Overdue Diligence

The sleepy little town of Dixon, Illinois, has a population of only 15,800. Prior to 2012, its only claim to fame was as the birthplace of movie actor and president, Ronald Reagan. Then its relative obscurity was dispelled as the case of Rita Crundwell exploded into the public consciousness with a crime that still beggars belief.

Rita was a hometown girl with no particular educational or professional qualifications to mark her out. She was a clerk with the local council – long-serving and willing to do all the running about which was required within the council. Everybody knew her, and everybody trusted her. What she did, however, was epic in scale. She embezzled the council to the tune of an amazing $53 million over a period of twenty years, a theft equal to $3000 for every man, woman, and child in that small community. She was eventually caught out, and was imprisoned for nineteen and a half years; but how did she get away with it for so long?  The questions were many, and the answers less than adequate. Rita had lived an openly grand lifestyle over that twenty years, buying, among other things, a whole string of top class horses; a huge state of the art stud yard property; and a $2,500,000 motor home – all on a clerk’s salary.

Two of the explanations given after her trial were significant. Firstly, she was able to navigate a complex set of financial arrangements which neither the mayor of Dixon nor his councillors understood. They just went along with whatever Rita told them. Secondly, the auditors failed to do the job expected of them. They argued that their job was simply to certify whether or not the council’s annual financial statement accurately reflected the council’s actual financial position, not to question whether or not there had been any financial malpractice. American courts found against them to the tune of $35 million in a civil case brought by Dixon council.

I thought about this when I read another pro-Joe article in the ‘Liverpool Echo’ in which the district auditor was quoted in support of the mayor over the stadium proposal. I was also mindful of some other relevant facts. For example, back in 1985, the then district auditor exercised his extensive powers to ban from office and surcharge, 49 Liverpool city councillors over a notional loss of to the city of £106,000. More recently, it has been a constant refrain of myself and others that there has been no due diligence worthy of the phrase when it came to many of the property deals struck by the city in the last few years.

The article in question includes the district auditor’s assertion the “the Council has a track record of delivering complex “invest to save” projects”; although they do not say whether these have been cost effective or not. Are we talking here about “investment” in EFC’s Finch Farm training facility; the loss-making (and Peel-owned) Liverpool Airport; and the failed cruise liner terminal in the Cunard Building? Frankly, I have little faith in the district auditor’s ability or willingness to objectively analyse anything which the city council does.

Incidentally, the district auditors – Grant Thornton – are one of the international “big five” bean counters, along with Deloitte, Pwc, Ernst Young and KPMG. Each of these also offer services as consultants – you know, the kind of people who borrow your watch to tell you the time, and then charge you for the privilege. These people have regularly been found to be remiss on a massive scale with major banks and corporations. Locally, of twelve local government bodies – that is, councils, police and residuary bodies – three use KPMG as their auditors, one uses Ernst Young, and eight use Grant Thornton. Easy money, it seems to me.

The recent appearance in the press of the district auditor related to the Liverpool mayor’s plan to borrow at least £280 million to the advantage of two private companies, EFC and Peel, each owned by a tax exile billionaire. Personally, I would rather trust the judgement of the council tax payers of Liverpool rather than Grant Thornton on the wisdom of this proposal. We have had more than enough of the interests of big business being put ahead of the ordinary people of the city.

2 thoughts on “Overdue Diligence

  1. Academy schools have little oversight. Executive heads, paying themselves very well have been found to own the service companies supplying their school.
    A Bursar in a London Academy lifted £5m a few years ago

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