Council to ask committee to establish “who knew what, when” over unlawful spending after s.114 notice issued

Northumberland County Council is to convene its Employment Appeals Committee (EAC) to try to get to the bottom of how unlawful spending took place on a healthcare consultancy business and an allowance for its chief executive.

A section 114 notice issued last month by interim executive director of finance Jan Willis said a £40,000 a year payment to chief executive Daljit Lally for work for health care consultancy Northumbria International Alliance had been unlawful, as had been the operation of the consultancy, which did not trade through a company as required.

In a report for the council, its Conservative leader Glen Sanderson said the EAC should meet “to commence consideration of who knew what, when and whether any grounds exist to take disciplinary, capability or other action in relation to any officer or former officer of the council, or whether there are circumstances relating to elected members to be referred for consideration under the council’s code of conduct for members arising from the circumstances set out in the [section 114] statutory report”.

Cllr Sanderson also recommended the staff and appointments committee should consider the report “in relation to the payment of the international allowance and the matters referred to it in the recommendations of the chief finance officer”.

He said publication last month of the statutory report had automatically stopped the continuing unlawful payments.

An appendix to Cllr Sanderson’s report sets out Ms Willis’s comments on responses to her consultations on her report.

These include that Ms Lally said she was “not aware of any legal advice that the business had to be conducted through a limited company prior to the relevant company being established”.

Ms Willis said council records showed that legal advice had been received from Ward Hadaway in June 2019.

This said that while a council could conduct commercial activity under the power of general competence, s4 of the Localism Act 2011 “places a condition on the exercise of power for a commercial purpose, requiring such a commercial matter to be carried out through a company”.

In response to the chief executive, Ms Willis said: “Whether officers or members were aware of this requirement is not relevant to my report, however. The council was trading for a commercial purpose otherwise through a company at the latest from 2018 to 2021 and the expenditure incurred in relation to this activity was therefore unlawful.”

Ms Lally also said the legal advice received had said there was no requirement to establish a company until such time as the council was seeking by itself to deliver international services and sufficient income was received to warrant it.

This interpretation did not appear in Ward Hadaway’s advice, Ms Willis responded.

Ms Lally went on to say that on her appointment in November 2017 full council was presented with a copy of her contract “which set out the allowance as part of the terms and conditions” and that this was agreed.

Responding, Ms Willis said: “I have checked with democratic services. There is no record that this information was circulated, nor do the minutes refer to it.

‘Firstly, the terms of the appointment authorised by the council do not mirror the contractual arrangements eventually agreed.

“Even if they had, the resolution of council relating to remuneration of the post makes no reference to any additional allowance (and the minutes of the meeting show that the leader was asked a specific question and replied in the negative).

“Even if these hurdles could be overcome, the pay policy statement for 2017/18 made no reference to an allowance payable to the chief executive, and thus any such payment would have been unlawful in any event.”

The council has also received a report from local government troubleshooter Max Caller on its corporate governance. He has handled a number of controversial inquiries, including the financial collapse in 2018 of the former Northamptonshire County Council.

Mr Caller concluded that the local authority had "lost its way over a number of years to the extent that leadership at both political and managerial levels is distracted, and no longer focussed on external issues but involved to an unhealthy extent on internal battles”.

Mark Smulian