External audit highlights shortcomings in council’s financial management

A critical report of Hastings Borough Council’s management of its finances has been delivered by its external auditor, Grant Thornton, with particular emphasis on the Hastings Housing Company and the council’s decision to build a hotel to be run by Premier Inn. These issues are also highlighted in a press release by Conservative councillor Andy Patmore. Nick Terdre reports.

Auditing of council finances, not just in Hastings, is behind schedule and Grant Thornton’s report, covering 2021/22 and 2022/23, is labelled as interim as the figures have not yet been signed off.

However it registers plenty of concerns about the way Hastings Borough Council has managed its finances and had them scrutinised internally. The audit raises red flags for both financial sustainability and governance, indicating “significant weaknesses in arrangements identified.” It makes key recommendations for improving performance in four areas, including these two, and 19 other recommendations.

In management comments by officers included in the report, acknowledgement is made of the criticisms and where practice has changed, this is noted. For example, Grant Thornton draws attention to weakness in the internal audit process going back to 2019/20, which has now been addressed with the appointment of an external party.

All recommendations have been accepted by the council.

“These reports focused on the accounts for 2021-22 and 2022-23, with auditors working a year or two behind nationally and locally,” a council spokesperson told HOT.

“Many of the points that were raised have been addressed and dealt with, including our new internal audit service. The new service will be picking up on other points made to address them in the coming months.”

One of the areas where action has been taken is the medium term financial strategy, in the context of which the report criticises an “over-reliance” on the use of reserves to balance the books which has left the council in a position where “urgent and effective action is needed to prevent [it] becoming financially unsustainable.”

Savings targets of £1.07m in 2021/22 and £1.355m in 2022/23 were only partially achieved, 82% and 78% respectively.

Hastings Housing Company and hotel scheme

With respect to the council’s wholly owned Hastings Housing Company (HHC), set up to rent and buy property, Grant Thornton notes that: “There was no proper accountability, transparency or scrutiny of the company’s performance carried out by the Cabinet as part of its formal role.

“A consequence of the failure of the Cabinet to discharge its responsibility to act was that its actions and decisions were not open to scrutiny by the Overview and Scrutiny Committee and the Audit Committee was not in a position to provide assurance about management of the Council’s risks in relation to the company.”

With regard to the decision to build a hotel on the site of the Cornwallis car park to be run by Premier Inn, the report asserts that due diligence was not sufficiently carried out, nor were risks properly assessed to ensure that the council would not be left with an undue amount of risk if circumstances changed, as they have.

The report notes that the original estimated cost of £7m has risen to £13.6m, and the council is now in a position where “it must either fulfil the contractual commitment it has entered into or seek to negotiate a way of terminating the contract.”

HHC and the hotel plan are two of the council’s main income-generating schemes, representing an investment of over £18m. “They now appear unlikely to produce the returns which the Council originally sought,” the report states.

“We consider there are significant weaknesses in the Council’s arrangements to enter into commercial investments in respect of financial due diligence, risk assessment, procurement and decision making”.

Conservative comments

The Conservative group leader Cllr Andy Patmore described the report as “highly critical regarding Council risk management and the Labour Cabinet taking decisions behind closed doors to restrict the flow of risk information and avoiding scrutiny.”

He noted that Grant Thornton says that HHC “…does not appear to be financially sustainable in the long-term”.

“The Conservative group have asked questions time and again about the performance and governance of this (council owned) company which was loaned £5m by the Council,” Patmore said. “We were always fobbed off when we asked which Labour councillors were directors or why can’t this company repay its debts.

“It is shocking that risks have been hidden, and in the last two financial years, the Labour Cabinet have never debated or considered the financial disarray this Council owned company are in.”

A councillor was only appointed to HHC’s board last May, when Cllr Simon Willis, who holds the housing portfolio, became a director.

“Utter farce”

Patmore refers to the “utter farce and possible rule-breaking” regarding the hotel plan to build a hotel on the site of the Cornwallis car park to be run by Premier Inn. “Hundreds of thousands of pounds were given to a company which the Council used to consult on the scheme. This company had a conflict of interest because it was providing services elsewhere for the Council,” he said.

“The hotel scheme decision (or fait accompli), where costs have ballooned by 94%, was mysteriously pulled from September’s Full Council and has been shrouded in secrecy ever since, even though councillors were told the contract was poorly drafted but legally binding.”

The council has been less than open about other intended income-producing ventures, such as the acquisition of Dunelm Mills/Pets at Home, the Jewsons site and TK Maxx/Carpetright retail parks, said Patmore, who chairs the Overview and Scrutiny Committee which considered the report last week.

“Time and again Conservative councillors have asked whether these sites are generating any income or are they just unknown liabilities. Labour councillors have often repeated unfounded statements that these sites are producing ‘a profit’ for the council.”

Patmore points out that the report also highlights the council’s failure to balance its books without drawing on reserves. He welcomed the latest budget proposals, including not using reserves for this purpose. Many of these, he said, “have been suggested by the Conservative opposition for the past seven years but have been rejected by Labour every time.”

The Conservative group fears, however, that they may be “too little, too late to save the Council from going bankrupt.”

In its final report discussed by the Cabinet in August, a peer review by the Local Government Association warned of the danger of the council having to issue a Section 114 notice indicating effective bankruptcy in the current financial year if savings were not promptly achieved, the housing “overspend” tackled and reliance on reserves to fill budget gaps reduced.

 

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