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Council / SLAP portfolio overvalued by £1.5m, auditors say

The SIC headquarters at 8 North Ness is part of the SLAP portfolio the council seeks to buy back from Shetland Charitable Trust. Photo: Shetland NewsThe SIC took ownership of around 22 properties from SLAP, including its own headquarters at 8 North Ness. Photo: Shetland News

THE PRICE paid by Shetland Islands Council for a portfolio of property previously owned by Shetland Charitable Trust could have been up to £1.55 million less if it had undertaken independent valuations.

That is a key message included in an audit report on Shetland Islands Council for the last financial year.

Auditors Deloitte said that following “our engagement of an independent expert, in discussion with the council’s internal valuer”, the value of Shetland Leasing and Property Development (SLAP)’s assets were deemed to be overstated by £1.55 million.

Council chief executive Maggie Sandison said in response that the SIC used external advisors to carry out due diligence on the acquisition.

She said the local authority was “comfortable” with the price paid.

The SIC agreed to buy the SLAP portfolio – which included the council headquarters at North Ness, Shetland College and NAFC Marine Centre – last year for £17.5 million.

As the council rented a number of the properties, it was thought that the move was result in long-term benefits.

Deloitte said, however, that the “due diligence performed on the completion accounts should have been more thorough”.

SLAP performed an independent valuation of its investment property portfolio before the sale was reached.

“Had the council undertaken independent valuations of SLAP’s property portfolio prior to the acquisition, the price paid by the council to acquire SLAP could have been up to £1.55m less,” the auditors added.

The audit report said the council has failed to recoup a further £380,000 from the purchase.

“Completion accounts were not filed with the former parent entity within the agreed timeframe, resulting in the council being unable to recoup the difference between the amount paid and the fair value per the completion accounts as set out in the purchase agreement,” Deloitte said.

“This resulted in the council failing to recoup £0.38m. We are aware that the council is currently considering the impact and the recovery mechanism available to it in respect of this amount.”

Deloitte also said that the local authority “did not appropriately plan and resource the implementation of the acquisition and the subsequent hive up process”.

The auditors said that his meant that the process was not completed by the end of the year financial year, “resulting in assumed savings not being realised in the year and additional costs being incurred by the council in relation to professional fees, management time and audit costs”.

There was some good news from Deloitte when it came to SLAP, however, with the company judging that if “appropriately managed, progressed and monitored, the council should achieve value for money from the decision to purchase SLAP”.

The audit report will be presented to members of Shetland Islands Council’s audit committee on Wednesday (25 September).

It provides an update to an interim audit report presented to the committee back in June.

The report reiterated that the council is “not in a financially sustainable position” and “has not identified the savings required to close the £15.6m funding gap by 2023/24”.