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Financial management at some town and community councils is dysfunctional, with members signing blank cheques and accounts five years overdue, auditors warned.

The Senedd’s local government committee launched an inquiry on the governance and accountability of town and community councils in Wales on November 14.

Adrian Crompton, the auditor general, said a hardcore of 20 to 25 councils regularly fail to submit accounts to Audit Wales, with some outstanding since 2019.

Questioned by Labour’s Lee Waters, he told the committee: “There is a small element of the sector where there is a real issue simply in producing accounts.”

Deryck Evans, audit manager at Audit Wales, identified issues around procurement leading to losses at town and community councils, warning internal controls are often very poor.

‘Blank cheques’

He said: “Members are signing blank cheques. We find that members are not approving payments … activities are initiated by small groups of members without necessarily the knowledge of the council as a whole.

“What this leads to, in … a very small number of cases, is significant losses.”

He raised the example of Maesteg town council, which was defrauded out of £238,000 by a clerk who took advantage of members “not focusing on properly managing public funds”.

Audit Wales pointed to serious concerns about combined spending of more than £165,000 by Ynysawdre, Llangynwyd Middle, and Abertillery and Llanhilleth community councils.

Mr Evans said: “That’s where it goes eventually. But there are quite a few councils that are quite dysfunctional in terms of their financial management and governance.”

‘Sub-optimal’

He told the committee that auditors are still waiting for 94 councils to submit 2023/24 accounts, warning: “It’s very difficult to get information out of some of those councils.”

Mr Waters asked about Audit Wales’ paper which showed around half of councils receive “qualified” audits, meaning an auditor has identified a problem.

He said: “The figures are quite stark… but when you dig into that, 60% of those are for arithmetic or rounding errors, so that suggests to me an issue of capacity and capability.”

Mr Waters advocated a more granular approach to streamline the “sub-optimal” system, pointing out that only 83 of the 731 councils have budgets of more than £200,000.

Mr Evans said Audit Wales tries to be as pragmatic as it can, giving councils leeway and avoiding qualifying accounts where possible.

‘Light-touch’

Mr Crompton agreed about a case for reviewing legal requirements, warning it feels disproportionate to apply the full weight of a national audit office to small councils.

He said: “The sector as a whole spends something like £60m to £70m, it’s a lot of money in absolute terms but it’s a drop in the ocean in terms of overall public spending.

“Within that … the overwhelming majority is spent by a very small number of councils so it would seem entirely appropriate for me to be focusing there rather than on the mass.”

He added: “I’ve asked … to see if there’s anything more we can do to lighten the regime but, bluntly, I’m not sure there is. We’ve made it as light-touch as it’s possible to be.”

Warning of “hodge-podge” support, the Conservatives’ Altaf Hussain raised concerns about the estimated total £250,000-a-year cost of auditing to councils.

‘Struggling’

Mr Crompton replied: “We certainly hear quite a lot from the sector about the level of fees. The principal point for me … is our fee reflects the amount of work we need to put in.”

He said Audit Wales provides extensive support but added: “We’re not resourced in a way to support 730 community councils individually and neither, I think, should we as auditors.”

Plaid Cymru’s Siân Gwenllian raised concerns about “weaknesses” in the skills and training of council clerks who are generally not required to hold any qualifications.

Mr Crompton told the committee only 10% of about 500 clerks in Wales hold relevant, formal qualifications as he supported professionalising the sector.

But he said: “I suspect councils are struggling to get people to stand as members and indeed people to act as clerks so I think it would be a mistake to make requirements too onerous.”