'I've rarely seen anything like this', says South Ribble Council's external auditor
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Mark Stocks, from external auditors Grant Thornton, made the comments as he presented a long-delayed document examining the district’s affairs during 2018/19, which was held up after what the council itself described as “longstanding governance failings” came to light more than a year ago.
His damning verdict came as the auditors issued the authority with a so-called “statutory recommendation” to improve for the third time in as many years.
That move requires a formal response from the borough, which will be formulated at a meeting of the full council on Wednesday evening (27th January).
The report also reveals new information around the events leading up to the departure of former chief executive Heather McManus – including that there was no provision in the council’s constitution for the way in which she was suspended back in 2019.
As the Lancashire Post revealed last summer, a series of internal audit reports highlighted a raft of issues with how the council has operated in recent years, detailing how rules and procedures at the authority had been “consistently breached”.
The external auditor alighted upon many of the same concerns – as well as revealing others.
The report concluded that the council did not have “proper arrangements to secure economy, efficiency and effectiveness in its use of resources” and issued an “adverse” value for money judgement as a result – a conclusion repeated in an external audit report covering 2019/20, which was also brought before a recent meeting of the authority’s governance committee.
Both documents pointed towards “underperformance” within individual service areas, including food safety inspections, tree maintenance and planning, where applications were processed correctly, but subject to delay.
The external audit team also warned of the potential for so-called “management override of control” – the ability to circumvent rules put in place to preserve financial probity. While they stressed that no evidence had shown that such activity had occurred, Mr. Stocks said it was a matter to be treated with the “utmost seriousness”.
“I have been doing this job for over 30 years now and it’s quite rare that a council’s control environment is operating inappropriately,” he told committee members.
Some of the strongest criticism was reserved for matters relating to the council’s leisure services. The external auditor highlighted that £275,000 has now been written off as a result of previous plans for a health and wellbeing campus on land next to the authority’s headquarters in Leyland.
That is a £75,000 increase over the estimate made in internal audit reports last year, which also noted that no update on the escalating price tag for the project was brought to the cabinet of the previous administration for formal consideration.
Separately, the external audit process discovered a potential £2m pension liability in relation to South Ribble’s outsourced leisure centres, something which there was not a “general awareness of” within the council, the meeting was told.
Although the report acknowledges that it is “unlikely” that the authority would be pursued for any shortfall – because of the contractual agreement with operators South Ribble Community Leisure Limited and SERCO – the council had failed to monitor the value of a bond that was to be put in place by SERCO to cover any unforeseen pension costs.
More than 15 years after the leisure centres were transferred from the council's direct control – and just three months before the arrangement comes to an end – that bond is worth just £45,000.
Mr. Stocks said management of the issue had been “poor” and that there would have to be “negotiations” between the three parties over how the liability would be met.
The council’s chief legal officer stated that the agreement meant that “primary liability” for any pension fund shortfall rests jointly with the leisure trust and SERCO, but acknowledged that there was a “residual risk” to the council, should either not discharge that liability.
The external auditors also told the council to address “as a matter of urgency” control over its contract procurement procedures after the internal audit team last year uncovered significant flaws in the way a gas and electricity contract was arranged.
In his overall assessment of the council, Mr. Stocks was withering.
“I have rarely seen this in my career – where there has been such a fundamental breakdown not only in the governance arrangements of the council, but also in its service performance and…control environment,” Mr. Stocks said.
Council leader Paul Foster, whose Labour group took control of the authority from the Conservatives in May 2019, said the council had to accept the blistering assessment.
“Nothing within this report was any surprise to me – the majority of it was self-declared within the annual governance statement.
“It was a catastrophic failure of corporate governance. I own this [report] as leader of the council and the council owns it – and we are making great strides in putting this right,” he said.
The 2019/20 external report welcomed the “transparency” demonstrated by the council and noted that “greater progress” had been made to put the authority’s house in order since September 2019 – but that some issues remained unresolved.
Conservative former cabinet member Colin Clark said that a “slight criticism” of the 2018/19 report was that it considered issues from after that timeframe had ended.
But Mr. Stocks defended the way in which the audit had been presented as the best way of “tell[ing] the story” of South Ribble’s recent past.
In spite of their negative conclusion on the value for money offered by the council, the external auditors acknowledge that – with reserves forecast to stand at £15.2m by the end of March – the authority is in a “robust” financial position.
NEW REVELATIONS ABOUT CHIEF EXEC’S DEPARTURE
The external audit report reveals some previously unpublished details about the dismissal of South Ribble Borough Council’s former chief executive Heather McManus last July.
She resigned from her post in June 2020, having been on “special leave” for just just over a year.
However, Ms. McManus was dismissed with immediate effect within weeks of her resignation – but before the end of her notice period – after a majority of councillors agreed with the findings of the cross-party investigations and disciplinary committee (IDC) that she should be removed for “serious misconduct”. She has lodged two employment tribunal cases in relation to the matter.
But the external audit report states that an independent investigator concluded that when Ms. McManus was suspended in May 2019 by new council leader Paul Foster, he had no “legal power” under the council’s constitution to do so.
The authority says that Cllr Foster took external legal advice and consulted the Local Government Association before making the move – and it was “recognised that…the council should balance their obligations and consider the position of the staff affected by the allegations”.
The report also noted that the IDC – in which the power to suspend was invested – was convened shortly thereafter and chose to continue the suspension.
The external audit process also puts in the public domain for the first time the fact that the independent investigator “dismisses many of the claims against the [former] chief executive, but [did] conclude that disciplinary action was necessary in a number of areas”.
The audit report described it as “unusual” for there to be so many disciplinary issues to examine.
“We consider that these issues have impacted on the good governance of the council. In particular, there are issues relating to working with members and officers, management of performance, appropriate behaviour, and procurement,” the external auditors noted.
They also said that “concerns over the performance of several senior officers during 2018/19 and 2019/20…casts doubt over the ability of the senior leadership team during [this period]”.
However, they nevertheless queried the “investigatory” nature of some of last year’s internal audit reports – a concern which the external assessment reveals was also shared by the independent investigator, who disagreed with a number of the internal audit findings. This split was described by the external team as a “significant concern”.
The council’s director of governance, Chris Moister, told the governance committee meeting that he was “comfortable” that the internal audit work was not in breach of the council’s standing orders and that it had not breached a national protocol relating to how disciplinary matters relating to statutory council officers should be dealt with.
“The work that was undertaken by internal audit did overlap, but they were governance-related issues that internal audit looked at,” Mr. Moister said.
Cllr Foster told the meeting that “a number of statements that were made by the independent investigator in her report…were never subject to challenge and were fundamentally, in my view, wrong”.
In a statement issued after publication of the external audit report, Heather McMnaus said: “In the context of my unfair dismissal and whistleblowing claims against South Ribble Council, its leader and its deputy leader, my legal team will be reviewing the external audit report’s findings with respect to Cllr Foster’s actions in suspending me from work.
“In the meantime, however, I welcome the report’s findings that clearly set out the challenging governance agenda at South Ribble Council when I joined in late 2017. It was in that context that I initiated a challenging change programme, with the assistance of interim professional support, with a new management structure being approved in late March 2018, and two new deputy chief executives appointed in the autumn of 2018.
“I am disappointed, though, that important paperwork does not appear to be available which should be in the possession of the Council’s senior leadership team and will be taking appropriate advice on that issue,” Ms. McManus added.
Also in a statement following the governance meeting where the reports were discussed, Cllr Foster said:
“I have been really clear over the last two years the governance issues that the council experienced were not acceptable and the culture was wrong from the top. Since I became leader, we have faced these issues head-on, and we fully accept the recommendations made by the external auditor.
“Since such failings came to light mid-2019, the council have worked considerably to improve the governance arrangements across the organisation.
“Many of the issues have and are in the process of being rectified and this demonstrated dedication to improvement was highlighted by the external auditor as part of the report.
“We are committed to a new culture of compliance and transparency and by acting on these reports we will make sure that we learn the lessons of the past and give residents the first class service that they deserve,” Cllr Foster pledged.
The independent investigator recommended that Ms. McManus should be issued with more than half a dozen written and final written warnings, but the IDC suggested that she should be instantly dismissed because of their conclusion of “serious misconduct” – a step subsequently endorsed by the full council.
The Post understands that a third body involved in the complex procedure for dismissing a chief executive – known as the “independent panel” – did not support the conclusions of the IDC that Ms. McManus had committed serious misconduct. The panel did still back her dismissal – but not without notice or pay.