CROYDON IN CRISIS: Complacency and ‘corporate blindness’ to the problems at the council contributed to the collapse of the borough’s finances. But Grant Thornton’s report also managed to have a dig at Jo Negrini. WALTER CRONXITE reports
Grant Thornton’s Report in the Public Interest offered its most withering criticisms of the way Croydon’s finances had been mismanaged over the council’s reserves. Or, more accurately, the lack of them.
After all, it had not just been the council’s own auditors who had warned Jo Negrini, the erstwhile chief executive, and Simon Hall, the cabinet member for finance, that their misguided attempts to go into the commercial property market and house-building business were not paying off, and that Croydon’s “resilience” in the event of a major crisis – like a pandemic, for example – was dangerously low.
Grant Thornton had issued warnings over low levels of reserves in three successive years, from 2017.
In July 2018, in a written report, they told the council, “Your reserves are now at a very low position and you face a number of clear risks to your continued financial health.” Croydon’s Labour administration had been on shaky financial ground for three years, long before coronavirus pushed it to the edge of going bust.
Yet senior figures in the council, both officials and elected councillors, maintained a blissful complacency throughout.
“We are not sitting back waiting for calamity to hit,” Negrini told one trade magazine after the adverse CIPFA report back in January this year.
“It’s very clear that the system is completely broken due to social care. There’s too much demand for adults and children,” Negrini said.
Meanwhile, Sean Fitzsimons loyally defended the Tony Newman-led council, trying to argue publicly that the council’s levels of reserves were not a problem, that the level of reserves had barely changed over the previous five years. Perhaps a real problem was that as the £42,000 per year chair of the council’s scrutiny committee, Fitzsimons ought to have been the one asking far more probing questions, rather than being among the best-paid apologists on Newman’s pay-roll.
Maybe that’s what they meant when Grant Thornton accused Croydon of having a “corporate blindness” to the seriousness and urgency of the council’s financial situation.
Despite all the warnings, Croydon went into the covid-19 lockdown with only £10million in reserves. When the council overspent its 2020-2021 budget by more than £60million in the first three months of the financial year, that £10million was not enough to cope with the demands of the emergency. Just as they had been warned.
In the Report in the Public Interest, which was published on Friday, Grant Thornton say, “The council has had an unsustainably low level of reserves for some time. The council has had the lowest level of all London Boroughs of General Fund and Earmarked General Fund Reserves as a percentage of net service revenue expenditure and the reported level of reserves has continued to decrease in each of the previous three years.
“We reported the risk with low level of reserves to the council and external parties such as the CIPFA Financial Resilience Index and the Institute for Fiscal Studies highlighted the risk.
“The council has failed to adequately address the low level of reserves.” Our italics. For emphasis.
Grant Thornton also state, “As the council’s external auditor, we identified concerns relating to the financial sustainability criteria of the value for money conclusion in 2017-2018 and raised recommendations for improvements. The financial position deteriorated during 2018-2019 and we issued an adverse qualification of our value for money conclusion.
“Our recommendations in 2017-2018 and 2018-2019 were not implemented and the financial position continued to deteriorate during 2019-2020.” That’s our italics.
And the report’s authors also made it clear, as much as is possible in such reports, where they felt much of the blame lay: with Negrini.
“The spending pressures identified in 2017-2018 continued into 2020-2021 and we wrote to the former Chief Executive in April 2020 setting out action we considered to be vital,” they wrote.
“At the end of August 2020, the council had failed to produce a formal action plan or to respond to our audit recommendations effectively.” Our italics.
According to Grant Thornton, it took Croydon Council five months finally to respond to their call for “vital” action, a response they received on September 28. Katherine Kerswell had been installed as the council’s inteerim CEO on September 10.
The issue of the council’s reserves is important because this is the money that the local authority can fall back on in the case of emergencies. Just as happened in Croydon after the riots in 2011, the floods in Purley and Kenley in 2014, or even after the 2016 tram crash. Central government may, and very often does, pitch in with financial aid, but a responsible local authority should ensure that it always has funds to pay for its complex business.
Council reserves are normally calculated as a proportion of net operating expenditure – the amount of money the council spends on day-to-day operations. By the start of this year, Croydon had the lowest level of reserves of any london borough.
And as Robert Ward, one of the borough’s Conservative councillors, has pointed out this week, it’s a really bad idea to have such low reserves when the council is pursuing high-risk strategies – like investing in failing hotels or pouring millions into a badly-managed housing company.
The council, Ward wrote this week, “not only pursued high-risk activities, such as speculative property investment, it also failed year after year to manage the finances.
“As is required by law, balanced budgets were set, but were never delivered. Over-spending was endemic, eroding reserves year by year.
“The auditor criticised both the cabinet and the scrutiny and overview committee… “, that’s the committee chaired by apologist-in-chief Fitzsimons, “… for failing to point out that if the spending gap of £65million forecast for 2020-2021 was not closed, the reserves were now insufficient to cover this and the council would be forced to submit a Section 114 notice, effectively declaring they were bust.”
Ward calls this a “triple whammy”: “increased risk from property speculation and overspending, low reserves further eroded by the overspending, and persistent denial of the problem”.
Ward writes, “It did not need the covid-19 pandemic for this to be exposed. As has been shown by the auditor, the council’s luck had already run out by March 31 of this year.”
When Ward’s Tory colleagues were last in charge of the Town Hall, they had accumulated debts of £1billion, including spending on their own, failed speculative property project, the CCURV. But the council’s reserves in 2014, when Newman and his numpties like Fitzsimons took over, was £80million.
“On the rare occasions the Conservatives got to ask specific questions on reserves,” Ward writes, “Councillor [Simon] Hall would… point to the level of the General Fund balance, which had little changed.
“What he omitted to mention was the erosion in the major element of the reserves, the greatly increased risk and the failure to meet budgets.”
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