6th August
2024
Dear Ms Duncan,
I read your recent report
on council owned companies’ governance, and listened to the agenda item discussion
at the 17th August meeting of the Assets & Procurement
Committee, including your presentation
of the report.
I have some comments on governance of two council-owned subsidiaries: Cambridge and Counties Bank Ltd, and This Land Ltd. I also have something to say about your own conduct, as Monitoring Officer, in denying the public their statutory inspection rights under s26 of the Local Audit & Accountability Act 2014 – also in relation to This Land Ltd. The time-honoured inspection rights should be the public’s opportunity to play their own important role in governance and scrutiny at their local authority. Especially when the council itself and its auditors fail to do their jobs properly in this regard, it is essential for interested parties, and local electors in particular, not to be obstructed by council officers and thus prevented from performing their important work. I address this in more detail below.
Cambridge and Counties Bank Ltd.
The table of subsidiary companies in paragraph 3.2 of your report
does not include Cambridge & Counties Bank Ltd, in which the Cambridgeshire
Local Government Pension Fund holds a 50% share currently valued at £69.7
million. Strictly speaking, the pension
fund is a different entity to the County Council. However, as the draft 2023/24 pension
fund accounts point out in Note 25 (Related Party Transactions):
The Cambridgeshire County
Council Pension Fund is administered by Cambridgeshire County Council.
Consequently, there is a strong relationship between the Council and the Fund.
The Council incurred costs of £3.4m (2022-23: £2.9m) in relation to the
administration of the Fund and was subsequently reimbursed by the Fund for
these expenses. The Council is also the single largest employer of members of
the Pension Fund and contributed £35.2m, excluding Local Education Authority
schools, to the Fund in 2023-24 (2022-23: £31.7m). At 31 March 2024 there was
£4.4m (31 March 2023: £7.1m) due to the Fund by the Council.
In addition, on Companies House, CCB’s Certificateof Incorporation shows Cambridgeshire County Council and Trinity Hall
College each owning one of the two issued shares, giving the County Council 50%
ownership.
CCB’s latest audited accounts for the year ending 31 Dec
2023 clarify the ownership question in Note 34:
The same Note 25 to the pension fund accounts states (under the Governance sub-section), that CCC has a Pension Fund Committee on which elected members serve, and a Board of Employer body, on which the following serve: Cllr Sharp, Cllr Boden, and Lee Phanco.
Note 25 also includes a paragraph on Cambridge and Counties
Bank Ltd:
The Fund is joint owner, along
with Trinity Hall, Cambridge, of Cambridge and Counties Bank (CCB). The Fund has no controlling interest in the Bank and it is
included within the Fund’s financial statements as a minority interest.
Each shareholder is entitled to appoint one shareholder Non-Executive Director
to the Board of CCB. The Fund is represented by an external party to the
Pension Fund (See Note 5).
But, if the pension fund has no controlling interest in the Bank
even though it owns 50% of the shares, then does the same apply to Trinity Hall,
which holds the other 50% of the shares?
Who then controls the Bank?
In the Related Parties Note to CCB’s accounts however, CCC
and Trinity Hall are described as “controlling parties”:
Although each shareholder is entitled to appoint one
shareholder Non-Executive Director (NED) to CCB’s board, it would appear that CCC
currently does not have a NED at CCB.
Former CCC CFO Chris Malyon served as a NED between November 2013 and
October 2018. He was replaced by Richard
Perry (CCC Pension Fund) between February 2019 and March 2022. But there has been no apparent NED from the
CCC shareholder since then – at least not according to Companies House. This is reflected in the sums paid in respect
of Directors’ services. From a peak of
£53,000 NED fees paid to CCC in 2021, in the last two years, the sums paid to
CCC have dropped to £13k and zero (see above).
Trinity Hall has not sought payments for its NEDs since 2015 (£9k).
It is therefore legitimate to ask what governance, if any,
does CCC exercise over its £69.7m investment in CCB (an unlisted bank with
minimal external regulation), especially in light of the council’s acknowledged
“less than optimal governance” of its subsidiaries. Perhaps this is an example of the patchiness of
governance reporting that you mentioned.
CCC is clearly the de facto and de jure
owner of the 50% share in CCB, yet CCB is omitted from the list of subsidiaries
in the report, in which CCC holds a 25% share or more. It seems doubtful that the Pension Fund
Committee has taken on, or would take on the oversight and scrutiny role for
council-owned companies now proposed for the new sub-committee. Lastly, with apparently no NED from CCC or its
pension fund serving on the board or on any committee at CCB for over two years,
it is not clear how CCC would even be capable of performing that role today.
My questions to you therefore are:
a)
Can you explain why CCB was omitted from the list
of council companies in your report?
b)
Was it an oversight that will now be corrected?
c) How does CCC intend to effect proper governance and scrutiny over its interest in CCB with no NED currently in place, and therefore with limited channels of communication or information?
As Monitoring Officer, you should already know that CCC’s
relationship with CCB is already the subject of one of the council’s most
shameful corruption and cover-up scandals of recent years. As noted above, former CFO Chris Malyon was a
non-executive director at CCB between November 2013 and October 2018. While in that role, CCB “officially” paid CCC
up to £253,000 in cash in the form of non-executive director fees for Mr
Malyon’s services. However, in 2018,
auditor BDO referred to some of those payments as the “omission of remunerative
benefits required for inclusion” in CCC’s financial statements. Lisa Blake later confided to me that the
omissions related to Mr Malyon’s NED fees (see here,
p18). In other words, the payments went
to Mr Malyon, rather than to CCC, but he failed to declare them. In his role as s151 Officer, Mr Malyon had a
statutory duty to prepare and certify the annual financial statements as true
and fair. After Ms Blake stumbled across
these irregularities, she lied about them and covered them up, as did her
successor, EY audit partner Mark Hodgson, the two other statutory officers (CEO
Gillian Beasley and Monitoring Officer Fiona McMillan, and the Chairman of the
Audit & Accounts Committee (former Cllr Mike Shellens). It is not yet known whether the then leader of
the Council, Cllr Steve Count, knew about the alleged frauds (including possibly
personal tax fraud), or whether he was party to the multiple cover-ups.
One such cover-up was an unlawful £38,000, mid-year, secret
pay rise the CEO claimed to have awarded Mr Malyon in 2017/18, but which was never
proposed, debated, or approved by the Staffing and Appeals Committee or the full
council, was not shown in CCC’s 2017/18 pay policy statement, and for which
there is zero official supporting documentation. See here
for analogous unlawful payments that resulted in a s114 Notice at Northumberland
County Council.
The current CEO, Dr Stephen Moir, knows the full facts
because I personally briefed him on them in September 2022. He has taken no action. This episode will shortly be exposed in an
upcoming blog.
This Land Ltd
In presenting your report to the Assets and Procurement
Committee, you cited recent guidance to councils on good governance of
council-owned companies. Some of the errors made in relation to CCC’s
most prominent failed company – This Land Ltd - should not have needed formal
guidance. They were down to a lack of
common sense or a willingness to challenge by members.
For example, in May 2016, when the former CFO, Chris Malyon,
and former Monitoring Officer, Quentin Baker proposed setting up the company that
was later renamed This Land Ltd, the official
minutes record the following exchange:
A Member asked, on the basis
of forecasts already undertaken on borrowing, repayments and income streams,
how long it would be until there was net income. Officers advised that they did
not expect the HDV [Housing Development Vehicle] to make a profit for
some time, maybe even for decades,
although the income for the Council would be realised straight away. Much
depended on the shape and length of the development pipeline.
Nevertheless, under the Chairmanship of the disgraced former
deputy council leader, Roger
Hickford, members of the Commercial and Investment Committee voted unanimously
to request that the Director of Law and Governance incorporate the company,
without a detailed business case, without public consultation (as required
under s3
of the Local Government Act 1999), and without even putting the matter before
the full council. Cllr Chris Boden is
the sole remaining CCC member who served on that committee. The company, under its initial name of
Cambridgeshire Housing and Investment Company Ltd (CHIC) was incorporated three
weeks later, with the Monitoring Officer and the CFO taking the two
director roles.
For all but nine of the next fifty months, Mr Malyon was
This Land’s effective finance director and CCC’s CFO, representing a
glaring conflict of interests, that members ignored. In his council role, Mr Malyon had a perverse
incentive to maximise CCC’s commercial loans to This Land Ltd, since that would
maximise the net interest return for the council to use as revenue, and so compensate
for the CFO’s inability to balance the books.
That device of borrowing for yield and turning capital into revenue (since
outlawed by central
government) was the main reason behind the two statutory officers’ plan to
create the housing development vehicle in the first place, as the original May
2016 report makes clear. The race to
lend This Land up to £115 million before the company was ready to purchase land
on which to build and sell houses for profit, was the single biggest factor behind
This Land’s failure and its £38m losses up to March 31 2023. Members on the Commercial and Investment
Committee, and the Audit & Accounts Committee remained blind to the facts
and deaf to repeated warnings until it was too late.
My requests for information under s26 of the Local
Audit & Accountability Act 2014
I wrote to you on 2nd July this year, asking you
to compel finance officers to provide me with the documents and records I had been
denied by the Head of Finance after requesting them under s26
of the Local Audit & Accountability Act 2014. As in previous annual inspections, the Head
of Finance again gave an incorrect and ignorant excuse for refusing me the
information. I explained to you, as I
did to him, that the legislation states that all documents, records etc. relating
to the accounting records to which the audit relates are within scope of the statutory public inspection. That includes the draft accounts and other documents
and accounting records of This Land Ltd, all of which come within scope of the audit
because This Land forms part of the Group Accounts, which is audited by the external
auditor. Indeed, during the 2021/22 audit,
EY pretended to investigate the recoverability or otherwise of the council’s outstanding
£113.8m loan to This Land Ltd.
I pointed out in my letter that under Schedule 7 of the Act,
the auditor may issue public interest reports or written recommendations on any
matter coming to his notice relating to the authority or an entity connected with the authority, which
evidently includes This Land.
Furthermore, in This Land’s Articles of Association, paragraph 53.1 reads:
“The Shareholder shall have
the right on giving to the Company reasonable advance notice, during normal business
hours to inspect the books and records of the Company.”
Finally, This Land Ltd and its associated companies are
public authorities, and are obliged to respond to Freedom of Information requests. This Land Ltd is listed on the FOI website whatdotheyknow.com.
There is therefore no excuse for CCC not to provide me with
the information I requested. And yet you
have so far failed to respond to my letter except with a rude and disrespectful
email acknowledging my request.
One very good reason for interested parties and local electors to inspect all these documents and records is to assist the auditor in his work, including submitting objections to the accounts to the auditor by the statutory deadline. Your failure to respond to my letter and to ensure that I received the requested information is a disgrace.
The Local Government Information Unit gives this summary
for the Monitoring Officer’s role:
A
Monitoring Officer is the statutory officer responsible for the legal governance of a local authority in much the same way that a section 151
officer is responsible for a council’s finances. The majority of the role is
set out under section 5 of the 1989 Local Government
and Housing Act. They
have a legal duty to ensure councils fulfil statutory obligations and apply
their codes of conduct.
This includes investigating and reporting on anything the authority does that
has the potential to be an illegal action or any action that might count as maladministration.
Year after year, CCC Finance routinely denies interested
parties their statutory inspection rights for no good reason. It is part of your job to stop that from
happening. You have failed to do so, and
because the accounts inspection period is now over, and with it the deadline
for submitting objections to the auditors, my objection this year was again deficient
in that it lacked vital information that would have been helpful to the auditor. The information I was denied this year
included a copy of This Land’s draft accounts, and the supporting invoices and
other documents for the company’s administrative expenses, millions of pounds
of which have been concealed from the public in every published set of This
Land’s accounts to date. All that
information is already held by, or is easily accessible to CCC.
I therefore consider it hypocritical to say the least, for
you to present a report to elected members about good governance and scrutiny,
whilst conspicuously failing in your own legal governance responsibilities, and
denying the public their ability to hold the council to account.
It is now over a month since I wrote to you with my request. Even though this year’s deadline for
submitting objections has passed, I still demand the information I
requested. Given that delay, I believe it
is eminently reasonable for you to ensure I receive that information without
delay, namely:
·
This Land Ltd’s draft 2023/24 accounts, in full,
·
the requested This Land administration expenses
information for 2023/24, and
·
the requested sale and purchase of property information
relating to This Land covering 2023/24.
within the next ten working days – so by August 19th. Should I not receive all that information by
then, I shall submit a formal complaint to the Solicitors Regulation Authority,
and take whatever other escalation action I consider appropriate.
Your conduct to date seems to reflect the complacent and
arrogant corporate culture that has existed at CCC for too long, and that has
contributed in no small measure to the current financial mess. I note from CCC’s latest draft financial statements,
that including employer’s National Insurance contributions, your services
during 2023/24 cost local taxpayers £160,143.
The three statutory officers together cost taxpayers £585,212 in 2023/24. None of you is doing your job properly, and all
of you have been working against the public interest in many respects. You need to understand that you are public servants,
and that you work for us. Rudeness and
disrespect towards the public are unacceptable.
I therefore look forward to receiving the information I requested
a month ago, and for your benefit, and the benefit of the other officers and members
included in this email, I am including this link to the seven principles of public
life, more commonly known as the Nolan
Principles, which are too often ignored by some senior officers and members
at CCC.
Yours sincerely,
PS. I am copying this as an open letter on my blog.
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