Council publishes 2021 report that revealed “organisational dysfunction” at senior level

The London Borough of Croydon has published a redacted copy of an independent investigator's report into the reasons behind the council's 2020 bankruptcy, two years on from when the local authority was first handed the report.

The investigation, conducted in late 2020, revealed "organisational dysfunction at the most senior level” and recommended the council consider pursuing formal action against senior members and officers.

Local government troubleshooter Richard Penn was called in to investigate after the council could not balance its budget and was forced to issue a section 114 notice in 2020.

It has since issued two further section 114 notices and recently had to request permission from central government to raise its council tax rates by 10% in order to continue delivering its services to residents.

In the course of his investigation, Penn interviewed 64 people, including the leadership at the time (November 2020) and former leadership, as well as then-current and former councillors, trade union representatives and external partners.

He presented his report, entitled ''Collective Corporate Blindness: How did the Council get here?'' to the council in March 2021, but the report was not made public until last week.

Extracts from the documents were published in November of last year by local website Inside Croydon, leading the London borough to make a failed attempt at securing an injunction against the site.

The now-published copy of the report reveals that Penn found organisational dysfunction at the most senior level stemming from poor governance by the former political leadership of the council and by correspondingly poor managerial leadership from the council's most senior officers.

"It would appear that those with the biggest responsibilities and with statutory duties let the organisation down," he wrote.

He also found that by narrowing its focus on a small number of commercial and regeneration goals, the council "appears to have effectively 'blinkered' itself to its wider responsibilities".

Penn heard from interviewees who claimed senior leadership seemed to "encourage overly positive news while appearing to avoid unwelcome and inconvenient feedback," leading the council's political and managerial leadership to fail to focus on Croydon's budgetary crisis.

"'Collective corporate blindness' was the term used by the council's external auditors, and the majority of people that I interviewed agreed with that description," Penn wrote.

On governance, he noted that, while Croydon looked fit for purpose from a distance, his investigation revealed a "highly dysfunctional" organisation characterised by poor decision-making.

"This is evidenced, among other things, in the belief that needing to be 'fleet of foot' meant that public money could be spent without due regard to public decision-making and internal managerial and financial controls."

He added: "This included […] seemingly no formal officer governance controls being in place in respect of loan agreements in excess of £200m; the apparent toleration of non-compliance and Directorate overspending; and the apparent failure formally to advise members and share information appropriately."

Penn also found a "significant level of confusion" over member and officer roles at the council, where there seemed to have been an "assertion of power by certain elected members to control the operational domain of the Council, and an apparent acquiescence to that on the part of the Council's most senior officers".

This resulted in an apparent failure to ensure effective governance of decisions over public money and the apparent failure to set in place appropriate accountability mechanisms for delivery, he added.

Penn highlighted that major risks within the council's revenue budgets and in its investment portfolio "appear to have been downplayed in the face of what seemed to have been unbridled optimism and seemingly an almost reckless disregard of the potential adverse consequences of these risks to the achievement of the Council's core purposes".

He added that a "wholesale redesign of the Council's management arrangements […] needs to be implemented alongside a reinvigoration of a positive organisational and staff culture that is based on accountability, openness, inclusiveness, curiosity and learning how to deliver better for Croydon's residents".

In light of these issues, Penn made a series of recommendations, including calls for the council to:

• focus on building healthy and effective governance across the Executive and Scrutiny divide as well as across the council's two political parties;
• focus on modelling good behaviour and conduct by members, as well as proper role clarity and respect between officers and members;
• promote a positive organisational culture, embed clarity of direction, and foster an open and healthy governance across the political divide where challenge is accepted and encouraged.
• start considering how to rebuild its relationship with the people of Croydon; and
• turn its policies about being a safe and supportive place in which employees can work into reality.

Penn then turned to complaints heard about specific individuals in the organisation. He noted that it was "clear from the triangulated strength and weight of opinion that concerns can be raised over the actions, the inactions and the conduct of a number of individuals".

These three sets of concerns included:

1. management misjudgements and actions which led to an absence of adequate budgetary controls and mechanisms for evaluating and agreeing asset investments, and so on;
2. failures to advise members properly on the breadth and the escalation of risk which placed the council's core purposes in jeopardy, alongside systemic management failures of corporate management internal controls; and
3. failure to stop a corrosive top-down culture.

He went on to recommend the council consider further action against certain officers and members.

Penn also recommended the council review a £437,000 settlement agreement that was signed by the council with the former chief executive and “whether the concerns raised in this initial investigation constitute a repudiatory breach of her contract and thus a breach of the terms of the settlement”.

A later report on the settlement found its approval was lawful but criticised failings in an officer’s report and an absence of legal advice.

Publication of the report, with redactions, was approved by Croydon's Appointments and Disciplinary Committee on 23 February "because of the great and legitimate public interest".

Commenting on the publication of the report, the Mayor of Croydon, Jason Perry, said: “Whilst I’m frustrated that it has taken this long to be able to share this report with local people, I’m pleased that councillors from all parties agreed that it is in the public interest to do so.

“Understandably, residents want answers about what caused their council to fail on such a catastrophic scale – particularly as they continue to pay the price.

“As Executive Mayor I am committed to getting those answers and holding those responsible to account.”

Mayor Perry added that publishing the Penn report was a “first step”, with the council’s next step being “to look at what further action we can take to bring those involved to justice”.

Adam Carey