Tower Hamlets "failed to comply with best value duty" in various areas: PwC report

November 4, 2014

The London Borough of Tower Hamlets has failed to comply with its best value duty across a number of areas, an inspection report has found.

The PwC report also concluded that current governance arrangements at the council did not appear to be capable of preventing or responding appropriately to failures of the best value duty of the kind the investigators had identified.

The report was commissioned by Communities Secretary Eric Pickles after certain documents were passed to him and in the wake of a Panorama programme on the BBC on 31 March 2014. He was due to give an oral statement on its findings to the House of Commons at 12.30 pm today (4 November).

The investigators at PwC found that Tower Hamlets had failed to comply with the best value duty in its grant making in particular. These were:

A lack of transparency generally over the rationale for decisions as to grant awards. “Where application processes exist, the evaluation of these applications has been to a significant extent overridden….without any clear rationale. The purported application of ‘local knowledge’ is unsupported by any adequate analysis and breaks the connection between such needs analysis as may have been factored into officer recommendations and the awards ultimately made”;
The Corporate Grants Programme Board (CPGB) did not seem to the investigators to have operated as an effective governance mechanism over grant awards. Certain members of the CGPB had become “so embroiled in the detail of officer grant award recommendations to the CGPB that the CGPB itself has in effect approved its own recommendations, at the same time setting aside the very methodologies it was intended to safeguard”;
Grants had been awarded to organisations which were ruled ineligible or which did not meet the required evaluation score when assessed by officers applying the agreed applications evaluation methodology. “For example, this applies to approximately 11% of final awards under the MSG [Mainstream Grants] 2012-2015 awards”;
There had been no independent review into grant awarding processes, despite an overview and scrutiny committee recommendation that the MSG 2012-15 programme should have been referred to the District Auditor. An internal audit review of monitoring systems and processes around grant monies post-award was being carried out but had not been provided to PwC at the date of the report;
PwC’s testing indicated that there were gaps in the monitoring of performance of grant recipients. "The impact of spreading grant monies more widely, with each organisation on average receiving less, makes it inherently difficult (and relatively more costly) to monitor the use of grant monies. This in turn places more emphasis still on the need for good governance around initial grant awarding procedures"; and
Overall, the investigators did not see an effective system in place to ascertain whether or not the allocation of grant monies award was “such as to obtain value”.

PwC also reviewed four property transactions in detail and concluded that in three of these – Poplar Town Hall, Sutton Street Depot and Mellish Street – Tower Hamlets had failed to comply with its best value duty. In two of the cases, the council accepted late bids from the winning bidders, who did not make the highest bid.

The council was meanwhile criticised in its use of media officers in the Mayor’s office. “We found a lack of control around the monitoring of the demarcation of activities, based on a lack of clear documentation of those activities,” the report said.

“Where in one case there was somewhat more information, some of this was at best ambiguous as to which side of the line the activities lay. In relation to this specific matter, we therefore conclude that there is a failure to comply with the best value duty.”

PwC said the decision to engage external advisers (in relation to the Panorama programme) could be questioned from a best value duty perspective. However, it said it accepted that the safeguarding of the authority’s reputation was in principle a legitimate concern in terms of the maintenance of public confidence in its standards of governance and stewardship of public monies.

“While it seems to us that in this case the Authority devoted considerably more resource to seeking to counter the allegations made and/or challenge or undermine those making them than it did in seeking to determine whether or not there was any substance to the allegations, on balance we do not consider that the appointment of external advisers in itself was inappropriate,” the report found.

With regard to a finding by Ofcom that an advertisement aired by five broadcasting companies breached the Communications Act 2003 and the Code of Broadcast Advertising, PwC said the “clear implication” was that authority monies were spent inappropriately on what amounted to political advertising for the benefit of the Mayor, breaching the Code of Recommended Practice on Local Authority Publicity.

“This in itself constitutes a failure to comply with the best value duty in this instance,” the report said.

In relation to Tower Hamlets’ processes and practices for entering into contracts, PwC said it did not consider that the various matters brought to light constituted a failure by the authority comply with its best value duty. However it said there were a number of areas in relation to contracting where the council could improve.

In its observations and conclusions on governance, the investigators said that the failures identified had occurred under Tower Hamlets’ governance arrangements as they had existed throughout the period covered by the inspection – 25 October 2010 until 4 April 2014 – and continued to exist at the present time.

The report did not ascribe any particular failure to any particular individual. However, it said the failures identified demonstrate that, as a whole, the existing governance arrangements had weaknesses which had resulted in these failures not being prevented.

“Furthermore, in our view the authority’s response to the identification of issues in the above areas suggests a tendency towards denial or obfuscation rather than an inclination to investigate concerns raised,” PwC said.

The report added that in the investigators' view the current governance arrangements did not appear to be capable of preventing or responding appropriately to failures of the best value duty of the kind they had identified.

“This calls into question the adequacy of these governance arrangements and the extent to which they are sufficiently robust to enable the Authority to prevent or respond appropriately to other failures of a similar nature.”

By agreement with the police, PwC did not examine in detail evidence of possible fraudulent payments which had been identified and reported by Tower Hamlets to the police in connection with nine third sector organisations.

A copy of the PwC report can be viewed here.

In response to publication of the report, the Mayor of Tower Hamlets Lutfur Rahman said: “In April 2014, Eric Pickles announced that he was concerned about potential fraud and the Evening Standard ran these claims on its front page. These allegations have been rejected by PwC.

“The report highlights flaws in processes. These are regrettable. We will learn from this report and strengthen our procedures accordingly. I was always confident wild claims about fraud would not be substantiated. Both my officers and I want to get on with our jobs serving all residents in Tower Hamlets.“

A council spokesperson said: “Whilst the PwC report identifies some process and governance issues that needed to be improved the council notes that no evidence of criminality or fraud has been identified by the government appointed forensic auditors.

“In our view there is no evidence that these flaws of process are ‘regular or endemic’ meaning that there is no failure to comply with our best value duty.

“We await the Government’s reaction to the report but we urge the Secretary of State to act proportionately and to acknowledge the steps we have already taken to tighten up processes as well as the high performing nature of the council’s services.”