Birmingham City Council over valued its assets by £1.2 billion and double counted Private Finance Initiative payments in a set of accounts only just signed off by official auditors.
It has taken seven attempts for council finance officers to get the 2010-11 accounts cleared by district auditor Mark Stocks, and even then there are disputes over £9.1 million of money related to the Business Transformation efficiency programme.
Mr Stocks told the council’s Audit Committee the difference was not large enough to prevent him clearing the accounts even though he had issued an official warning, known as a section 11 notice.
Committee member Coun Barry Henley (Lab, Brandwood), who could be running the finance department if Labour take control of the council in May, said he was staggered at the errors in the accounts, and claimed that finance officers had misled the audit committee over the levels of problems since the accounts were first presented to the committee last summer.
Coun Henley, who works in NHS finance, said: “These accounts have been presented so many times, yet I was not aware of some of these problems until now.
“This is the worst audit report I have seen in 41 years dealing with auditors. For far, far less I have dismissed finance directors in the past.
“I am very disappointed we have had concealed from us, just how bad the situation was.”
He claimed the finance department’s ‘‘excuse’’ that new International Financial Reporting Standards, or IFRS, had complicated matters was not good enough.
“A section 11 notice is public humiliation for our finance department.
"Schools have been counted twice on the asset register, self-approved spending of up to £50,000 is accepted which poses a huge fraud risk, we have computer systems sending wrong information about 30,000 properties which needs to be checked.”
He pointed out that getting the accounts resubmitted seven times had also cost £300,000 in accounting fees.
A key sticking point had been over £54 million of capital spending on the business transformation project which initially had been challenged by Mr Stocks and his Audit Commission team who believed it should be included as revenue spending.
There remains a dispute over the £9.1 million, but this is not a large enough sum to stop the accounts being cleared.
Coun Henley said: “I believe that the council is concealing revenue spending as capital as a way of hiding the disastrous costs of Service Birmingham and our involvement with Capita.”
Neither the finance director Jon Warlow or Cabinet member for finance Randal Brew was able to explain to what the disputed £9.1 million spending was applied.
Coun Mick Wilkes (Lib Dem, Hall Green) abstained from supporting the accounts saying that in the absence of explanation he was being asked to support a ‘‘pig in a poke’’.
Auditor Mark Stocks had delivered a scathing verdict on the accounts saying there had been a lack of control over the books leading to misstatements of balances and material errors.
Most damaging had been the over valuation of assets at £6.2 billion, instead of £5 billion. Almost half of this was a failure to revalue the council’s housing stock in the light of new systems, while voluntary aided and academy schools as well as Highways and School PFI assets had been miscounted.
He said that getting the accounts to a place where he could clear them ‘‘has been a painful experience. It has not been a bundle of laughs.”
Director of finance Jon Warlow denied concealing the true extent of problems saying: “We have set out with the auditors to give honest updates to the committee throughout the process. It’s difficult to bring detailed numbers here when they have not been finalised.”
Tory Cabinet member for finance Randal Brew added: “It is a process I wish hadn’t happened. There are lessons to be learned.”
In January city leader Mike Whitby told the Cabinet that members of staff in finance had been shown the door over the errors.
He said: “Improvements have been made in the department and those people who were unable to reach the standards required are no longer in that department.”