- Report states ‘material uncertainty in respect of going concern’
- Fairfield Halls project costs soar to £76.4m
- New directors find many BxB properties over-valued
- Auditors ‘unable to determine whether adequate accounting records have been kept’
With just a few hours to spare, Brick by Brick, the council’s loss-making house-builders, yesterday finally filed their accounts for the financial year ending in March 2020. Eight months late, these audited accounts show that Brick by Brick, and their “chief executive”, Colm Lacey, have been lying to the council and the Croydon tax-payers about the true state of the failing business, which with its accumulated losses and hundreds of millions of unrepaid loans, is technically insolvent.
Brick by Brick’s 2019-2020 annual accounts show more losses, this time to the tune of £803,451, after a year in which they’d generated £23million in revenues.
The losses are worse than that reported for 2018-2019 (£657,611) and it means that after receiving £208million in loans from Croydon Council since the company was formed in 2015, Brick by Brick has made a loss every year it has traded. Yet according to Lacey’s public statements, the accounts when published would demonstrate “the viability of our model”. And that wasn’t even meant as an April fool gag.
Brick by Brick’s next set of financial reports will cover the 12 months to yesterday’s date, which were of course badly affected by covid-19, and so are unlikely to provide any cheerier news.
Had Brick by Brick submitted their accounts today, or later, they will have been breaking company law and subject to fines. Withholding annual accounts in this way is usually the stock-in-trade of some fly-by-night dodgy car dealer based down a back street with plenty to hide.
The Brick by Brick accounts and report, now finally publicly available, are full of caveats from auditors and directors about uncertainties over the records which have been kept or were unavailable, and about the future funding of the business. Brick by Brick is entirely dependent on money from Croydon Council.
An experienced accountant, when shown the latest Brick by Brick accounts, told Inside Croydon, “To me, it looks like they’ve just thrown a set of figures together to get something down on paper just so that they avoid the penalties for late filing of accounts.
“In 40 years of working on company reports, I have never seen a set of accounts like this before.”
Lacey and other Negrini-era directors of the company were summarily kicked off the board last autumn, as the council’s finances collapsed largely because Brick by Brick had not made an expected repayment that year of £36million in loans and interest.
Former council staffer Lacey remains employed as Brick by Brick’s chief executive. Unusually for company accounts, and suspiciously, the latest Brick by Brick paperwork gives no indication of the amount spent on staff salaries nor the pay packet for the highest-paid employee.
Two new directors, local government finance experts Ian O’Donnell and Duncan Whitfield, were appointed by Croydon Council last November, to discover a shambles without proper financial controls. They have not dismissed Lacey, nor ING Media, the expensive spin-doctors hired by the CEO in a desperate effort to rescue his reputation.
They were still claiming as recently four months ago a “Successful year for Brick By Brick”
Then, they said that from revenues for 2019-2020 of £23million, they “expect to announce a pre-tax profit of c£250k in audited accounts”. In the end, they were only £1million out…
In the same dissembling article, published on October 28 and which was still to be found on Brick by Brick’s website this morning, they falsely claimed, “We also generated significant revenues for our shareholder in the last financial year, demonstrating the viability of our model. This is particularly important at a time when local authorities and the wider public sector are struggling with unprecedented challenges.”
In fact, in six years Brick by Brick has not paid a penny back to Croydon Council, which as is well known, is “struggling with unprecedented challenges”.
In their report accompanying the annual accounts, the new directors note “a fundamental uncertainty over the company’s ability to continue as a going concern and, accordingly, the recoverability of work in progress”.
O’Donnell and Whitfield also discovered that many of the values ascribed to Brick by Brick developments were over-generous, and so have de-valued them, writing potentially millions of the balance sheet, and possible income to the cash-strapped council.
The auditors, a firm based in Ipswich, repeatedly refer to the poor standard of accounting they discovered at Brick by Brick.
“We have not obtained all the information and explanations that we considered necessary for the purpose of our audit,” they note at one point.
At another, they state, “We were unable to determine whether adequate accounting records have been kept.”
The report has clearly been compiled only in the past month or so (they refer to council meetings held at the end of February, for example), and it includes several updates on events in the year after the 2019-2020 accounts are supposed to refer.
It makes grim reading throughout.
The directors admit to being “in breach of its loan agreements with its parent undertaking”, meaning Croydon Council, because of the failure to provide audited financial statements within 90 days of the year-end date.
“As a result of the breach of this loan condition, the entire amount of the loans provided to the company by the parent undertaking may have become repayable on demand rather than over a period of greater than one year,” the directors advise.
“The directors are confident that these loans will not be called for repayment until each development to which they relate has been completed and sold.” Phew…
“The directors have received a written assurance that even though several of the loans are outstanding and technically in default and the parent has the right to call in these loans, that with regard to the year 2020-2021 that the council will not be exercising those rights.” When they say “several of the loans”, they mean 29, of a total of… 29 loans issued to the company since 2015.
They also suggest that the long-overdue and vastly over-budget refurbishment works at the Fairfield Halls and nearby development site has now cost £76.4million. The original budget for the refurbishment was £30million. There have been on-going disputes over the standard of the works and what elements of the project have been omitted. In the past couple of weeks, workers have been on the roof of the Fairfield Halls, reportedly to repair leaks which had been caused by the refurbishment works.
Of that College Green development site, the directors state in their report, “This land, on which the company had achieved a planning permission for development, will not now be transferred to the company.”
There’s more than a sense of a raised eyebrow from Barry Gostling, of Ipswich auditors Ensors, when he penned this part of his report, “The value and nature of the funds advanced by the parent undertaking…”, meaning Croydon Council, “… and the related interest charges and repayment terms are unclear and it is possible that a significant amount of loans owed by the company shown as non-current liabilities should be shown as current liabilities.
“Owing to the nature of the company’s records, we were unable to obtain sufficient audit evidence regarding the status of the funds advanced to the company by its parent undertaking, the accuracy of the relevant interest charges or the repayment terms relating to these advances.”
And while the council has said it won’t be calling in its debts immediately, there’s nothing in writing, “and as a result we have been unable to obtain sufficient appropriate audit evidence that this was the contractual position at the balance sheet date”. Which is auditorspeak for saying that Brick by Brick is bust.
As they put it, “We draw attention to note 1.2 in the financial statements, which indicates that there is a material uncertainty in respect of going concern and, consequently, the net realisable value of work in progress.
“This uncertainty is derived from two sources. Firstly, the company is reliant on the principal shareholder for continued financial support in respect of not calling for the repayment of loans previously advanced and for the prompt and timely provision of additional funding to allow the completion of building projects that were in progress at the year end.
“It is further noted that following the year end the company was in breach of a loan covenant associated with these loans.
“Whilst the directors are confident that funding will not be withdrawn and that the necessary financial support will continue to be forthcoming, there can be no certainty in these matters.”
And they add, “Should the necessary support not be forthcoming from the shareholder or should there be significant delays in the provision of such funding then there would be a fundamental uncertainty in respect of the net realisable value of partly completed construction projects which could have a material impact upon the financial position and performance of the company.”
And the second thing? That would be coronavirus.
As the audit report puts it, “Secondly, the company is engaged in the speculative construction of residential properties for resale. As a result, the realisable value of work in progress further depends upon both future sales proceeds and costs to complete of projects that are partially complete at the year end. Both the future sales proceeds and the costs to complete projects are inherently uncertain, a situation which has been enhanced by the current covid pandemic.”
Notoriously, in March 2020, at his last, arrogant appearance before the scrutiny committee of Croydon Council, Lacey refused to or was unable to answer some of the most simple questions about his company’s performance, such as the number of houses they had actually managed to sell.
According to the auditors, this may be because under Lacey, the company’s financial records and controls were woeful.
“Material errors were identified in respect of the timing of the recognition of construction costs in the financial statements and by extension the accuracy of both the recorded value of creditors and work in progress.
“In addition, whilst these errors were adjusted for in the preparation of these financial statements, control weaknesses around the reconciliation of project costing records and the financial accounting records have limited the audit evidence that is available to support a conclusion as to whether ongoing construction sites are likely to be profitably concluded.”
Inside Croydon contacted Brick by Brick this morning to request a statement regarding the accounts. No one was answering the phones at their £1million company offices on George Street.
We also approached ING Media for a statement via them on the accounts, and a quote from Lacey – who is normally so readily available to the trade press when he wants to burnish his reputation. We also asked for one specific question to be put to him, in light of the discrepancies with his version of events and the published accounts: When will he resign?
In typical Brick by Brick style, by our noon deadline, no response had been received.
- For all the official public records on Brick by Brick, including this year’s accounts and reports, visit the Companies House website by clicking here
Read more: Brick by Brick has paid nothing to council
Read more: ‘An accountant could have foreseen this more than a year ago’
Read more: Lacey still spinning as he hangs on to his job at Brick by Brick
Read more: Officials to investigate possible wrong-doing at council
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