External auditors issue critical report on governance at combined authority

The West of England Combined Authority has adjourned consideration of a highly critical value for money report on governance issued by its external auditors.

The report by auditor Grant Thornton centred on why the monitoring and chief finance officers were excluded from decisions on a severance payment.

Regional mayor, Labour’s Dan Norris, and the leaders of Bristol City Council, South Gloucestershire Council and Bath & North East Somerset Council had been expected to vote on recommendations from Stephen Gerrard, the combined authority’s interim monitoring officer, that they should accept Grant Thornton’s statutory and other recommendations. The three constituent councils are all under differing political control.

The audit arose from a dispute about a severance payment to the combined authority’s infrastructure director.

Grant Thornton’s conclusions though went wider to concern the state of professional relationships between Mr Norris, other council leaders, and those between chief officers and the circumstances in which it is acceptable to seek legal advice without reference to the monitoring officer.

The audit report said that in July 2021 “a serving director” - referred to later as the director of infrastructure - approached its chief executive about his future and the opportunity was taken to negotiate an exit ahead of a management restructuring to which the chief executive had given consideration but not yet developed.

The chief executive decided the then monitoring officer and then chief finance officer had potential conflicts of interest since if the restructuring went ahead, they might leave the authority. She did not therefore involve them in the director of infrastructure’s exit.

Mr Gerrard’s report said the termination payment involved was £58,784 made up of a £36,950 settlement payment plus £21,834 pay in lieu of notice.

Grant Thornton said the exclusion of the then monitoring officer and then chief finance officer “severely limited [their] ability to make sure their statutory duties were properly discharged in regard to the severance settlement including the need to ensure the correct process was being followed, which is necessary and important even if the individuals are conflicted”.

The auditors said it had been reasonable for the chief executive to have identified conflicts of interest and that she acted in good faith and took third party legal advice - referred to by Mr Gerrard as being from law firm Bevan Brittan - but Grant Thornton said this “did not remove the need for the role of all the statutory officers to be effectively discharged. No action though was taken to ensure this could happen.”

It said the chief executive’s decision not to involve the two statutory officers “was a significant weakness that placed the combined authority at potential risk of committing to an unlawful payment”.

The then monitoring officer’s later decision to intervene in the process was “not unreasonable”, the report said.

Turning to the monitoring officer’s role, the auditors said it was “particularly important when it comes to commissioning and interpreting third party legal advice”.

They explained that conflicting legal advice was common and “the difficulty in reaching a consensus on the lawfulness of the severance transaction that arose in this case highlights the risk that arises when legal advice is sought independently of the monitoring officer”.

The statutory recommendations were that the mayor and council leaders “must commit to improving their working relationship” within a reasonable time frame with independent mediation if needed.

A formal protocol between the authority’s members was needed to commit to consultation on key proposals and in future, in all circumstances, where there is a potential conflict of interest involving statutory officers “steps must be taken too ensure the statutory duties of these officers are effectively discharged”.

A West of England Combined Authority spokesperson said the council leaders had asked for an adjournment so they could more fully consider the report.

The spokesperson said: “The recommendations from the auditor’s Value for Money report covered the period 2020/21. Steps have since been taken to implement a number of changes to address these.

“The report recognises that political tensions, not uncommon within combined authorities, have not adversely affected the work or the success of the Combined Authority, significant new funding has been brought into the region and residents have continued to benefit. This includes just under a £1bn of investment into the West of England in the past year.”

The spokesperson added: “The auditor concludes that action taken by the Chief Executive to take external legal advice, in the highly unusual circumstances where both other statutory officers were conflicted, was found to be comprehensive, professional and reasonable. The report makes recommendations about how best to handle such an unusual event in future. The West of England Combined Authority Committee is yet to meet to discuss the report in full and so further comment on the detail of the recommendations would be inappropriate.”

Mark Smulian