East Devon Alliance
NAO study on Local government governance and accountability.
Submission from the East Devon Alliance.
- Fostering a public service culture based on the Nolan principles is a key requirement but it cannot be left each council to decide their own arrangements. We present examples illustrating structural weaknesses where such a culture is absent.
- East Devon District Council’s (EDDC) failure to account for S106 monies over a number of years was revealed, not by any audit, but by a freedom of information request by a ratepayer. Significant sums remain unaccounted for.
- EDDC’s planned relocation is an example of a decision taken in haste without collecting all the evidence, without the preparation of a business case and without effective scrutiny. There has already been £0.7M nugatory expenditure. Evidence shows that an EDDC owned site has been sold too cheaply. The project is clearly not going to be “cost neutral”.
- At an Information Tribunal, convened to adjudicate on the release of papers concerning the relocation, the Judge released the papers and took the unusual step of criticising EDDC. During the hearing, the deputy Chief Executive also admitted he had not given an original version of a document to the Overview and Scrutiny Committee but an “amended” one.
- The latest scrutiny arrangements proposed for our Local Enterprise Partnership in response to the Mary Ney Review are, we argue, still flawed.
- We suggested a number of ways in which scrutiny and accountability could be strengthened.
- Who we are
- East Devon Alliance (EDA) began in 2013 in response to public concerns over ethical standards among some councillors and senior officers in East Devon District Council (EDDC). In 2015 we registered with the Electoral Commission as a political party and now have 5 district councillors and one county councillor, all sitting as independents. Our aim is to improve standards of democracy, transparency and accountability in local government. Of necessity in this submission we refer to examples of what we consider unethical behaviour in our District Council to illustrate structural weaknesses which can affect local government standards. In doing so we have tried to avoid merely airing past grievances.
- We have already submitted evidence to the Communities and Local Government Committee Inquiry into Overview and Scrutiny in Local Government in March 2017. And further evidence to the Committee on Standards in Public Life’s Review of Local Government Ethical Standards in May 2018.
- Fostering a public service culture needs effective scrutiny and strong governance
- The O&S Select Committee Inquiry made a number of recommendations including recommendation 4 to strengthen scrutiny. Effective scrutiny not only eliminates malpractice but leads to better decisions, particularly in exposing those that are poor value for money. In rejecting this recommendation the Department said:
“…..Each council is best-placed to know which arrangements will suit its own individual circumstances. It is not a case of one size fits all.
The key requirement for effective scrutiny is that the culture of the council is right. Where councils recognise the benefits effective scrutiny can bring, and put in place suitable arrangements, it is working well. Local authorities with a strong culture of scrutiny may invite regular reports to full council on the state of scrutiny in the council and this idea will be reflected in the updated guidance.”
- We would agree with the importance placed on fostering a public service culture, based on the Nolan principles, but the Department’s stance assumes we all live in Utopian communities; unfortunately, we don’t. It raises the question of what happens when the local culture is driven by self-serving motives or simply lacks the expertise. For example, as recently as December 2017 Rohan Silva could write in the Sunday Times:
“But the depressing truth is that corruption is endemic in Britain’s bureaucratic planning system. In every corner of the country, you can find stories of bribery, with local councillors and officials rigging the planning process for their own gain.”
“Doncaster, Enfield, Greater Manchester, East Devon — these are just a handful of the local authorities where corrupt practices have been discovered in planning departments.” (What he didn’t say was that these discoveries were made by the press and not by the scrutiny process.)
- The exposure of an EDDC councillor, Graham Brown, in a Daily Telegraph sting, occurred in March 2013. Councillor Brown was also chairman of the East Devon Business Forum, a member of the council’s Overview and Scrutiny Committee and the business and tourism champion. He eventually resigned. A report in July 2013 by internal auditors South West Audit Partnership into the Brown affair concluded that there were no significant governance implications for the District Council. This report was strongly criticised by independent councillors and campaign groups as “naively complacent”, a “box-ticking exercise” and a “complete waste of taxpayers’ money”. In response to this, EDA made a formal complaint to Chartered Institute of Internal Auditors (CIIA) which resulted in the following comment to the then EDA Chairman from the CIIA Company Secretary: “One issue that was noted…….was that the audit work carried out was not sufficient to warrant the statement in the audit report that all council members, management and staff were diligent in applying the Council’s governance arrangements.”
- In 2014 to 2016 EDDC’s failure to account for S106 monies was not detected by audit.
- In 2016 a local ratepayer, Ron Metcalf, sought information from EDDC through a series of freedom of information requests (FOIs). In summary, he asked for information on how many S106 arrangements had been made between 2014 and 2016, what sums had been received and what sums were outstanding? After a string of correspondence he discovered that, at the time, EDDC held no information on whether there had been any breach of obligation or how much money was owed, possibly going back much earlier. The correspondence is in the public domain.
- This eventually resulted in a formal complaint to the newly appointed external auditors to EDDC, KPMG, who found, after sampling cases over just one year, rather than any forensic analysis over many, that there had been a quarter of a million pounds understatement in the past year’s accounts and concluded: “Given the weaknesses identified in the Council’s controls, it is possible that understatements of a similar scale or even larger could be apparent at any point in time.”  Despite this KPMG still considered EDDC passed the value for money test. The Financial Reporting Council is currently considering measures to increase public confidence in auditor independence and EDA’s view is that this is an example of a conflict of interest between scrutiny and audit resulting in conclusions that are potentially unsound.
- In the FOI correspondence, the monitoring officer had disclosed £730,000 was owed in 2014/15 and 2015/16 for S106 payments. Later, in an EDDC Audit & Governance Committee convened to discuss KPMG’s findings the monitoring officer interjected that the £730,000 owing had included a mistaken overstatement of £409,000. The current status of the other £321,000 was not established during the committee discussions.
- We do not consider this level of scrutiny satisfactory. It is an example of a serious failure of EDDC’s Audit & Governance Committee to do an effective job. To NAO eyes these might seem small sums but it raises questions with regard to the quality of local authority auditing since the abolition of the Audit Commission.
- A Costly Relocation exercise with no business case and ineffective scrutiny=
- EDDC currently occupy two buildings on one site “The Knowle”, a Victorian mansion with a 1980’s purpose-built office annex. Refurbishment of the annex would accommodate future staffing levels and allow EDDC to let or sell the older building. Initial discussions about relocation began in 2007. A formal Cabinet decision to relocate was made in July 2011 in a move described as cost neutral. In 2012 an EDDC planning application to redevelop its site, to prepare for a sale with planning permission, failed. The Council’s own Overview & Scrutiny Committee attempted in January (unanimously) to ask EDDC to delay until more information was produced and had been examined, particularly on estimated costs and options for refurbishing existing office buildings. This was rejected by the cabinet on 5 February.
- On 17 February 2013 a Jeremy Woodward asked through an FOI for copies of the full unredacted Minutes of both Officer and Member Relocation Working Parties, and the full Relocation Manager’s formal progress reports. EDDC, after delay and prevarication, refused to answer the request in full in May 2013. Following referral to the Information Commissioner’s Office, the Information Commissioner asked EDDC to reconsider their stance in March 2014. In April, EDDC appealed the Information Commissioner’s ruling, the full sequence of correspondence in the public domain.
- On 5 May 2015 a tribunal ruled that EDDC must publish classified reports used by an authority working group that was looking at a move away from its offices at Knowle, Sidmouth. In the court’s decision, the judge in the case, Brian Kennedy QC, said the process had taken ‘much longer than it should have done’ because of EDDC’s failure ‘to address itself with sufficient attention to the details of what information and documents it was supplying’. An initial hearing took place in August 2014.
- Judge Kennedy provided this concluding paragraph in the Decision Notice of May 2015: “This Tribunal takes the unusual and unfortunate step of commenting on the conduct of the appeal itself. We are unanimous in our view that this appeal has taken much longer than it should have done and the reason for this seems to be the failure on the part of the public authority, the appellant, to address itself with sufficient attention to the details of what information and documents it was supplying to the Commissioner and ultimately also to the Tribunal. It was not until March 2015 that a fully legible copy of the disputed information was supplied and seemed to be complete. This is, in our collective experience, wholly exceptional and the time spent dealing with what we believe to be five different sets of disputed information is simply not a good use of the Tribunal’s time nor fair, in terms of delay, to the requester. Correspondence on behalf of the Council, rather than ensuring the Tribunal was assisted in its function, was at times discourteous and unhelpful including the statement that we had the most legible copies possible. A statement, which was clearly inaccurate as subsequently, we have been provided with perfectly legible documents. We believe this appeal could and should have been dealt with completely at the hearing in August and the decision promulgated six months ago had the council discharged its responsibilities properly.”
- During the Tribunal hearing the deputy Chief Executive, Richard Cohen, made the extraordinary admission that he had not given an original version of a document to the Overview and Scrutiny Committee but an “amended” one.
- Meanwhile, in February 2014 “Skypark”, an industrial site on edge of Exeter, was chosen as the relocation site. The plan was to seek a fixed or maximum price “turn-key” project with a preferred bidder. However, within the year, on 3 Dec 2014 “Skypark” was rejected as being too expensive in view of the lower than expected valuations of the “Knowle” site by development bidders. At the same time, the supermarket chain that had been negotiating to purchase another EDDC owned site in Honiton walked away from the £3M asking price. This sale was a key component to financing the relocation costs. The Council Leader then admitted to the press that spending £705,000 on the abortive move to Skypark was just “getting the ducks in a row”. It was also revealed on 3 Dec that in the previous June “due diligence” and a “legal opinion” had discovered another component of the plan, a single tender proposal for a turn-key project would not pass EU public sector procurement rules. Relocation then centred on using the EDDC owned site in Honiton but with the additional requirement to refurbish premises on two other sites, in order to find enough space. This inevitably introduced further cost increases and delay.
- The “Knowle” site was tendered to developers and contracts exchanged with PegasusLife for £7.5M in July 2015, with the sale subject to conditions. Pegasus’ subsequent planning application in 2016 was also rejected but EDDC Cabinet, nevertheless, decided to make a “Go Now” decision in November 2017 incurring a £10M liability, despite uncertainty with regard to fulfilling the conditions of the Knowle sale.
- In July 2015, Jeremy Woodward, submitted a further FOI for the details of the agreement EDDC had entered into with Pegasus for the Knowle site. Despite the earlier ruling at the May 2015 Tribunal which decided that the Council were required to publish documentation for a ‘live project’, EDDC still refused, citing that: “certain events have to occur before the sale to Pegasus can be concluded. Should those events not happen then we may well have to go back to negotiate with other parties (being those who were not successful the first time around) or go back to the open market and in either of those circumstances the Council’s position could be prejudiced by the information you seek being in the public domain.” Eventually, this information was released in Jan 2017.
- In 2018 PegasusLife won a planning appeal for the site. We now know, from the information released by EDDC through FOI, this site, with planning approval, is estimated to have a “developable value” of £50M. It would be usual for a developer to pay up to a third of this for the purchase of the land. So a sale price of £7.5M was not good value for the ratepayer.
- The premise of the move was made, in large part, on the argument that it would be ‘cost neutral’. But it is obviously not. Now EDDC claim that the move will save the Council £6M over 20 years. These figures are contested as they ignore matters such as maintenance costs and are based on spurious “energy savings” and are likely to prove optimistic.
- Relocation during a period of great uncertainty with regard to the trend towards amalgamating districts into unitary authorities, looks to be high risk. EDDC now admits that the market value of the new building it is spending £10M on (still estimates rather than outturn) will be less than its cost. It is worth noting that Dorset has recently combined its districts into two unitary authorities and Cornwall has been a single unitary authority for some time.
- At the 27 September 2018 Overview Committee, EDDC revealed that it was preparing a draft Commercial Property Investment Framework. The Cabinet has decided to borrow up to £20m from the Treasury on long term loans to ‘invest’ in commercial property. In effect the council will be borrowing long term to help offset its short term shortfall, which is mainly driven by the cost of relocation. However, the council Cabinet structure means the ruling group voted through the first purchase decision on 3rd October, before the criteria for making such decisions have even been written! There is no effective oversight by full Council, it has been just down to the judgement of a few Councillors with little or no knowledge of this kind of investment. Once again, lack of full scrutiny is exposing councils to huge financial risks. Neighbouring Somerset provides a local example of these investments going wrong.
- The decision to borrow and to relocate are examples of decisions taken in haste without collecting all the evidence, without the preparation of a business case and without effective scrutiny.
- Scrutiny arrangements for Local Enterprise Partnerships (LEP) July 2018 still flawed.
- Moving to a higher level of local governance, the latest scrutiny arrangements proposed for our LEP, Heart of the South West (HotSW), in response to the Mary Ney Review involves the creation of a “Joint Committee” comprising:
Devon County Council (4 Members)
Plymouth City Council (2 Members)
Torbay Council (2 Members)
Somerset County Council (4 Members)
Devon Districts (3 Members)
Somerset Districts (2 Members)
- This committee does not have to have political balance and is likely to be drawn from the same leading councillors who have, in our view, created the culture of compliance and lack of willingness to scrutinise decisions on behalf of the ratepayer referred to in the case studies above. There are already six local councillors on the HotSW Board and we can find nothing to prohibit these taking up posts on the scrutiny committee as well. This could give rise to unacceptable conflicts of interests. There is no obvious mechanism for the ratepayer to hold these “scrutineers” to account. They are too disparate and remote.
- They also lack the expertise. None of the proposed “Joint Committee” organisations did other than “nod” through the recent HotSW’s proposals on producing a productivity strategy. The Government has encouraged a competition for “ambition” when bidding for devolved funding. No distinction is drawn between ambition and the realistic possibility of delivery nor accountability for delivery of that ambition. If ever there was an opportunity to demonstrate the value of effective and constructive scrutiny this was it, but it failed. As a result we have, what we in EDA believe to be, a strategy lacking any economic realism and, as a result, unlikely to impress the Treasury in the short term or lead to any serious devolved powers in the longer term.
- In its consultation document HotSW proposed the strategic aim of doubling the local economy in 18 years (2018 to 2036), largely by growth in productivity but with some growth in employment. This would require a cumulative annual growth rate of 3.93%, starting from the base year of 2018. There was no discussion of the possible impact of Brexit; no discussion of how long the transition from the slow to fast lane might take; no analysis to put this growth into historical perspective. There is no rigour; no reality check.
- Of all the facts and figures that might be relevant, the ONS projections of population change might be regarded as the least speculative. The strategy aims to hold down employment and associated population growth to 0.8% p.a. and indeed ONS figures show overall local population growing by this figure. However, detailed examination of the data shows an ageing population with an annual increase of those classified as of working age of only 0.16% p.a. over this period.
- When the final strategy was published in February, the target had changed, without comment or explanation, to doubling the economy in 20 years (3.53% p.a.), probably reflecting ambiguities and inconsistencies in the consultation draft. This is still unrealistic and it is interesting to note that the highest growth figure quoted in the body of the document is only 3% p.a.
- Some suggested improvements
- At the same time as it rejected strengthening council scrutiny, the Department accepted in full the 17 recommendations of the Mary Ney’s: Review of Local Enterprise Partnership Governance and Transparency. We believe that there would be merit in seeing to what extent there are lessons learned in this review that are applicable and could be applied to Local Government.
- For example, the recommendation regarding decision making and the use of scenarios to illustrate how to manage conflicts of interest especially with reference to landowners, builder-developers or their spouses or partners would be relevant. Also the idea that independent due diligence and assessment of the business case and value for money should be conducted of major investment decisions.
- Local Government is conducted in a small closed community and in our opinion the close working of senior officers with the leadership can lead to officers crossing the line between impartial execution of council policy and political involvement to support the leadership in contentious matters.
- The role of the Monitoring Officer (MO) requires fundamental reform. This officer needs to be independent of the power structure of the council, and their activities should be more open and transparent. In our opinion all complaints should be referred to the Standards Committee, and it should be left to its discretion, which they follow up. In cases where they decide not to proceed the MO should be required to publish a brief anonymised report of the type of complaint, against whom and the decision taken by the MO.
- In our opinion changes to the system of local government in the Localism Act make it difficult to improve standards where a council’s culture encourages or tolerates unethical behaviour. Local self- regulation assumes high standards of democracy, transparency and accountability and that the political excesses of councillors will be moderated by the influence of impartial senior officers. Where this is not the case it is almost impossible for complainants to have recourse to external regulation and remedy which results in frustration and lack of respect for local democracy. Complainants are told they have the right to go to judicial review-which is prohibitively expensive and strictly time-limited- or to take their complaint to the Local Government Ombudsman (LGO)
- In fact, the powers of investigation of the LGO are severely restricted to individual cases where a resident can prove that he/she was personally affected by a council decision. This is impossible to prove in a case where serious council maladministration affecting an entire district is alleged.
- In our evidence to the O & S Committee we supported the creation of Local Public Accounts Committees (LPACs), responsible for scrutinising public expenditure as put forward by The Centre for Public Scrutiny published a paper in December 2013. We believe that ideas such as this could form the basis for scrutiny of devolved bodies and note that a similar idea has been aired recently by the shadow communities secretary at the Labour Party conference.
16 October 2018
 IAChartered Institute of Internal Auditors, 3 June 2014, to Ian McKintosh, Chairman,East Devon Alliance
 Radio Devon 4 December 2014