The effective bankruptcy of Britain’s biggest local council was likely to have been caused mainly by the botched adoption of a new IT system, experts have claimed.
It had been thought that the Labour-run council’s decision to declare a bankruptcy notice last September was forced by the prospect of having to pay approximately £760 million in compensation to female workers who had historically been paid less than male counterparts.
However, a new report by the Audit Reform Lab at Sheffield University, found that the “most likely explanation of Birmingham’s problems” was the council’s alleged mishandling of installation of a new IT platform.
It argued that if this had been properly identified, the draconian package of cuts, asset sales and tax rises overseen by central government could have been less severe.
The council’s adoption of Oracle Cloud Fusion was supposed to integrate finance, payroll, HR, procurement, supply-chain management and other services under a single platform. Expected to generate significant savings, it went live in April 2022.
However, it was allegedly launched before the council conducted a dummy run or parallel testing, according to the Audit Reform Lab report, which was commissioned by three trade unions and based on publicly available information.
Consequently, “this made it impossible to effectively monitor budgets or collect overdue debt” over two financial years, the experts found. It meant “tens of thousands” of cash transactions were unable to be traced, the report said.
‘Misdiagnosis’ of the problem
It is understood that Oracle’s software is not to blame, but rather the council’s handling and implementation.
Birmingham has enacted around £300 million in budget cuts.
The Sheffield researchers say that the £760 million in equal pay liability cited by Michael Gove last year was in fact a “misdiagnosis” of the problem and has criticised Grant Thornton, the council’s independent auditors.
“Grant Thornton claim they never audited or confirmed that figure, despite taking over £1 million in audit fees from the council,” they said.
Grant Thornton strongly denied any deficiencies and said that the Audit Reform Lab report did not accurately reflect its work for Birmingham City Council.
Councillor John Cotton, leader of Birmingham City Council, previously said: “I have been clear from the start that we must take responsibility for the failings that have contributed to our current difficulties, but the mistakes made in Birmingham have not occurred in a vacuum.”
A spokesman for Grant Thornton said: “We do not believe this report, which was commissioned by the three trade unions representing many of the council’s employees in the equal pay litigation, presents an accurate reflection of our work for the council or that there are any concerns about our independence.”
He added: “Any words in this report relating to numbers having been ‘confirmed’, ‘completed’, ‘assessed’ or similar before our audit work is complete are factually inaccurate; an audit remains ongoing until all the work is complete and the audit report has been signed, as any informed reader will understand.”