Risk & Economy » Audit » Essex fire authority discovers £15m accounts black hole

Essex fire authority discovers £15m accounts black hole

Authority and its auditors PwC and EY fail to identify £1.8m annual shortfall since 2006 accounting change

ESSEX COUNTY FIRE AND RESCUE SERVICE (ECFRS) has discovered a £15m black hole in its finances, after a pensions accounting error was overlooked since 2006.

The service, whose accounts were audited by PwC and EY under appointment from the Audit Commission, said it will repay the debt through budget reserves.

Accounting changes made in 2006 meant additional pension payments awarded to firefighters who left the service due to work-related injury were funded by regional fire authorities, instead of central government. Essex’s accounts failed to incorporate the change, allowing a £1.8m deficit to build annually until the oversight was recently identified.

Both the auditors and the Department for Communities and Local Government (DCLG), which receives an annual return from all UK fire and rescue services, failed to notice the error, the authority said.

It is thought at least two other fire services, Staffordshire and Cheshire, have been affected by the same issue.

ECFRS finance director and treasurer Mike Clayton has reached agreement with the auditors to remove £1m liability from the unaudited 2013/2014 accounts, while more than £11m will be paid towards capital financing charges for 2011/2012 and 2012/2013 as voluntary contributions, following a revisit of decisions.

The payments made towards the debt are “directly linked to the forecast underspend” in recent years, the authority said.

Clayton said the additional cost will be absorbed by this year’s budget, but there will be an impact in future years, “though it is too early to say what specific changes will be needed”.

While auditors “can never provide complete assurance”, Clayton questioned the auditors’ role in the debt amassing.

He said: “Where there are changes to the accounting rules we should expect the audit to focus on the risk that the rules have not been correctly applied. Clearly in this instance, the focus was not sufficient to enable them to identify the problem.”

Clayton also queried the role of government in the debacle, noting it “did not seek assurances from fire and rescue authorities until July of this year”, which led to the error being uncovered.

There have been “a lot of questions” as to why the authority must settle the debt immediately, Clayton said. However, delayed payments will attract interest and the government is yet to declare its position on past years’ interest, he added.

An independent investigation has been launched by ECFRS, headed by Kent Fire Authority finance director and treasurer Charles Kerr.

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