RISK of fraud is heightened within Dumfries and Galloway Council because managers can easily override financial control measures, inspectors have uncovered.
Audit Scotland investigators are in their third year of scrutinising the accounts and operations of the local authority.
The annual report for 2024/25 was recently published and highlights “significant risks of material misstatement to the financial statements”.
Fiona Mitchell-Knight, of Audit Scotland, is leading a team carrying out the independent review of the running of the council.
Her report states: “Management is in a unique position to perpetrate fraud because of management’s ability to override controls that otherwise appear to be operating effectively.”
Fiona and her small team have been appointed by council watchdog, the Accounts Commission, as the local authority’s external auditors for each of the financial years up until 2026/27.
As a result of the latest findings in relation to the potential overriding of financial controls, the audit team will now look closely at operations.
This will involve analysing the implementation of controls over journal entry processing, making inquiries with staff involved in the financial reporting process about inappropriate or unusual activities, testing journal entries and evaluating significant transactions.
The auditors will also assess the adequacy of controls in place around transactions in the financial statements.
Another potential risk/flaw underlined in the report is in relation to the valuation of council property. Dumfries and Galloway Council held £838.7 million worth of property, plant, and equipment at 31 March 2024.
The audit report states: “There is a significant degree of subjectivity in these valuations which are based on specialist assumptions, and changes in the assumptions can result in material changes to valuations.”
Because of this, the audit team will evaluate the implementation of controls over the valuation process, and review information provided to the valuer – and assess this for completeness and accuracy.
The “competence, capabilities, and objectivity of the valuer” will also be analysed by auditors.
The report states that auditors will also obtain an understanding of management’s involvement in the valuation process “to assess if appropriate oversight has occurred”, and they will also challenge previous assumptions made in the valuation process.
This 2024/25 audits will be discussed by councillors at the council’s audit, risk and scrutiny committee next week.
While the audit process will help detect fraud and prevent public money from being wasted in future years, the whole process is actually costing Dumfries and Galloway Council around £2m over five years.
