis.

"We can assure you we have controls to identify these sorts of things on the bank account."

Explaining why the council might not have noticed the fraudulent direct debit being taken from the account held with Barclays, chairman of the committee Cllr Andrew Weatherill said the account lacked 'visibility' on corporate accounts unlike personal accounts.

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Cllr Mark Pengelly (Lab) voiced his concern that it was the duty of NNC to warn other councils to look the same sort of fraudulent activity.

He said: "It could be happening all over the country. It's important to find out whether it is fraud."

Ms Edwards said: "We need to identify and monitor activity. It sounds really low level and that's why we do it. They hope you don't spot it."

The meeting was told it wouldn't be worth involving the police due to its 'low level'. The sum paid out is roughly ten times' the yearly council tax bill for a Band C property. Local authorities often pursue county residents for non-payment of council tax for sums far less than this potential fraud.

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When asked if there would be a criminal investigation Ms Edwards answered: "From a police point of view, it's not going to be worth it. There is very little we can do to seek recourse.

"I still haven't managed to verify whether this is fraud."

Cllr Matt Binley said: "It is very low value in the grand scheme of things. This individual or individuals could have defrauded other councils. We have a duty to report this."

Ms Edwards reassured councillors that there would be a meeting between council officers and Barclays Bank.

She said: "We need to find our how we protect ourselves. We can't see our direct debits and ongoing conversations are being held."

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At the meeting the costs relating the £4m Geoff Monks court case were also disclosed, with a bill for more than £157,000 in legal fees.

The £4m payment is due to be made to Dr Monks after an abuse of process by ENC officers and will be included retrospectively on the 2019/20 balance sheet - the year of the payment.

Opposition Labour leader Cllr Jean Addison said: "I am concerned that the police have not been notified of the fraudulent transactions as they may have intelligence around other similar activity locally or nationally. They may not consider that the sums involved are high enough to open an investigation but that must be their decision.

"It does reflect badly on ENC following on from the Dr Monks case and that shadow will fall on NNC as the successor council. Although on paper the accounts will be adjusted to show the costs of the case will be on ENC balance sheet in reality the costs will fall on the residents of NNC.

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"I asked the leader of the council at the exempt council meeting before Christmas to set up a cross party panel of councillors - excluding members from the former ENC - to investigate the events around the court case. This he refused to do but we will continue to press for this and for the resignation of the former leader of ENC and his cabinet.

"Problems can arise in any organisation, but they need to be dealt with openly and swiftly. We don't want to go back to the NCC (Northamptonshire County Council) 'move on nothing to see here' culture."

Independent NNC Cllr Martin Griffiths, the former Conservative leader of Wellingborough Borough Council, attended the meeting in the public gallery.

He said: "The money has gone somewhere and someone has benefited. Barclays have a huge fraud department. I am a bit uneasy that high street banks are criticised to be honest as I suggest they are not alone. If the bank has a failing then surely our reconciliation needs to be tighter."

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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.

Cllr Griffiths added: "East Northants Council certainly concluded its business last year with a skeleton in their cupboards and I wonder if this horrendous legacy issue will be reflected in the forthcoming by election in Oundle.

"Is is staggering that ENC was the first council to be sued for abuse of process since 1861 and the councillors who were aware of the case and who served and held positions on that council need to hold their heads in shame over a legal case that has resulted in a £4m black hole in the new councils finances and legal costs currently at £175,000 and counting .We also now have an investigation by auditors, for potential fraudulent transactions albeit relatively small scale ones."