Housing company crisis delays Mid Devon audit

3Rivers loses millions in value

The annual independent check on Mid Devon’s finances is set to be delayed because of the decision to close the council’s controversial 3 Rivers Developments property business.

Consultancy firm Grant Thornton has put its audit of the district council’s finances on hold for now.

When the firm began auditing the 2022/23 accounts in June, 3 Rivers was still operating normally. However, the council agreed in September to close the company once it has completed projects in Tiverton and Bampton

3 Rivers, which was set up in 2017, suffered the effects of challenging trading conditions in the construction and housing sectors, shutting projects amid rocketing prices for materials, struggles with restricted land availability, and the impact of rising interest rates on the housing market.

A report by Julie Masci, a partner at Grant Thornton, said the audit was “currently paused and is unlikely to be restarted until into the new year at the earliest”.

She wrote that because 3 Rivers could no longer be viewed as a going concern, and instead had to be viewed on a “breakup basis,” this changed the nature of the audit.

“This could significantly impact on the numbers within the subsidiary company’s financial statements, and subsequently the group accounts,” it said.

“Other areas of the council’s financial statements are also likely to be impacted as the impairment of loans is considered.”

The council had already recognised a drop in value – called an impairment – of around £5.3 million in its accounts, including £4.5 million in 2022/23, with the latter figure needing to be met from reserves and cost-cutting, the report said.

A further £3.7 million impairment would be funded from £1 million of new homes bonus, earmarked reserves and other reserves and sinking funds.

The report added that the council had not yet set a clear timeline for the company’s closure, making it hard to prepare the accounts on time.

Elsewhere, Grant Thornton said the council’s medium-term financial plan, agreed in March 2023, had set a cumulative budget gap of £3.9 million through to 2027/28.

“Bridging this gap represents a significant challenge,” the report said.