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…
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