Council must address conflict of interests in wholly owned company: External auditors

Spelthorne Borough Council has carried out a review after external auditors called on it to "urgently" assess the governance and oversight of a wholly owned subsidiary company, having found conflicts of interest connected to the company's staffing.

Grant Thornton separately raised concerns over a "toxic" culture at the local authority, which had contributed to poor member-officer relationships.

The findings were set out in an interim annual report, which was considered by Spelthorne's Audit Committee late last month (28 January).

The report, which covered the financial year ending March 2024, found four significant weaknesses in the council's governance arrangements relating to standards of member behaviour, effectiveness of decisions and scrutiny, identification and management of strategic risks, and governance of one of the council's subsidiary companies 'Knowle Green Estates Ltd' (KGE).

KGE is a housing company owned by the council that manages a portfolio of largely affordable rental housing units.

According to the auditors, the council's governance arrangements regarding KGE do "not accord with best practice with both officers and members having conflicting roles at the Council and their roles on the Board of KGE".

It said there "are actual as well as perceived conflicts of interest" with senior officers and members in key roles on the company board, "meaning there is considerable overlap between KGE and the Council".

According to the report, KGE is chaired by the council's s151 officer, while the chief accountant effectively acts as its finance director and the council's monitoring officer is the company secretary.

Meanwhile, the vice chair of the development sub-committee also sits on KGE's board.

"Previous Public Interest Reports at other Councils clearly set out that such arrangements have contributed to significant failings in governance and they are not best practice", the report warned. 

It continued: "It is unclear how these key individuals can perform their respective duties with the Council and the company with sufficient independence given that that they will be involved in both sides of the same key decisions such as decisions regarding development projects and funding for the Council and assessment of project viability on behalf of KGE."

The auditors issued a key recommendation, which stated: "The Council needs to urgently assess the governance and oversight of KGE Ltd in order to avoid conflicts of interest and to conform to best practice.

"We note a review of this has taken place and from January 2025 the Council s151 will no longer act as a KGE Chair. This decision has only just been taken so we need to review the arrangements in practice, for all roles, within our 2024/25 audit, to ensure good governance has been established."

Turning to behaviour within the council, the report said there "is an extremely poor relationship between some political members' groups impacting both decisions and scrutiny".

It pointed to a Local Government Association (LGA) report that also highlighted the poor relationships and found that the circumstances were "affecting staff morale and the organisation's ability to retain and recruit staff".

The LGA called for the relationship between officers and members "to be clearly defined and respected in order to create trust".

The auditors' report said: "Since the LGA Peer review there have been several facilitated workshops lead by external independent consultants.

"Our understanding is that these have led to some improvements, but that there is still much work to be done."

The auditors went on to highlight a complaint in October 2024 about a member's behaviour towards a member of staff, which resulted in a finding that the member had been disrespectful.

It said: "The hearing fell short of determining that the behaviour had been bullying. Whether it is bullying, or disrespectful such behaviour has a negative impact."

As of January 2025, there were 10 outstanding complaints with the monitoring officer regarding councillor behaviour.

The report noted that trust "still appears to be an issue for some members", adding that many decisions from the planning team are met with some members seeking their own independent advice.

As a result it issued a key recommendation stating: "The Council must urgently address the issue of trust between members and officers as well as the poor tone from the top evidenced through the formal complaints process. Member workshops should be facilitated to address the apparent 'toxic' culture across the member group.

"The Council should also review the effectiveness of its whistleblowing arrangements including identifying any barriers preventing members and officers at all levels being able to raise legitimate concerns in confidence."

Elsewhere, the auditors found that reports to members are "often overly complex, confusing, inaccurate, incomplete or inconsistent", affecting decision-making.

On this point, the report issued key recommendations, stating: "The Council should ensure that the Financial Reporting Working Group is appropriately resourced to enable it to quickly provide guidance and training to officers in report writing. If necessary appropriate training should be given to report writers.

"The Council should consider whether a follow-up internal audit of the implementation of the Committee system2 should be undertaken and in particular to consider the effectiveness of scrutiny and the timeliness of decision making."

Concerns about risk management were also raised, with the report noting that some risk mitigation actions have been pending for over four years, with target dates repeatedly extended.

It issued a fourth key recommendation on this point, calling on the council to review its strategic risk register to consider risks arising from previous external scrutiny reports as well as procurement and ensure that risks and mitigations reflect the latest position with regard to actions taken.

"In addition the Council should ensure that realistic timescales are set for implementing actions and ensure that those dates are only exceeded by exception and adequate explanations for delays are recorded", the recommendation added.

Spelthorne Borough Council has been approached for comment.

Adam Carey