CROYDON IN CRISIS: Auditors are refusing to sign-off the Town Hall accounts because of missing millions from a complex nexus of housing companies, which could force the council to tip over the edge into bankruptcy for a second time in 18 months.
EXCLUSIVE by STEVEN DOWNES
Storm warning: the council’s finances have another £73m hole in them
Croydon’s cash-strapped council is on the brink of having to declare itself effectively bankrupt for a second time in less than 18 months, as its auditors are refusing to sign-off on its annual accounts because £73million cannot be accounted for.
And once again, the Town Hall’s financial problems centre on deals and contracts involving council-owned companies, including Brick by Brick.
Since its financial collapse in 2020, Croydon has been repeatedly criticised for failures of governance and proper accounting over its various property assets in various reports from external auditors and consultants. Most recently, that came in a Report In The Public Interest into the Fairfield Halls fiasco where external auditors Grant Thornton found “the council failed to ensure it was acting lawfully”.
This latest scandal to break at the crisis-hit council stretches back five years and revolves around the often convoluted efforts by Simon Hall, the Labour-controlled council’s cabinet member for finance, and Alison Butler, the then cabinet member for housing, backed by senior council finance director Richard Simpson, to circumvent borrowing limits and spending rules relating to the Tory government’s Right to Buy legislation.
An official council report is due to be published later today, ahead of Monday’s scheduled cabinet meeting. That report is expected to detail how arrangements surrounding the complicated nexus of companies, centred around Croydon Affordable Tenures and Croydon Affordable Homes, has seen public money potentially misappropriated on other “day to day spending”, in areas such as adult social care, children’s services and the Croydon Digital Service.
According to Katharine Street sources, the auditors are now refusing to sign-off on Croydon’s 2020-2021 accounts – which straddle the period under chief exec Jo Negrini and council leader Tony Newman, and their successors Katherine Kerswell and Hamida Ali.
No one else to blame: council leader Hamida Ali and chief exec Kathrine Kerswell
A total of £112million of funding for property purchases was used to supplement the creaking budgets of other council departments, and the auditors are not satisfied that council officials were acting within their legal authority to spend the money in that manner.
It was in November 2020 that Croydon Council first issued a Section 114 notice, when in the midst of the first year of the coronavirus pandemic, it was unable to deliver a balanced budget due to a £67million covid-shaped hole in its accounts.
Then, Grant Thornton had accused the council of “collective corporate blindness to both the seriousness of the financial position and the urgency with which actions needed to be taken”. Their latest concerns over Croydon Affordable Tenures and the other companies suggests that, despite all the platitudes offered by Kerswell and Ali since, little has really changed.
Global accountancy consultants PwC have been hired to take another look at the complicated corporate arrangements, CIPFA, the public finance organisation, is lending a hand, a Queen’s Counsel is providing legal advice, and senior accounting experts from local authorities around the country have also been called in to assist with this latest crisis.
They were warned: the confidential report from PwC laid bare multiple concerns over the Croydon housing companies
Between them, they are checking on Grant Thornton’s concerns that the council’s use of spending intended for “transformation projects” may have been ultra vires.
A “private and confidential” review of the council’s housing companies was conducted by PwC in 2020, and published just two days after the council issued its first Section 114 notice.
Inside Croydon has seen the report, an “Independent strategic review of Brick by Brick Croydon Ltd, Growth Zone, Croydon Affordable Homes LLP, the Revolving Investment Fund and the Asset Investment Fund”.
Even 18 months ago, it was clear that there were significant issues surrounding the council’s operation of its housing companies.
“The governance arrangements of the [Croydon Affordable Homes] LLPs require significant strengthening, as they have been run with insufficient financial oversight,” PwC’s bean-counters said then, a theme that has become very familiar since.
Embarrassingly for the council, they noted that the “holding company was dissolved as Companies House filing deadlines were not met…”, which PwC said, “…indicates a need to significantly improve corporate governance and administration”.
In the latest accounts filed with Companies House last year, Croydon Affordable Homes has assets of £21million on its balance sheet, while at the end of March 2020, Croydon Affordable Tenures held £87.5million-worth of properties.
In their 2020 report, PwC said, “We recommend [Croydon Council] puts in place robust governance around the LLPs given the value of the assets held, with dedicated team resource aligned to the funding that the LLPs provide.” Urgent questions will be asked at Monday night’s council meeting whether this important recommendation was ever properly implemented.
Complicated nexus: official records show at least six inter-related companies registered by Croydon Council
According to the council website, “Croydon Affordable Homes is a registered charity which works with the council to boost the housing supply in the borough and make housing more affordable for both local tenants and the council. They set affordable rents and give priority to local people in most need.”
Elsewhere, the council says, “Croydon Affordable Homes was set up with the goal of renting out at least 340 local homes costing a maximum 65per cent of the usual private rent to borough residents by 2020.
“Part one of this plan is complete, with 96 one-, two- and three-bedroom properties now formally transferred from being council-owned temporary housing to becoming part of CAH. This gives the tenants longer tenancies, turning temporary accommodation into assured shorthold tenancies lasting between one and three years.”
The properties are in New Addington, Selhurst and Sanderstead, according to the council. “A couple on housing benefit can afford the rent through the Local Housing Allowance,” they say.
The bulk of the homes, 244 of them, were part-funded with £30million-worth of Right To Buy house sales. “These homes will be built by Brick by Brick, the development company set up by Croydon Council, and Hub, the company leading the regeneration of the former Taberner House site in Croydon town centre.”
The council explained on its website: “Borrowing restrictions mean the council cannot fund these developments through its Housing Revenue Account, so the creation of CAH allows the same outcome of delivering affordable rented properties across the borough.”
Given the council’s recent track record with finances, requiring a record government bail-out of £120million, this latest discovery of multi-million incompetence is likely to cause massive discomfort in Whitehall – not least because it includes a period in which they had their own appointed commissioners, the “improvement board”, checking Croydon’s homework.
Going for broke: £30m was paid to Brick by Brick to buy homes for social rent under the Croydon Affordable Housing arrangements which the auditors are now questioning
There is now considerable doubt whether it is safe for the council to set its budget for 2022-2023, which was expected to happen at a full council meeting a week on Monday, February 28.
Inside Croydon understand that that meeting will now be postponed by a week, to give the council and the Department for Levelling Up more time to negotiate yet another “capitalisation” direction which would avoid the need for a new Section 114 notice.
Any such further government bail-out will require more council property and assets to be flogged off, and even more services to be cut.
As one Katharine Street wag told Inside Croydon this morning, “Who would want to be elected as Mayor of Croydon now?
“There’ll be nothing left to run, and they’ll be left standing in the rubble of the Town Hall caused by Negrini, Newman and his numpties.”
Croydon is London’s Borough of Culture 2023…
Read more: Council forced to declare itself bankrupt
Read more: £67m fraud at Fairfield: Town Hall row over calling in police
Read more: Conflicts of interest, incomplete contracts, unlawful payments
Read more: Brick by Brick has paid nothing to council
Read more: Council ignored five warnings on reserves
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The mismanagement of finances at Croydon Council appears to be still going on. So have the attitudes that led to this mess actually changed?
There needs to be a clear signal from the people of Croydon that we have had enough of this. We all deserve better from our Council and we should be getting it.
In May you get to elect a new Mayor of Croydon and new Councillors. It’s time for a fresh Green start for Croydon
Sadly, we all know that the wards in “Lambeth South” will always return Labour councillors.
Things are changing. Crystal Palace has always been a good Green area (we were second behind Labour there in the London elections last year) and there are other areas of Croydon where we have made even more progress. I genuinely believe there will be Green Councillors in Croydon in May.
When it comes to the Mayoral election, the Greens have been the main alternative to the old red and blue for the last few local elections. People are desperate for change, the question is will they vote for it? Everyone has two votes for Mayor and so the old arguments that you have to vote one way to keep Labour/Conservatives out don’t apply. People can safely vote for me as their first choice and put a back up as their second choice if they are worried about the ‘other lot’ winning.
My job between now and May is to convince people to do that.
This latest revelation is beyond shocking. The people responsible must be held to account. Surely it is time to call in the fraud squad. How is it possible for £73m to go missing? This is totally ludicrous. Can we “Croydon tax payers” request that legal action is taken against those who were in charge at the time? How can we make this happen?
“An official council report is due to be published later today, ahead of Monday’s scheduled cabinet meeting.” As is their custom. presumably an “Economical with the truth” report will be issued after they hope everyone has switched off the weekend ?
Isn’t it time Negrini is asked to account for the wholesale financial failure of the projects initiated during her period as development director and chief executive?
The whole ad hoc mess of companies appear to have been set up without supporting legal counsel or any financial transparency regarding their operation. It appears chronic incompetence rather than deliberate fraud has been the basis of this failure, but in effect for the residents of Croydon Council they are the same thing.
The Blair Government in removing the financial responsibility for decision makers to bear some costs for unlawful decisions has created this black hole of irresponsibility, aided and abetted by the Cameron Government’s localism agenda which allowed investment money to be channelled into any unspecified programme without legal authority.
Nothing to do with Blair.
It was the Conservatives that abolished the Audit Commission, in revenge for them sinking the boot into Shirley Porter over the Homes for Votes scandal at Westminster City Council
You hit the nail on the head, Arfur. The other thing that happened was central Government stopping councils from developing their own council housing in the traditional open manner, forcing councils to do things via “arms length” companies. Arms that get disconnected from the Municipal body corporate………. arms that stop obeying the commands of the body, and take on a life of their own.
Come to think of it, disconnected from the parent body, a lot like tax haven islands moored offshore in UK territorial waters.
All well and good until the arm comes round and slaps and punches its owner in the face. Then asks the abused body for a financial hand-out. Or two. O three. And gets them !!
Was that Mrs T or Mr. Blair ……or both ???
It will all be OK, remember, Kerswell and Ali promised to investigate and hold accountable those directors and councillors responsible for the mismanagement back in Sept 2020. I am sure 17 months on Kerswells investigation is close to conclusion.
Doesn’t she have a report written at considerable expense by Richard Penn? Whatever happened to that?
Negrini has done a runner long time ago. So why is Kerswell still staying so silent ? Step up to the plate and show some leadership in making a public statement about Croydon Council’s plans for the future.
And we still pay and pay ridiculously high council tax for services that cant be provided because theres NO MONEY LEFT ….now where have i heard that line before. The loot has been looted from under our noses, but hey, we just carry on giving
How could £73 million go missing and unaccounted for! Croydon Council this is unbelievable and highly irresponsible come on people you all know what happened did you not notice the red flags? but choose to ignore it? those who were in charge should be held accountable resigning from their jobs is the easy way out!
why is anyone surprised ? .. money has been wasted on vanity projects right left and centre …. its about time this missing money was repaid by those in charge and we all know who they are ..
It is time for the government to takeover. This cannot go on.
The corrupt Tory government that refuses to cooperate with a police investigation, one that pours our money down the drain or gives it away to its friends and donors? You want that government to take over Croydon council Patrick?
If some crackpot politician changed the law to require you to sell your property at an undervalue, you would move heaven and earth to try to get round it
Inevitable problems are only now crawling out from the right to buy and are unlikely to be investigated fully by a Tory government
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A local government retiree writes…….
“Dear Editor,
In the old days of the 1960’s, 70’s , etc etc, the council’s budget was split up into pots allocated to Chief Officers such as the Borough Engineer–for roads, car parks and bridges …the Parks manager… for parks the Chief Architect…. for new build and property maintenance and management……. Housing Director… for managing all the council housing…..Planners– Valuers- Social Service officers– Pubic Health Directors ………and many others, in their area of expertise.
These people were actually trained engineers, park people, architects, Housing people and all the others. They were personally held responsible for spending the allocated budgets.
The budgets were closely guarded and spent — not underspent, nor badly overspent.
Something happened to get rid of this link between expertise and responsibility.
Perhaps the appointment of generic managers who know very little about these fields ?
The triumph of style over substance?”
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