Audit shows £9m shortfall in Hall’s property speculation deals

CROYDON IN CRISIS: Internal audit report will make very uncomfortable reading for the council leader and his finance chief, and shows worrying budget problems for most of the council-run schools.
By WALTER CRONXITE, political editor

Simon Hall: council’s investments have not covered the council’s costs according to the internal audit

It is barely a week since Simon Hall, the Labour councillor who is the council cabinet member for finance, survived a vote of no-confidence raised by the Tory opposition at the Town Hall over Croydon’s cash crisis.

Tomorrow night, Hall faces another display of lack of confidence in his abilities or record, when an influential committee meets to discuss a damning report from the council’s internal auditors.

The depths of the financial crisis facing the council, and the lack of controls over the borough’s money, will be highlighted when the General Purposes and Audit Committee hears that the internal auditors can give the council “only limited assurance” over the way it is managed and that “the internal controls within non-financial systems operating throughout the year were unsatisfactory in some cases”.

That such withering remarks come from an internal audit of the council’s performance perhaps makes such criticism even more damning of those responsible.

It will be the first time since July that the committee – known in councilspeak as GPAC – has met. So for nearly four months in the middle of the worst financial crisis in the history of Croydon Council, and its General Purposes And Audit (our itals) Committee has failed to hold any meetings. So much for the “emergency” of the situation. So much for “urgency”.

That may have suited Hall and his Labour boss, Tony Newman, as they and their financial review panel have grappled to come up with a set of numbers for an emergency budget which might pass examination of Ministry of Housing, Communities and Local Government, who will ultimately determine Croydon’s fate.

The council has broken the law by failing to publish its annual accounts for the period to the end of March 2020. The not-too-trivial matter of an £8million grant from the government to cover covid-19 costs remains unresolved.

Bit by bit, in the last couple of weeks, other detail has slowly emerged to show quite how badly run Croydon Council had become under the failed leadership of the previous chief exec, Jo Negrini.

Katherine Kerswell: what will she make of the reports to GPAC?

Nothing, though, has been quite so comprehensively damning as the paperwork submitted in reports for tomorrow night’s GPAC.

For the first time in Croydon history, GPAC’s meeting will be webcast. Inside Croydon is told to expect interim chief exec, Katherine Kerswell, to log-in to the virtual gathering. It all starts at 5pm. You may want to bring popcorn.

GPAC will be shown figures that demonstrate that finance chief Simon Hall was millions of pounds out when he maintained that the council’s “investments” in commercial property managed to cover their costs.

They did not.

According to the internal audit report, the cost of loans to pay for Hall’s adventure into the casino economics of property speculation cost the council £24.5million in interest per year. And according to the auditors, those “investments” – £30million on the now-closed Croydon Park Hotel; £53million on the Colonnades, plus others – repaid the council just £15.3million.

That’s a shortfall of £9.3million.

The internal auditors’ report show that Hall’s claims about investment income covering the costs of borrowing were incorrect

Hall is damned if he knew, and he’s damned if he didn’t.

If Hall knew, then he has been misleading council meetings, council cabinet and the public by claiming that the policy in which he had invested so much personal capital was such a spectacular failure with the council’s (borrowed) capital.

If Hall really didn’t know, then he really might need to go back to accountancy school.

Either way, after this, it is hard to see how Hall can keep his cabinet finance job with any credibility or, more importantly, public confidence.

How GPAC responds to this could be very … interesting.

The reports, prepared by the council’s head of internal audit, Simon Maddocks, together with Graeme Clarke, a director of audit contractors Mazars, list a series of failures and shortcomings over the financial management and risk controls within the council.

Simon Maddocks: his internal audit report is highly critical

The auditors have to express whether they have confidence in various aspects of the way the council is run, and how its finances are managed.

The section about the financial management of council-controlled schools ought to be of huge concern.

Of the 12 schools that had completed the internal audit process, the auditors found that eight of them provided “No” or “Limited” confidence in their ability to balance their budgets.

Of those, it has recently been announced that Virgo Fidelis is to close, to become the second council-controlled secondary in Croydon to shut because of financial issues in the space of just 12 months.

And as the report notes, this has been a rapidly deteriorating situation: “67 per cent of all locations visited resulted in a ‘Limited’ or ‘No Assurance’,” the auditors note in their coverage of Croydon schools.

“This is significantly behind the performance in 2018-2019 which was 50 per cent and 2017-2018, which was 30 per cent.”

What they fail to state is that in 2014, less than 10 per cent of Croydon’s schools were assessed as having financial issues. This suggests that in the past six years, Croydon’s unacademised state schools have been slowly starved of cash, of the money needed to pay for teaching staff or for maintenance, to the point where some have been forced to close. Since 2014, Hall has been the cabinet member for finance and Alisa Flemming the cabinet member for children and education.

It may be significant that when a report was prepared for GPAC in April 2019 on the financial problems at St Andrew’s High School, Virgo Fidelis and others (“Presentation on an area of risk – Schools in deficit”), Hall had the report pulled and not discussed.

In the hot seat: GPAC chair Karen Jewitt

The 12-person General Purposes and Audit Committee is chaired by Labour councillor Karen Jewitt, and while it has a built-in 6-4 Labour majority (two non-councillors are co-opted to the committee), unlike other council bodies, GPAC does not appear to be entirely stacked with Newman loyalists. Indeed, some of its members have a refreshing reputation for what might be described as an ability to think for themselves.

As well as schools and a seemingly failed gamble in the commercial property sector, the internal audit report also raises serious concerns about the financial management in adult social care and children’s social care – areas where the council’s heavy reliance on agency staff has also proved to be very costly.

The report states, “Internal audit work during the year identified a number of issues relating to financial management within the adult and children’s social care teams.”

The audit report refers to the previous year, when they discovered that £4million-worth of “energy recharges” (where energy suppliers for some council tenants were paid directly by the council) which were left unaccounted for. Or what the audit report calls “significant weaknesses… a significant part of which related to organisations outside of the council”.

One of the internal audit charts: ‘This shows that only 51% of the systems audited, including the core council financial systems, achieved an assurance level of Substantial or Full. This is significantly worse than… 2018-2019 which was 61%’

“This resulted in a ‘No Assurance’ audit report being issued,” this latest report states, adding that nothing has got much better: “These significant weaknesses were not yet resolved during 2019-2020.”

There is a litany of other issues over the council’s performance. “Internal audit continues to identify a number of instances where privacy notices relating to the collection of personal data were missing or were no longer fit for purpose.” This really ought to be basic stuff.

And, a real crowd-pleaser for Council Tax-payers, “An internal audit of staff expenses identified a number of control weaknesses. This resulted in a ‘No Assurance’ audit report being issued.”

The audit report summarises thus: “From the Internal Audit work undertaken in 2019-2020, it is our opinion that we can provide Limited Assurance that the system of internal control that has been in place at London Borough of Croydon for the year ended March 31, 2020, accords with proper practice.”

And Hall and Newman agreed to pay Negrini £440,000 in a “golden handshake” after such stellar performance.

The authors of the audit report state, “Details of significant internal control issues are documented in the detailed report.”

About insidecroydon

News, views and analysis about the people of Croydon, their lives and political times in the diverse and most-populated borough in London. Based in Croydon and edited by Steven Downes. To contact us, please email
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