Independent investigation finds additional payments to chief executive “not lawfully made”

April 21, 2020

Decisions in 2019 to make additional payments to the then chief executive at Surrey Heath Borough Council “were not lawfully made”, an independent investigation by law firm Browne Jacobson has found.

Karen Whelan had been chief executive of Surrey Heath since October 2010, having joined the council as Head of Legal Services and Monitoring Officer a number of years before.

On 16 January 2019 the then Leader, Cllr Moira Gibson, signed a business case containing a proposal to pay Ms Whelan an “additional duties allowance” of £15,000 per annum, backdated to April 2017, which payment was to continue until a “full review” of the chief executive’s salary was completed.

The back dated sum was to be paid “from within existing budgets” and the subsequent payments were to be “built into the budget”.

Cllr Gibson signed a payroll instruction form on the same day that authorised the payments referred to in the business case. The next day a BACS voucher was signed to authorise the payment of £13,500 to Ms Whelan as an “advance of pay”.

On 20 February 2019 Cllr Gibson signed a further version of the business case. This allowed for an additional pro-rata payment of £15,000 per annum, to cover the period October 2016 to 31 March 2017.

She signed a “Payroll Query/Authorisation” form on the same day that included details of the payments referred to in the amended business case, and a note that payment for the period 1 April 2017 to 28 March 2019 had been paid on that day.

The business case attached to Ms Gibson’s letter of 16 January 2019 listed examples of new areas of responsibility said to have been undertaken by Ms Whelan over the previous two years, contained information about the salaries paid to chief executives by other local authorities in Surrey and included a proposal for an additional payment for each of the years 2017/18 and 2018/19 “to recognise the new work stream undertaken and that this payment be on-going until the full salary review has been completed”.

Ms Whelan had believed that her role as chief executive had changed over time as the council changed its property and investment strategy. In particular, she was heavily involved in the redevelopment of Camberley town centre from October 2016, with the council having acquired assets which included a shopping centre.

Those assets were held in the form of units in a Jersey Property Unit Trust (a ‘JPUT’), which was managed by professional trustees based in Jersey. The council was the beneficiary (i.e. unitholder) of that trust, and Ms Whelan (along with the Chief Finance Officer) represented the council at trustees’ meetings. Ms Whelan was also heavily involved in a shopping centre purchased by the council in October 2016.

She was of the view that these changes justified a review of her salary. However, at the time of the additional payments Ms Whelan was at the top of her salary grade and as such could not achieve a substantive improvement in her pay without a review of the grade applicable to her post.

Surrey Heath's Exceptional Payments Policy ("the Policy") meanwhile stated that "If the employee is carrying out additional duties that fall within their current grade, they will be entitled to receive an additional duties payment of up to 5% of their salary for their current scale point."

In August 2019 the council announced it would appoint an external investigator to examine the procedure followed, saying it had received "a number of enquiries on the matter".

The redacted version of the report published by the council revealed that Browne Jacobson had found, amongst other things, that:

The progression of an improvement in Ms Whelan’s pay became “hurried and confused”. There appeared to have been confusion as to what procedure was being followed, what role documents were intended to have and what policy was being applied. “This is apparent from the different versions of the business case: early iterations referred to the additional duties allowance and the 5% cap, this was then replaced with reference to an honorarium and ultimately reference was made to an additional duties allowance but not the 5% cap (which by then had been exceeded).”
The individuals involved conflated a wider review of Ms Whelan’s pay (to which salary benchmarking would be relevant) to recognition of the additional duties she had performed since October 2016 (to which the additional duties allowance could apply subject to the 5% cap but to which salary comparison would not be relevant).
If the payment to Ms Whelan had truly been intended to be an additional duties allowance it would a) have been calculated based on the value of the additional duties said to be undertaken (principally Ms Whelan’s involvement with the council’s trust based in Jersey [a Jersey Property Unit Trust] and the shopping centre in Camberley acquired by the council in October 2016) and b) capped at 5% of Ms Whelan’s salary. The payments that were agreed met neither of those criteria. It was neither an additional duties allowance nor a substantive pay rise (which would have to have been approved by full council).
£15,000 was more than 5% of Ms Whelan’s salary. For that reason alone it could not be said to have been paid by way of an additional duties allowance. [As at 16 January 5% was approximately £6,000.]
If Ms Whelan’s position was correct and the additional duties and responsibilities she undertook fell outside her current grade, that supported the conclusion that remuneration in respect of those duties and responsibilities should have been considered by way of a full review of her salary grade, which review would have to be considered by full council. “Ms Whelan’s position does not support the making of backdated additional payments in respect of those additional duties and responsibilities to her, and indefinite ongoing payments, outwith any policy or procedure and with no reference to full council, as happened in this case.”
Ms Whelan was involved in the development of the business case that was ultimately used to justify the making of payments to her, including the extent of the backdating of that payment and the increase from £6,000 per annum to £15,000 per annum.
In relation to the hand annotated version of the letter to Ms Whelan that Ms Whelan produced to the investigation: “1) an [redacted] payment of that nature was not standard practice; 2) an [redacted] payment of that nature was unprecedented.”
The payments made to Ms Whelan did not accord with the Policy, and accordingly were not made pursuant to that Policy in that: 1) they did not meet any of the criteria for such payments as set out in the Policy; 2) they exceeded the 5% limit stipulated in the Policy; 3) the forms that were mandated to be completed by the Policy were not completed in the respect of the payments.
The Leader only had authority to make certain decisions, and only then in accordance with the Constitution, including the Executive Procedure Rules. Even if the decisions relating to the payments to Ms Whelan of £15,000 per annum were such decisions, the Executive Procedure Rules were not followed in relation to those decisions.
Those payments were unlawful “either for want of authority (because they could not be made pursuant to Cllr Gibson’s delegated authority, as they were tantamount to a pay rise for Ms Whelan and as such were reserved to full council) or because the relevant procedural requirements were not followed in relation to the decisions to make those payments, and those requirements were of mandatory effect.”
It was not the position that the council could not lawfully award Ms Whelan the payments – it could have done at the time and could now ratify the decision. In this case the proper procedures were not followed and as such the decisions to make the payments were not lawfully made.
Cllr Gibson should not have issued letters to Ms Whelan that related to her pay.

The report also considered the terms on which the chief executive purchased a council provided car in May 2017, whether her expenses between September 2017 and September 2019 complied with council policy and whether the receipt of gifts and hospitality by Ms Whelan over that period complied with council policy.

Browne Jacobson made a series of recommendations to the council, some of which have been redacted.

The law firm said that, in formulating these recommendations, it had considered whether a referral should be made to the Police in relation to any of the matters identified during its investigation.

“Given the nature of the matters to which our investigation related, it was possible that offences of theft or fraud had been committed, or one or more individuals were guilty of misconduct in public office,” it said.

However, having concluded the investigation, the law firm was of the view that no such referral was required. “While we have found that there were failings on the part of current and former Chief Officers, and that those failings led to financial gain on the part of the Chief Executive, we have not found dishonesty on the part of any of those officers.”

It added: “We have seen no evidence to indicate that any statutory offence has been committed and, in our view, the threshold for the offence of misconduct in public office has not been met in the case of any of the officers who we have found to have failed in their duties or otherwise acted improperly.”

Commenting on the report, Cllr Alan McClafferty said: "As Leader of the council I apologise to all residents on behalf of the council for the findings of the investigation. We acknowledge the failings within our policies and governance and have already taken a number of steps to address this.

"Your elected members and I cannot change what has happened in the past but officers and members alike are committed to moving the council forward and will continue to listen to residents in order to make Surrey Heath a great place to live and work."

Surrey Heath said it had taken independent legal advice to ensure the redactions in the report were balanced between public interest and the employment and data protection rights of those named in the report.

The council said a number of actions had already been taken or were in progress following Browne Jacobson’s recommendations.

These included:

The establishment of an Employment Committee at the meeting of Full Council on 18 December 2019. "This committee together with various sub-committees put in place provide a clear decision making process for the pay and performance of the Chief Executive together with disciplinary and grievance matters relating to senior officers. Constitutional changes including mandatory training for Members dealing with HR matters and an update to the Officer Employment Rules are in place. "
The Pay Policy statement had been updated and was recommended for adoption to Full Council by the Employment Committee in February 2020.
The establishment of an Employment Committee at the meeting of Full Council on 18 December 2019. "This committee provides a clear decision maker for the pay and performance of Chief Officers."
The Chief Executive’s job description was currently being reviewed and any subsequent amendments to the Leaders functions will follow.
A review of financial regulations relating to matters identified in this report has been added to the Governance Working Group's work programme
A review of the Executive procedure rules has been added to the Governance Working Group's work programme
A review of The Speak Up policy (formerly known as the Whistleblowing Policy) had been undertaken and was adopted by the Employment Committee on 30 January 2020. "This now includes provision for the Chairman/Vice Chairman of the Employment Committee as a reporting option. Additionally a review of the Officer Code of Conduct and the Member and Officer protocol is underway. Once completed they will be considered for approval by the Full Council."
In addition to the specific recommendations contained within the report a review of expenses and the process for claiming expenses will be undertaken and considered by the Employment Committee. “Furthermore all staff will be given training on the processes in place to record gifts and hospitality to ensure compliance."

On Ms Whelan’s resignation, Surrey Heath said earlier this month (9 April) that she was relocating to the north of the country and would be taking on new challenges in the area.

“The council has mutually agreed with Karen that in light of these personal circumstances and in recognition of her lengthy service that Karen will not be required to return to the council whilst concluding her contractual obligations,” it said.

Cllr McClafferty thanked her for her service.