LBWF moves closer to completing its long overdue 2018-19 accounts, but in the process, receives a strong warning about the governance of its commercial ventures, both old and new UPDATED

As previous posts have reported (see links below), like all other local authorities, LBWF was due to complete its 2018-19 accounts by the last day of July 2019, but missed both this deadline and several others that followed over the next year and a half.

The successive delays were caused by a combination of adverse external factors, most obviously the pandemic, plus a series of problems with LBWF’s past working practices and records that emerged as the audit work progressed, many ‘complex’, and ‘some going back a number of years’. 

The good news is that an end to this saga may be in sight.

At a meeting in late December 2020, the Audit and Governance Committee was presented with, first, a draft statement of accounts, and, second, a ‘Provisional Audit Results Report’ from auditor EY (Ernst & Young), with the final version of the latter promised for January 2021.

Subsequently, LBWF has felt confident enough to publish the former document on its website, here

https://www.walthamforest.gov.uk/sites/default/files/201819%20Draft%20statement%20of%20accounts.pdf

though it is notable that even today the word ‘draft’ is still in place.

Two further observations are relevant.

First, it’s clear that the cost of the audit is going to be considerably more than originally planned for.

LBWF will pay EY its set fee of £129,000, and also an ‘estimated’ £170,000 extra because of all the additional work. 

Furthermore, LBWF’s other related expenditure, too, has increased, principally because of the need to bring in specialists to help its own staff as they struggled with the various intricacies. 

So as always, in the end, it is local council tax payers who are the biggest losers.

Second, buried in its ‘Provisional Audit Results Report’, EY make some interesting, and on occasion disturbing, observations regarding how LBWF is running the commercial ventures it has part or whole responsibility for – from the well-established, like NPS London Ltd., to the recent, such as More Homes Waltham Forest LLP and Sixty Bricks Ltd., which are seen as crucial to providing future housing and revenue streams.

EY believes that, ‘based on the level of activity…in 2018/19’, the governance arrangements in place are ‘adequate’, but it also identifies ‘a number of areas of improvement’ which will need to be addressed if growth takes off.

At present, oversight is shared by the Cabinet, the Housing Scrutiny Committee, and a new, and specially created, Shareholder Committee.

However, in EY’s view ‘it is unclear where decision making powers lie’, and in fact there is a noticeable degree of muddle:

‘The minutes from meetings of the three Committees are not sufficiently detailed to properly evaluate the level of debate or enquiry that occurred…Furthermore, in some instances, there appears to be a gap between what is reviewed by the Shareholder Committee and the Cabinet. Based on a review of the agendas and meeting minutes, not every Cabinet decision with regards to company creation is assessed by the Shareholder Committee, which indicates that the Shareholder Committee is not successfully fulfilling its function. This is exacerbated by infrequent meetings, with the Shareholder Committee meeting just once during 2018/19’.  

That’s bad enough, but EY is also critical of LBWF’s use of ‘external advice and insight’ on these matters, and perhaps more serious still, finds that ‘consideration of all the financial impacts’ of the different commercial ventures ‘could be more clearly documented’, citing the fact that ‘[w]ith regard to Sixty Bricks, the financial plans reviewed include acknowledgement and forecasting of capital costs, but do not account for the trading profits and losses made by the company during the year’. 

Presently, there is anxiety in government circles about local authority commercial ventures because of some high-profile scandals and financial losses (well reported in Private Eye’s ‘Rotten Boroughs’ columns). 

Moreover, LBWF’s record in terms of joint ventures is hardly reassuring. For example, not many years ago, this blog discovered that senior level communication between LBWF and its joint venture NPS London Ltd. was sometimes unrecorded, a matter of ‘face to face and telephone discussion’, and this was true even about something as serious as what to do about life threatening asbestos dust in the Town Hall (see links).

The lesson is clear: given EY’s comments, future developments will need to be regularly and carefully scrutinised.

UPDATE

Cllr. John Moss comments as follows:

‘As a member of the Housing Scrutiny Committee I can confirm that no decisions made by the subsidiary companies are referred to the committee. The nearest we get to scrutiny of their activities is when their Business Plan is presented to us and this has only happened with Sixty Bricks, not the other subsidiaries.

I note EY say that it is “unclear where decision making powers lie”. I think it is clear that they rest with the Companies and their Boards. The Shareholder Committee and Cabinet only get involved where a decision requires shareholder approval, but it is not clear when that is required. So unless the company decides this is needed and then refers to the Shareholder Committee, and the Shareholder Committee then decides this needs Cabinet approval, only then does the decision become public and open for scrutiny. 

Unfortunately, there is no opposition representation on those boards and Administration representation has, in the past, been shown to be ineffective (see E11 BIDCo). There is a real risk here that companies which have been loaned large amounts of taxpayers’ money are operating without any democratic oversight at all’. 

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