Warrington Council refused to hand over key information to auditor

Warrington Borough Council refused to hand key information to its auditor, Grant Thornton, restricting the accountancy firm from reviewing part of the heavily indebted local authority’s books.

Warrington has come under growing scrutiny for borrowing close to £2bn to fuel a push into speculative investments, which has made the north of England council one of the most highly leveraged in the country.

The UK government on Wednesday appointed an inspector to investigate whether Warrington is complying with a legal requirement to secure “best value”, after an expert review last year found that its portfolio of debt-funded investments was “very large and uniquely complex”.

The council’s audited annual accounts are now years late, with Grant Thornton only recently able to finish its review for the year ending March 31 2019.

In a report of its key findings issued last month, Grant Thornton described the audit as a “major challenge”.

The report noted that the council’s “management have chosen not to provide us with the necessary information” on whether £87mn of loans to solar farms “are materially impaired or not”.

Grant Thornton stated that because of this, it would modify its audit opinion with a “limitation of scope imposed by management”, a term used when an auditor does not receive enough evidence to assess a specific section of the accounts.

Adam Leaver, professor of accounting at the University of Sheffield, said that management-imposed limitations of scope were “highly unusual”.

“It means that management effectively refused to give auditors the information on the value of the solar farm loans they needed to do their job,” he added. “After nearly five years it’s unacceptable and one would have to ask why.”

Warrington is one of a number of local authorities that have ploughed money into speculative ventures over the past decade by taking on huge debts in response to severe centrally imposed funding cuts.

The council told the FT that it discussed the issue around the solar farms “in detail with our auditor” and had decided to not provide the requested information because its draft accounts for 2023/24 would be produced at the end of this month, including “the solar farm disclosures ready for audit”.

Grant Thornton is now in the process of finalising the audit for 2018/19, which the council said could take two to three weeks.

Warrington claimed that while modified opinions had “previously been rare” in local government, the “majority of councils will need to have modified opinions in the next few months in order to deal with the audits of around 1,000 sets of accounts being late due to widespread and national auditing issues across local government”.

The council added that Grant Thornton had “requested” to step down as its auditor and that the relevant public sector body had “provisionally appointed a new auditor”.

Grant Thornton declined to comment.

Warrington said the government-appointed inspector would have its “full co-operation” and that the council would work with them “positively, openly and at pace”.

Investments in Warrington’s £1.5bn portfolio that have attracted scrutiny include a stake in since-collapsed power provider Together Energy and large loans to ecommerce entrepreneur Matthew Moulding that were used to fund a controversial property deal.

An FT investigation last month also revealed that more than £120mn of Warrington’s investments have links to Monaco-based hedge fund manager Lee Robinson, who one council officer likened to star footballer Lionel Messi.

One of these — a £30mn stake in the holding company of challenger bank Redwood — has drawn particular scrutiny from Grant Thornton. In its audit report it noted that the value of the investment had been “materially overstated”. This resulted in a writedown to just £4.3mn after a third-party valuation.

Redwood is now looking to list its shares through a reverse merger with a cash shell borne from a failed cryptocurrency venture of its co-founder Jonathan Rowland. Rowland is the son of David “Spotty” Rowland, a property developer and confidant of Prince Andrew, whose family’s other major banking venture Banque Havilland has attracted regulatory and media scrutiny in recent years.

The report also shows that for the second year running Grant Thornton concluded that the council did not have proper arrangements to deliver value for money, citing “the decision-making process for the Redwood Bank investment” among a range of other factors.