Secretary of State sets up Improvement and Assurance Panel at financially-troubled London borough

Local Government Secretary Robert Jenrick has appointed an Improvement and Assurance Panel to address what he described as “serious failures” at Croydon Council.

The panel will be led by Tony McArdle, who will be supported by Margaret Lee and Phil Brookes.

The Ministry of Housing, Communities and Local Government (MHCLG) said the panel’s role would be to “support and challenge Croydon’s improvement progress” and make regular reports to the Secretary of State.

The measures come in response to the findings of a rapid non-statutory review commissioned in October to examine the council’s overall governance, culture and risk management following the announcement that it would seek exceptional financial support from MHCLG.

The review team, led by Chris Wood, found Croydon had had “significant failings in the leadership and management (particularly in sphere of financial management) and its governance and assurance mechanisms have failed in identifying, escalating and addressing risk”.

The review said the council recognised the perilousness of its position and there was lots of evidence of officers and members working energetically to mount an effective recovery.

However, it said the recovery effort was in its early stages “and therefore the Review Team cannot offer full assurance or confidence that the task can be achieved. We have concerns about the capability and capacity of the Council to organise and manage the recovery, but this is a concern which is shared by many of the people we spoke to. Croydon Council has a poor track record of robust financial management and this will need to change if it is to effect a successful recovery.”

The review team added that there was no credible alternative option to capitalisation. “We gave consideration to the phasing of capitalisation consents but felt this not possible as the Council has a substantial budget gap in the current financial year. In order to set its budget in February for 21/22 it will need to have knowledge of the availability of capitalisation going forward. Given the scale of the capitalisation sought we recognise that this is going to be exceptionally difficult for the Treasury, at a time when demands on Government spending and borrowing are so high.”

Other recommendations included the council immediately strengthening its oversight of Brick by Brick, a limited company wholly owned by the council, which was supposed to build affordable homes.

The review team noted that there were a number of checks and balances in the management of councils to guard against serious breaches in governance and/or good financial management: "Executive Officers carry statutory responsibilities; the Council has a Scrutiny function as part of its Governance; it has a General Purpose and Audit Committee; and external auditors form a key part of the financial assurance framework."

However, "these checks and balances appear not to have worked" and the statutory officers "did not assert their powers".

The report said that it was only in the last few weeks that the council’s Finance Director had issued a section 114 notice, and "arguably this notice should have arrived earlier".

It added: "The Scrutiny Committee, whilst calling decisions in were not forceful in their challenge and did not refer key decisions back for the consideration of full Council. The Audit Committee appears to have been similarly unchallenging. Finally, the external auditors whilst raising concerns over a number of years arguably could have been more forceful in escalating their concerns. That said, Grant Thornton’s Report in the Public Interest has finally brought matters to a head."

The review team noted that the then Chief executive, the Director of Finance and the Monitoring officer, were each in their roles for the first time. "With no intention to impugn the capability of these officers, it was a relatively inexperienced team. This may account in some part for delays in interventions."

The review team concluded:

• The council found itself in a very difficult position. “It is unable to balance its budget for this year, by some considerable distance. The Council as a whole and in particular its two major spending departments continue to display an inability to manage demand for services and the financial discipline to keep its delivery within budget.”
• It was difficult to conclude other than the council had been poorly led by both members and officers over recent years. “There have been additional pressures of unaccompanied asylum seeking children and the added costs brought about in responding to the pandemic. Added to which the anticipated growth, through the Growth Zone has not been realised. Returns from more commercial investments have similarly not been realised in the way that was anticipated, although this appears to be as much to do with the poor forecasting and management of these initiatives as their performance.”
• The signs were there, “and alarm should have been noted and escalated, but the Assurance process has failed, and Governance has been poor”.
• The council needs to be the subject of continued monitoring and scrutiny. It needs to adhere to a series of milestones set out by the review team.

Croydon has now submitted the next iteration of its Improvement Plan. This will be considered alongside the panel’s findings and the council’s request for financial support, the Ministry said.

Local Government Secretary Robert Jenrick said: “The rapid review into Croydon Council found serious failings in governance, financial strategy and commercial investments which have led to taxpayers and residents being severely let down over a number of years.

“This must end now, and I have appointed an expert panel to help the council urgently address the issues they face and deliver a comprehensive recovery plan. I will be monitoring progress closely and will not hesitate to take further action if necessary.”

In the event of a failure by the council to demonstrate significant progress, a more formal statutory intervention will be considered, including the appointment of commissioners, the MHCLG said.

In November 2020 it emerged that senior managers at Croydon faced investigation and potential disciplinary action as the council tries to extricate itself from its financial crisis.