Auditors call for referral to police over spending of 2005/08 ERDF funds by council

The Government Internal Audit Agency (GIAA) has recommended that the Department for Communities and Local Government consider reporting the findings of its investigation into the spending of European Regional Development Fund (ERDF) funds in relation to the Port of Ramsgate to the police as a potential fraud case.

The GIAA became involved after receiving a referral of potential irregularities in relation to dredging works at the port foreseen in a project (IMPACTE) that had allegedly never been executed whilst the grant recipient (Thanet District Council) claimed the ERDF co-financing for normal maintenance dredging and/or for other activities not approved for the ERDF project.

The referral was made by OLAF: European Anti-Fraud Office after information was received from a whistleblower.

The project at the centre of the GIAA investigation started in June 2005 and was due to end in June 2008.

The Port of Ramgate & Port of Oostende project was part of a combined investment seeking to part fund a dredging campaign at the two ports. This would allow, amongst other things, larger vessels to be introduced at Ramsgate and a new berth to be built at Oostende.

The ERDF funding for the Port of Ramsgate side was €160,282.63.

According to the GIAA report, the whistle-blower raised concerns that a substantial part of the project (dredging works) had not been carried out, with only normal maintenance dredging taking place. Annual revenue budgets had been in place to cover the majority of the expenditure that the project was claiming.

The whistle-blower had also provided various documents which supported the contention that the dredging works were financed from within existing budgets.

“Further to this evidence was provided which showed Thanet District Council staff were aware the works required under the conditions of the funding had not been carried out and on receipt of ERDF grant set this aside in case a repayment was required; subsequently this was re-allocated to the Port of Ramsgate budget,” the GIAA said.

The GIAA undertook an initial desk review and then made a site visit and carried out interviews.

Thanet, the grant recipient, “could provide no evidence of a project plan, cost analysis or details of a planned dredging campaign, including a dredging survey, specific to the ERDF project," the auditors said.

Nor did the IMPACTE project have a separate budget or cost code for expenditure within the district council’s accounting records.

The GIAA said there was no evidence of a dredging campaign being carried out to deliver the project’s objectives – enlarging the turning circle and dredging of berths 2 and 3, prior to 2010.

The watchdog also found that Thanet’s finance function had not been sure how to account for the grant. “It transpired the grant was eventually added back into the council’s own budget and used in 2010 to fund port improvements.”

In its report, which can be viewed here, the GIAA said it was “of the view the project did not deliver the dredging works to achieve the project objectives”.

On its recommendation that the report's findings should be reported to the police, it said that there was sufficient evidence in its view of intent to defraud:

  • The project claims were a deliberate action to claim ERDF grant knowing the costs were for other activities not approved for the ERDF project;
  • Thereafter, Thanet DC officials “made a deliberate decision not to refund the ERDF grant when it was clear it had not been used for the purposes intended”.

The GIAA said it would be a matter for the police as to whether they agreed with this judgment.

The matter had been referred to the police by a whistleblower in March 2013, but the police at that point in time decided not to investigate.

The GIAA also said the DCLG should deal with the matter internally as an irregularity. This was because the project did not deliver activity as described in the application and therefore all expenditure was at risk.

The report suggested that if the DCLG as managing authority did not agree with the main conclusion there would be subsidiary issues that would need to be addressed.

In a statement Thanet said it had been working closely with the GIAA since being approached in October 2015.

“The council ensured that the GIAA had access to all the information required and have answered any questions,” it added.

“The grant claim was made over eight years ago. Since then, the council has introduced new processes and procedures within its finance function; including the introduction of a dedicated External Funding Officer and the implementation of an External Funding Protocol which was recently updated in June 2015.

“The council has also commissioned an independent review by East Kent Audit Partnership to assess the internal controls in respect of externally funded projects. In accordance with council policy, although there is no evidence of fraud, the matter has also been referred to Kent Police.”