KPMG Engagement letter concerning confidential LDL report

Julian Todd made this Freedom of Information request to Liverpool City Council

This request has been closed to new correspondence from the public body. Contact us if you think it ought be re-opened.

The request was successful.

Dear Liverpool City Council,

I refer to the Mayoral Select Committee meeting of 29 October 2014[1] confirming the transition of Liverpool Direct Limited to Council ownership, with reference to a report by KPMG.

The Agenda Report Pack contained a six page "Final report" dated 13 October 2014[2] which identified itself as an extract of a fuller Report that has not been disclosed to the public, and which the Mayor claimed was confidential.[3]

Page 2 of the six page report refers to an "Engagement Letter" dated 2 July 2014 (also reproduced as Appendix 1 of the fuller report).

As can be expected, this report was always likely to be the subject of FOI requests by members of the public who knew perfectly well, from what little information they have pried from the Council in the last ten years, that there were plenty of anomalies and discrepancies to be found in the operation of this venture.

Accordingly, please can I be sent:

(1) The title page and table of contents page(s) of the full KPMG-LDL report dated 10 October 2014;

(2) A copy of the Engagement Letter reproduced as Appendix 1 of the full report;

(3) Any documentation of agreements, legal opinions, strategies and procedures established and considered by the Council for the handling of FOI requests relating to this report and other LDL material.

I hope that this request will be an easy one to satisfy, now that the Council is entirely free to set its own policies in relation to public scrutiny of its operations without any subserviance to BT's profits.

Had there been a proper level of transparency throughout the LDL affair, rather than consistent obstruction of information requests over the years, it is highly likely that the accounting and record-keeping would have been held to a higher standard than the state in which KPMG evidently found it.

Should the Council choose on its own terms to cite commercial confidentiality as a basis for withholding any information requested under the FOI Act, I wish to remind them that the only commercial interest involved (BT's) has admitted that they have made a "business shift from the public sector service market".[4]

[1] http://councillors.liverpool.gov.uk/ieLi...

[2] http://www.lgcplus.com/Journals/2014/10/...

[3] http://www.liverpoolecho.co.uk/news/live...

[4] Page 8 of Agenda Report Pack for [1]

Yours faithfully,

Julian Todd

Katie M. left an annotation ()

This is great - far more comprehensive than mine. They won't have much scope for refusing either of them. I was tempted to cut to the chase and just ask for the report, since I do not believe that KPMG has insisted or would insist on the report itself remaining confidential - why would they, it is work product and belongs to the Council, who commissioned it. The confidential bit will be their terms and conditions,which are not the issue, and I believe that the Council is willingly misrepresenting this. Either way, the IC has already established that a condition of this kind is not on its own sufficient to prevent release. But they would have procrastinated and delayed forever. So my request, like yours, was an attempt to cut to the chase.
BTW, have you noticed that the 2013/14 accounts have still not appeared on the Companies House website?
There was a recent filing notifying a change to the articles, but nothing else. The accounts are normally filed at the end of August or September. All adds to the murk.

Information Governance, Liverpool City Council

Information request
Our reference: 351810

show quoted sections

Katie M. left an annotation ()

Julian,

I received a response to my similar request this morning (https://www.whatdotheyknow.com/request/k...).
As you will see, all there is is the standard boilerplate about confidentiality, and the ICO has already made clear that authorities cannot rely on this. But just to dot the i's and cross the t's, KPMG itself actually point out that the condition will not preclude disclosure under FOI.
This clears the way for a request for disclosure of the full KPMG report.

Dear Sir,

I note that the response to my FOI request of 15 November 2014 (your reference: 351810) for the KPMG Engagement letter concerning confidential LDL report is 3 days overdue.

I understand that it is the holiday season. Do you have an estimate of when you expect my request to be completed?

Yours sincerely,

Julian Todd

Symm, Kevin, Liverpool City Council

Dear Mr Todd

I am currently working on your response and hope to have it finished today. if I anticipate any further delay I will of course contact you

Please accept my apologies for the delay

Regards,

Kevin Symm I Senior Information Officer
Liverpool City Council I Municipal Buildings I Dale Street I Liverpool I L2 2DH
T: 0151 233 0418 I E: [email address]
Online: www.liverpool.gov.uk

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Kevin Symm, Liverpool City Council

2 Attachments

Please find attached response

Regards,

Kevin Symm I Senior Information Officer
Liverpool City Council I Municipal Buildings I Dale Street I Liverpool I
L2 2DH
T: 0151 233 0418 I E: [email address]
Online: [1]www.liverpool.gov.uk

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References

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1. http://www.liverpool.gov.uk/
http://www.liverpool.gov.uk/

Dear Liverpool City Council,

Thank you for your response dated 22 December to my request of 15 November.

1. The words in KPMG's covering letter dated 13 October 2014 are as follows:

"[w]e enclose our report on the proposed acquisition of LDL dated 10 October 2014. As stated in our Engagement Letter, you have agreed that this final written report supersedes all previous... reports."

I do not believe there can be any confusion that the words "this final written report" refers to the report which was enclosed with the letter and which was described as having been dated 10 October 2014.

I cannot accept that a document defining itself as an "extract" of a "fuller Report" is intended by anyone to be the final written report superseding all previous information.

In any case, I still seek a copy of the table of contents of this final written report that KPMG stated was dated 10 October 2014.

2. I have received no part of the KPMG engagement letter from Appendix 1 which I requested -- not even a redacted copy -- on the basis of Section 43(2). Instead I have received five paragraphs of irrelevant general purpose excuses that do not apply to this case.

Professional consultancy firms like KPMG who take on large numbers of contracts with the public sector have by now adapted themselves to the provisions of the FOI Act. The idea that disclosure of any of their public sector work under the FOI Act would be surprising and cause them to be apprehensive about entering into future public sector contracts is not credible.

Similarly, because the KPMG knew perfectly well that they were dealing with a public sector body who was under FOI obligations, they won't have any case for compensation for the release of information that is required by this law.

I would be obliged if you could refer me to any case where there has been a threat of legal action for compensation due to a disclosure made under the FOI Act in the past ten years. If this situation has not manifested by now then I don't think it's reasonable to include it as part of an FOI response.

3. I will reserve by complaint about the claim that there is no documentation of strategies relating to the handling of FOI requests relating to this report until I see the Engagement Letter.

Please pass letter on to the person who conducts Freedom of Information reviews.

Yours faithfully,

Julian Todd

Information Governance, Liverpool City Council

Information request
Our reference: 351810

show quoted sections

Kevin Symm, Liverpool City Council

1 Attachment

Please find attached response

Regards,

Kevin Symm I Senior Information Officer
Liverpool City Council I Municipal Buildings I Dale Street I Liverpool I
L2 2DH
T: 0151 233 0418 I E: [email address]
Online: [1]www.liverpool.gov.uk

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1. http://www.liverpool.gov.uk/
http://www.liverpool.gov.uk/

Julian Todd left an annotation ()

The decision notice FS50571721 from the ICO dated 13 July 2015 states they have to disclose the engagement letter within 35 days or face contempt of court proceedings

https://ico.org.uk/media/action-weve-tak...

Essentially the council didn't supply the ICO any further arguments, so I won by default.

Dear Kevin Symm,

I have received my copy of Decision Notice FS50571721 which requires you to disclose the KPMG Engagement Letter from Appendix 1 of the full report into LDL by 17 August 2015 at the latest (35 days after the date on the Notice).
https://ico.org.uk/media/action-weve-tak...

It would make it easier if you simply emailed it now rather than putting it off till the last minute.

Thank you,

Julian Todd

Jenny Griffin left an annotation ()

Wow. Great result, Julian.

The ICO report was scathing about the Council's handling of this FOI request -

"24. Whilst they do not form part of the Code itself, the forward to the Code recommends that authorities should:
“….ensure that proper training is provided in this regard. Larger authorities should ensure that they have a central core of staff with particular expertise in Freedom of Information who can provide expert advice to other members of staff as needed.”
25. The Commissioner echoes these recommendations. On the basis of its handling of this request, specifically the inadequate arguments applied in invoking an exemption, he has concerns that the council might not have provided its staff with adequate training."

I've never seen an ICO report to be so blunt.

Jenny Griffin left an annotation ()

Wow. Great result, Julian.

The ICO report was scathing about the Council's handling of this FOI request -

"24. Whilst they do not form part of the Code itself, the forward to the Code recommends that authorities should:
“….ensure that proper training is provided in this regard. Larger authorities should ensure that they have a central core of staff with particular expertise in Freedom of Information who can provide expert advice to other members of staff as needed.”
25. The Commissioner echoes these recommendations. On the basis of its handling of this request, specifically the inadequate arguments applied in invoking an exemption, he has concerns that the council might not have provided its staff with adequate training."

I've never known an ICO report to be so blunt. I note that Kevin Symm is the officer who responded; his experience is surely not in question, he's been involved in the vast majority of LDL-related FOI requests for several years.

Katie M. left an annotation ()

Yes, very blunt indeed.
To be fair, it looks as if it is the appeal response that has caused them to make the comments about training, not Mr Symm's initial response - and the appeal was conducted by Michael Jones, Deputy Head of Legal Services (presumably, a qualified solicitor). According to the ICO, he didn't even establish that the exemption applied, and didn't bother asking KPMG (or, more likely, were told that KPMG did not object). So the Commissioner didn't even need to consider whether or not it was in the public interest.
Shoddy, second-rate and utterly disgraceful. Hence the criticism.

The ICO could not consider the issue of the real Report, as opposed to the extract made public and discussed in the Mayoral Select Committee.
Unfortunate, because Mr. Symm's initial response contained a statement that cannot possibly be true, namely:
" KPMG’s covering letter dated 13 October refers to a report dated 10 October 2014. This may cause some confusion because KPMG’s final report was the document dated 13 October, which superseded all previous information, including incomplete draft reports, received from KPMG. The report dated 10 October 2014 was incomplete.
Attached is a copy of the title page for the document dated 10 October 2014 but the City Council would reiterate that this did not represent the full report and was, as clarified above, incomplete and superseded by the subsequent final report of the 13 October".

The last statement is a lie. KPMG itself states (as Julian noted in his correspondence with the Council), that "This extract forms part of a fuller Report ...", and indeed the "extract" contains a list of abbreviations used in the full Report, many if not most of which are not even mentioned in the "extract".
They've done this "the latest brief document is all we have and supersedes the (previous) real one with all the detail" thing before with LDL-related requests. So it's clearly a deliberate policy.

Symm, Kevin, Liverpool City Council

2 Attachments

Please find attached response

 

Regards,

 

Kevin Symm I Senior Information Officer
Liverpool City Council I Municipal Buildings I Dale Street I Liverpool I
L2 2DH
T: 0151 233 0418 I E: [1][email address]
Online: [2]www.liverpool.gov.uk

 

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Julian Todd left an annotation ()

One thing we have established by seeing this contract is that what the mayor said (according the the Echo) is false:

"""Mayor Anderson told the committee, which met at Liverpool town hall, that under its contract with KPMG the full report had to remain confidential."""

http://www.liverpoolecho.co.uk/news/live...

The note in the official minutes stated:

"""The Mayor stated that the report had been considered by the Cabinet and agreed. There was commercially sensitive information which was not presented within the paper work in view of the confidential nature of it."""

http://councillors.liverpool.gov.uk/mgAi...

Normally financial numbers are commercially sensitive. However:

"""11.3 The Council reserves the right to disclose and make public any Fee payable under this Agreement"""

There's then a lot of stuff about KPMG accepting no liability for anything in the report if it's disclosed outside the Council.

I suspect that they want to avoid the issue of, say, them writing something negative about David McElhinney (who was the CEO of LDL) in the report and then McElhinney taking issue with it if the Council publishes the report. KPMG don't want to have any problems with that eventuality, which seems reasonable. They got to assume they have the leeway to be frank in their report and for the Council to be liable for any libel if they choose to publish it.

We do have it clarified that Section 41 does not apply:

"""11.4 Any written advice of the final report released to the Council in any form of medium shall be supplied by the Provider on the basis that it is for the Council's benefit and information only... This condition shall not prevent the Council making any disclosure that may be required by law... although the Council shall use all reasonable endeavours to inform the Provider in advance of such disclosure. The Provider confirms that... disclosure under the FOI Act... shall [not] be precluded through exemption under section 41 of the Act solely as a consequence of this condition."""

Katie M. left an annotation ()

Even more than negative things about LDL's CEO, the full report will have, by implication, been utterly damning about the behaviour of the Board of LDL - meaning, for the last 5 years, Anderson and Fitzgerald primarily. Serious incompetence at best.
The actual financial due diligence KPMG were asked to do is reproduced below(extracted from page 29-30 of the engagement document). I haven't put the tax part as it's standard stuff, and would have made this annotation enormous.
These are all questions and information that the Board should have known, but clearly didn't. Hence the difficulties that KPMG mention even in the "excerpt", and certainly the reason for the attempt to suppress the report. And they cannot plead ignorance - it's all there in black and white in the contract, and in company law, and, even, in all the questions several different people kept asking them.

Financial and tax due diligence In relation to the proposed acquisition of Liverpool Direct Limited
Financial due diligence
• Summarise the reported P&L, BS and CF for the historical and forecast period, including KPIs for each service line / revenue stream for LDL
• Understand the key accounting policies underlying the financial statements and comment specifically on the revenue recognition policy for contracts.
• Also comment if these policies have been consistently applied during the Historical and Current trading period.
• Analyse any relevant reconciliations performed at 30 March 2013 and 30 March 2014 between management accounts and the audited financial statements and comment on the nature of any significant reconciling items.
• From enquiries of management, provide an overview of the accounting function and describe the key accounting procedures performed on a monthly and annual basis.
• Comment specifically on transactions relating to third party contracts which may be invoiced via Liverpool City Council.
• Comment on the key drivers of historical revenue and gross margin development, by reference to major contracts, including LCC, SIA (BT), Army, Glendale and education customers.
• Comment on any customer and supplier dependence during the Historical Period.
• Read the top 10 customer and supplier contracts and summarise the key terms of service, remaining contract period and value where stated.
• Comment on the nature of the cost base (i.e. fixed or variable) and key trends identified. Highlight which of these costs are provided by related parties and the key terms with those suppliers.
• Comment on the composition of central costs including management recharges and costs shared with any related parties such as property (LCC) and IT costs (BT).
• Comment on the basis and consistency of the allocation of these costs over the Historical Period.
• Comment on staff costs with reference to headcount and the employment terms of key employees, in particular note the difference in terms of Liverpool City Council and BT employees and headcount by department.
• Comment on the basis of remuneration of key employees including bonuses and pension contributions
• Summary of the underlying earnings of the business highlighting non-recurring items identified through the course of our work including:
- BT management charges
- Provision movements
• Comment on the underlying sales and earnings split by LCC contracts, BT contracts and other third party contracts / trading.
• Comment on the key assumptions used in the preparation of the FY15 budget, In particular sales and gross margin by contract and overhead costs for the Budget Period. In particular comment on the key drivers of budgeted margin growth. Comment on the level of profitability budgeted from existing contracts in the context of historical results.
• Analyse and comment on the composition of Key Items on the balance sheet at 31 March 2014 and at the latest available date, including :
- fixed asset profile, o ageing of debtors and creditors o Prepayments, accruals and indirect tax creditors o Deferred income and restricted cash balances / other creditors o significant one-off Items and cash, debt or debt-like items (including dilapidation provisions or related party balances with LCC and BT)
• Comment specifically on the accounting treatment of contract revenues and costs held on the balance sheet.
• Analyse and comment on the level of provisions required for bad / doubtful debt.
• From discussions with management summarise the existence and level of contingent liabilities and capital commitments.
• Analyse and comment on monthly working capital trends and comment on potential one off / non trading adjustments during the Historical and Current Trading Periods.
• Analyse and comment on receivable days and payable days in the historical period.
• Comment on the underlying working capital requirement based on the monthly working capital profile.
• If available, summarise and comment on the forecast working capital and cash flows for the Budget period.

Katie M. left an annotation ()

Just noticed this astonishing assertion in the letter addressed to the Information Commissioner, copied here (accompanying the actual Engagement Letter). The second paragraph states:
"In terms of a copy of the table of contents, again, it has been previously confirmed that no table of contents exists as the report takes the form of a narrative letter with an Appendix and was not accompanied by any table of contents"
As if. Who in their right mind would write a report covering the issues listed above - and all the tax stuff too - in the form of a "narrative letter", accompanied by an Appendix listing abbreviations that do not appear in said letter.
That's a description of the excerpt that has already been published.
It's bad enough that they come out with this rubbish in response to questions from people like me (or Julian, Jenny Griffin, Audrey O'Keefe etc.), but this appears to be a major fib.... in a letter to the Information Commissioner. It will be interesting seeing the response to my request for the full Report (https://www.whatdotheyknow.com/request/c...)