Missed red flags led to council overspend running into millions of pounds, independent investigators find

Guildford Borough Council senior officers missed 13 "key red flags" that should have notified them of significant risks associated with a housing maintenance contractor, an independent report has found.

Investigators at Heminsley Law concluded that officers remained unaware of the issues despite whistleblower allegations alleging fraud and external auditors raising concerns.

The firm’s report centred on the circumstances around Guildford's decision to increase its investment in the housing maintenance budget from around £5m to £24.5m in February 2022.  

The same decision was subject to a separate independent review carried out by Solace, which found that whistleblowing allegations concerning the contracts were not initially taken to members.

It is thought that around £13.5m was overspent and housing maintenance work was carried out unnecessarily.

The overspend was the subject of whistleblower allegations raised in 2022 and 2023.

When a new monitoring officer came into the council in April 2023, Guildford commissioned an independent fraud investigation, leading to the police investigating potential criminal activity.

Since then, some officers have been suspended, and the council has terminated several agency staff contracts. 

According to Heminsley's report, the police investigation is ongoing.

Heminsley's investigation focussed on establishing "who knew what, when and what actions were taken to secure compliance and best value" in relation to the contract.

The investigation looked at a number of key events, including the procurement process for the contract, the £24m investment in housing maintenance in February 2022, and a set of events in which concerns about the spend were flagged.

It asked the three following questions:

• Who knew (or should have known) of the issues that led to the police investigation
• When did they know (or when should they have known) of those issues?
• What actions were taken, or should have been taken, to secure compliance and deliver best value?

On the balance of probabilities, the review found that Guildford's senior management and those responsible for housing at the relevant times were "unaware that there was a material contractual overspend with the contractor until the 2023 concerns were investigated".

However, it found "key red flags" as to potential risk with the engagement of the contractor "that should have been visible to senior management," it said.

These red flags included:

• Concerns in respect of members of the technical services team's behaviours and capabilities
• Concerns in respect of certain members of the technical services team's approach to procurement
• Concerns around conflicts of interests and secondary roles held by certain contractors in the technical services team who were involved in the procurement and management of relevant contracts
• The apparent urgent need for procurement of a contract in 2021
• The 2022 investment increasing the housing maintenance budget from around £5m to £24.5m in February 2022.
• The whistleblowing allegation submitted in September 2022 alleging fraud, raising concerns about the contract spend and procurement process and raising concerns about the behaviour of certain members on the technical services team.

The report listed a further seven 'red flags' including a draft audit report from KPMG that raised concerns and an internal audit plan that identified risks relating to the management and governance of programmes and budgets.

It said: "By February 2023 at the latest, when they had sight of the report into the 2022 Whistleblow, the individuals comprising the CMB [corporate management board] collectively, had (or should have had) sight of such evidential threats and Red Flags that they could (or should) have concluded that there were significant risks related to the contractor."

It added: "In making this finding, we understand that governance issues, and the collaboration, led to a complex and changing environment."

The report also found that by February 2023 the CMB, particularly, the chief executive, strategic director responsible for housing, and the strategic director responsible for governance and finance "could (or should) have identified and taken action to resolve issues in relation to the contract".

It also said that by the time the contract was let in June 2023, "there were sufficient red flags in existence which could (or should) have been" identified.

These red flags should have led to further detailed scrutiny by the members of CMB and/or the joint strategic director responsible for housing before the contract was allowed to have been let, it added.

Elsewhere, the report concluded that relevant directors responsible for Guildford's housing in post at the time did not take sufficient effective or material steps to ensure that full and property controls were in place, either to ensure the spending was monitored or to monitor their service's compliance with financial and procurement obligations.

It also highlighted that "material failings" in relation to the contractor were not reported to Guildford's members prior to investigations that commenced in 2023.

Trevor Gibson, senior partner at Heminsley, and Simon Stephen, lawyer and investigator at Heminsley, conducted the investigation.

Commenting on the findings, the leader of Guildford Borough Council, Cllr Julia McShane, said that, with the investigation now complete, the council "continues to be committed to ensuring future transparency, accountability, and effective governance".

The joint chief executive of Guildford and Waverley Borough Councils, Pedro Wrobel, added: "We need to understand what went wrong in the past to enable us to move forward with confidence.

"This report is the last piece of the puzzle. I am now confident that our robust improvement plan addresses all the issues raised, and we will continue to focus on delivering this, to give our residents and businesses the brilliant level of service they deserve."

Adam Carey