The extent of official concern over Birmingham City Council’s financial procedures has become clear following publication of an Audit Commission report which orders the local authority to follow an 18-point improvement plan, reveals Public Affairs Correspondent Paul Dale.

For the first time in its long history, Birmingham City Council’s annual accounts have not been given a clean bill of health by auditors.

Inspectors found the books littered with errors, in particular an asset register supposedly listing the value of buildings owned by the local authority.

District Auditor Mark Stocks wrote to the council in January saying that numerous errors and “significant weaknesses” in checks and controls meant that he still could not approve the 2008-09 accounts, more than four months after the books should have been signed off.

It was the third successive year that problems in agreeing the finances of Britain’s largest public body had arisen.

The council responded by suggesting that most of the errors were little more than mistakes on paper which had no impact on the authority’s financial position.

Mr Stocks has now approved the accounts, but he issued a “qualified opinion” adding that he had been unable to substantiate all aspects of the asset register.

That led Corporate Resources Director Paul Dransfield, the council official with overall responsibility for the accounts, to admit that things had to improve.

Mr Dransfield said: “I am not happy that we are in this position. There is a big learning curve for the finance team.”

Mr Stocks released a report outlining 44 individual mistakes and raising questions about the efficiency of the council’s controversial Voyager IT system, which the District Auditor found did not produce an accurate record of expenses and assets.

Buildings worth £10.5 million which have been demolished or which the council no longer owns, including Matthew Boulton College, were incorrectly listed as assets on the system.

The Rowans day nursery in Sutton Coldfield, worth £400,000, was shown on the records as having been sold but is still in the council’s ownership.

Schools worth £20.5 million, which are being rebuilt through Private Finance Initiative programmes and should have been off the balance sheet, were incorrectly listed as council assets.

Mr Stocks said that proper checks were not being carried out and £30 million of assets had been double counted.

A further £11 million of capital receipts that the council claimed it possessed could not be traced on Voyager.

The District Auditor said: “Summary and detailed trial balance reports are not routinely generated from the Voyager system on a monthly basis. Consequently, there is an increased risk of imbalanced trial-balance being undetected, including the potential build up of uncleared items within control and suspense accounts.

“I am unable to conclude as to whether the asset register accurately reflects the properties owned by the council and whether the properties have been appropriately valued either due to oversight or posting errors.

“I do not consider that I have sufficient assurances to state that the asset register presents fairly the council’s asset base.”

Mr Stocks went on to warn that he encountered “significant difficulties” in reconciling the draft accounts for 2009-09 presented to the cabinet in June 2008.

He added: “I concluded that the council has not made appropriate arrangements for maintaining a sound system of internal controls and, due to the difficulties in auditing the financial statements outlined already in this report, that it had not made appropriate arrangements for financial reporting.

“I was unable to obtain sufficient evidence that Birmingham City Council had the control environments fully embedded for its new financial systems to maintain a sound system of internal control. Due to the delays in their production there is also presently insufficient evidence that the council can produce financial statements that are free from material error.”

In an improvement plan, Mr Stocks insists that all errors and adjustments must be posted on Voyager to ensure that the opening balances for 2009-10 are accurate.

The improvement plan states: “To ensure that an accurate set of draft accounts is produced, the Corporate Finance Team should ensure that it produces both a detailed and summary trial balance report from the Voyager system at key stages throughout the year. The trial-balance reports should be filed and made available for audit inspection purposes.”

Mr Stocks also requires the council to write to him explaining its claim that many of the errors are immaterial and do not need to be corrected.