Last week, the Stroud News and Journal published a story about financial “discrepancies” in the bid process. Depending on what you read, the Sub Rooms might be costing anything from £170,000 to £415,000 a year. Here are the facts as we know them.
How much do the Sub Rooms cost the council?
This is a vital question, but there are various figures scattered around reports and minutes, and in absence of detailed accounts, it’s impossible to check any of them.
In January 2016, the figure being quoted by the council in the local press was £250,000. By October 2016, this had spiralled to £415,000. Ever since, this figure has been circulated widely in the local media (example).
The bar chart presented at the consultation in February 2017 repeated the £415,000 figure.
In September 2016, the 2016/17 budget for the Sub Rooms, which you would think was based on the previous year’s figures, was set at £296,000.
By November 2017, the report from the council Task and Finish group put the final 2016/17 cost at £373,000.
Shortly after this, an investigation of the council’s audited accounts found that the true figure was in the region of £170,000. This discrepancy was confirmed by the council, who started an investigation. A week later, new figures for 2016/17 were released showing a cost of £194,000. The figure is £24,000 more than that identified by an independent analysis, but comes with no justification (though has since been doubled checked by a member of the community to their satisfaction).
There’s no available information about the investigation, or when it will be completed. Update: in the committee meeting of 6 December, the Chief Executive of the Council confirmed this would be an independent, internal audit carried out by someone at the County Council.
What does the council expect the Sub Rooms to cost in 2017/18? In September 2017, the budget for the Sub Rooms was set at £223,000, yet two months later, in the final report to the committee, the budget was claimed to be £300,100.
Why are the figures so confused?
Take a look at the bar chart the council provided on its Sub Rooms review page:
This isn’t a great way of visualising the data. It makes the most important number – the overall loss – hard to read, because it’s stacked on top of another, unrelated number.
To illustrate what we mean, we’ve fixed the graph (using numbers copied from the chart). The green line shows the top line in the council’s bar chart, and represents overall expenditure; the red line shows the yearly loss.
Do the expenditure figures include things they shouldn’t?
There are three areas which we think have been included in expenditure – but it’s not always clear when, or how.
First, as the Task and Finish report notes, the costs include £98,000 of “service charges” (also referred to as “on-costs”) which cannot be assumed to be real savings. These costs have more than doubled since 2014; it would be useful to know why.
Secondly, looking at the data table, it includes a line Capital Charges (e.g. Depreciation):
This would appear to be depreciation on the building. This is a standard accounting practice, but it’s not a real saving that the council could expect to make by selling the building, so should arguably not be included. Even if it is, we need to know how the building has been valued (it was obviously revalued in 2014), and on what basis depreciation was calculated.
Thirdly, do the figures include the Tourist Information Centre? If so, they shouldn’t, as this is subject to a separate review.
Why does all this matter?
Even if the figures are wrong, it seems very likely the Sub Rooms are making a loss, so does it really make any difference either way? The author of the updated report doesn’t think so, saying:
It will be noted that the substance of the Group’s findings and recommendations in respect to the bids received, remain the same
We’d like to know: how was it determined that the Task and Finish Group’s recommendation was unchanged? Did they meet again to discuss the new information?
Here’s some reasons we think the reduced costs matter:
- Were there bids that never made it to the table? Bids were made on the basis of available information. If the existing costs were too high, this may have put off other potential bidders
- Would existing bids be more competitive? Similarly, existing bids were made on the basis of available information. The in-house bid, for example, includes depreciation and “on-costs” (internal charging back to the Council) of £140,000.
- Confidence in future processes: it’s hard to have confidence in any of the figures. Which ones are right? Perhaps the Sub Rooms is making a profit for the council!
- A matter of scale: you might consider a subsidy of £8 / year for each person who used the Sub Rooms too much for the council to take on, but you might consider £3.40 / year not too bad.
What needs to happen next?
The council have made the following statement:
In light of the financial information supplied to the Task and Finish Group being found to be inaccurate, the Financial Implications in the Report for Strategy and Resources Committee will be updated. A supplementary report is being prepared for consideration by the Committee and will be published later this week. In addition, an investigation will be undertaken to establish the reason for the accountancy error. The Council wishes to apologise for any confusion or inconvenience caused.
We’re still awaiting the report. When it comes, we’d like to see:
- A full and detailed breakdown of revenue, expenditure and profit/loss for the last 5 years. This should exclude Tourist Information Centre costs. If on-costs and depreciation are included, the rationale for doing so should be made clear.
- A description of the basis for depreciation and revaluation on the building
- A breakdown of the “on-costs”: for example, why did they jump in 2014? This will allow any future bidder to assess possible future costs more accurately
- An explanation of how the existing, inaccurate figures were arrived at, so the same mistake can be avoided in future
- An explanation of how the 2017/18 budget increased by £77,000 between September and November 2017
- An explanation of why the £373,000 figure was presented at the “information session” of November 11th, when the figures were known to be incorrect
Many of these problems could have been avoided if the council’s full accounts were published as a matter of course. Only the abbreviated accounts are available online. Without the full accounts, it would be impossible to detect errors like this.