Ranil Perera DEMOC committee member and former Labour Party council candidate reviews the Grant Thornton audit report on Croydon, and how a Directly Elected Mayor can help resolve some of the problems found.

Full Report at: https://www.croydon.gov.uk/sites/default/files/articles/downloads/Report%20in%20the%20Public%20Interest%20-%20London%20Borough%20of%20Croydon.pdf

Grant Thornton Report issued a Public Interest under section 24 and Schedule 7 of the Local Audit and Accountability Act 2014 on the London Borough of Croydon Financial Position and Governance.

Issues identified

· The London Borough of Croydon experienced deteriorating financial resilience over several years.

· The Council ignored recommendations in 2017/18 Audit Findings Report presented by Grant Thornton to the General Purposes and Audit Committee in July 2018.The report noted that reserves were very low, and that there were a number of risks to continued financial health.

· The Council took no action when Grant Thornton presented their 2018/19 Value for Money Conclusions to the General Purposes and Audit Committee in October 2019. The report identified significant costs and that the reserve position was low compared to other London Boroughs. They noted also that the forecast deficits for both 2019/20 and 2020/21 exceeded the available general fund reserves.

· The financial position continued to deteriorate during 2019/20.

· Grant Thornton wrote to the former Chief Executive in April 2020 setting out action considered to be vital. But, as at the end of August 2020, the Council had failed to produce a formal action plan or to respond to audit recommendations although a formal written response was received by Grant Thornton on 28 September 2020.

· Some overspends have been masked by both the accounting treatment e.g. Dedicated Schools Grant deficit (which Grant Thornton disagree with) and the ‘flexible’ use of capital receipts.

· In the past three years, the Council has reported significant service overspends of £39.2 million within children’s and adult social care.

· The budget monitoring reports during 2019/20 showed significant overspends, which reduced following ‘corporate adjustments’ of £17.7 million. The reports were accepted by Members without an appropriate level of challenge.

· Financial Consultant retained by the Council reviewed budget setting, monitoring, and reporting processes and identified areas for improvement.

· Neither the Cabinet in July 2020 and nor the Scrutiny and Overview Committee in August 2020, addressed the significant fact that the budget gap exceeded the available reserves. In Grant Thornton’s view this was a failure of governance and showed a lack of understanding of the urgency of the financial position by Councillors.

· The size of the financial gap in 2020/21 has increased due to the additional financial pressures resulting from the covid-19 pandemic.

The new mayor Ms Hamida Ali acknowledges “This report highlights serious issues with how the council has managed its finances in recent years.”

https://news.croydon.gov.uk/new-council-leader-apologises-and-pledges-swift-and-decisive-action-to-address-findings-of-public-interest-report/

Why did things go wrong?

The report clearly identifies why things went wrong:

· Lack of independent challenge - the ‘strong leader’ model discourages challenge – councillors lose their privileges / rewards if they challenge the ‘strong leaders’ actions and privileges.

· Recommendations of auditors not acted on:

o Recommendations were presented in their 2017/18 Audit Findings Report by Grant Thornton to the General Purposes and Audit Committee in July 2018. The report noted that reserves were very low, and that there were a number of risks to continued financial health.

o No action was taken after Grant Thornton presented their 2018/19 Value for Money Conclusions to the General Purposes and Audit Committee in October 2019. The report identified significant costs that needed to be addressed and that the reserve position was low compared to other London Boroughs. They noted also that the forecast deficits for both 2019/20 and 2020/21 exceeded the available general fund reserves.

· Lack of financial expertise / financial leadership

· Poor governance including:

o Lack of stakeholder engagement

o Insufficient monitoring of financial performance

o Lack of long to medium term financial management

o Insufficient external financial reporting

o Inappropriate group company structures

The remedy – Directly Elected Mayor

· A directly elected Mayor can provide independent challenge. For example, make appropriate challenge to plans and proposed action. A Directly Elected mayor is accountable to the local electorate and not to party groups. This can prevent ‘tribalism’ from developing.

· Also Directly Elected Mayors being accountable to the local electorate and not to party groups, will improve governance – making decisions that benefit the electorate as a whole, rather than party groups or colleagues.

· As representatives chosen by citizens rather than their party colleagues, Directly Elected mayors are arguably more externally focused. Many such Directly Elected Mayors see themselves as the leader of the region for which they are elected rather than as the (strong) leader of councillors.

· A Directly Elected Mayor can ensure Councillors elected have sufficient financial and risk management expertise to achieve good outcomes. If not recommend training / have advisors.

· A Directly Elected mayor can:

o Monitor financial performance objectively

o Develop, implement and monitor a long-term financial strategy

o Manage capital strategy

o Oversee an asset management plan

o Ensure financial resilience

o Maintain reserves

· By virtue of being directly elected, mayors are known to a far greater proportion of the local electorate than are council leaders selected by majority. Thus, they have an incentive to devise and implement policies and oversee procedures that yield good outcomes for the electorate.

· A Directly Elected Mayor can reconnect voters and politicians to yield good outcomes.

· Directly electing a Mayor encourages developing a strong and more personal relationships with their constituents and crucially empowers local citizens by ensuring they have a clear sense of who is in charge and who they can turn to.by ensuring they have a clear sense of who is in charge and who they can turn to.

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