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Council issues s114 notice over unlawful expenditure

Northumberland County Council unlawfully spent money on a healthcare consultancy business and on an allowance for its chief executive, a report by its interim executive director of finance and section 151 officer has concluded.

Jan Willis said she had issued a notice under s114 of the Local Government Finance Act 1988 but - unlike in other cases where this had happened - this was because of unlawful spending and Northumberland faced no difficulty in balancing its budget. Her report will be debated by councillors on 8 June.

The first item of unlawful spending concerned the Northumbria International Alliance (NIA) This was a commercial healthcare consultancy run with Northumbria Healthcare NHS Trust as an unincorporated partnership.

It was set up after UK Trade & Investment invited the council and the trust to look for ways to export models of healthcare.

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NIA traded from 2018-21 but not through a company whose income and spending were recorded in the council’s accounts.

This was a breach of the s4(2) of the Localism Act 2011 since commercial trading is an executive function of the council.

Willis also found the council was unlawfully still making an ‘international allowance’ payment of £40,000 a year to chief executive Daljit Lally.

“I am satisfied this payment does not have proper authorisation and is in contravention of the council’s pay policy stamens,” Willis said.

There was no legal basis for such a payment and the council’s staff and appointments committee should consider the case for any recovery action.

Willis said the council did not appear to have suffered any financial loss from its involvement with NIA, which had since been succeeded by Northumbria Integrated Consultancy, a wholly owned subsidiary of the county council and which therefore operates lawfully.

Willis urged the council’s audit committee to commission a full independent investigation into the circumstances that gave rise to the unlawful trading activities and said she would consider whether disclosures should be made to HM Revenue & Customs on corporation tax or other liabilities.

She would also undertake further investigations to establish whether any other unlawful payments were made to any officers or former officers, including severance payments.

Internal auditors have been asked to investigate potentially unlawful payments to other officers and to review all exit packages made in the last two years and worth £100,000 or more.

Northumberland’s Conservative leader Glen Sanderson said: “When I took office as leader 12 months ago, I called for a thorough review of our governance arrangements.

“Whilst the contents of this financial report are very serious and reveal a worrying failure of governance and lack of transparency at county hall, I am reassured that these matters are now being made public. When the council meets to consider the contents of this report, together with the corporate governance review we commissioned from [local government troubleshooter] Max Caller, I will ensure that the administration takes all appropriate steps to ensure that there is a new culture of openness, trust and accountability, in all that we do.”

Mark Smulian

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