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SEE UPDATE BELOW FOR EXTRA LETTER FROM PwC to DCLG

You’ll probably have heard by now (as I predicted here eight days ago) that Tower Hamlets council is filing for a High Court judicial review of Eric Pickles’ decision to send in PwC to inspect their accounts.

They announced their move yesterday, the day after Eric stood up in the Commons to tell MPs the council had caused a “considerable delay” in the inspection by failing to provide documents.

The full grounds for the council’s court action aren’t (as far as I’m aware) yet publicly available. Lutfur Rahman’s team (advised and encouraged by interim/consultant monitoring officer Meic Sullivan-Gould) believe they have a good case, although they haven’t yet laid it out.

The writ will become publicly available soon enough, but all we have to go on at the moment is a letter written by the Mayor to Eric Pickles yesterday. And that seems to focus on the costs of the audit, which the Government has estimated at about £1million.

That £1million will be borne by Tower Hamlets council, presumably regardless of the outcome.

So you can see there is a game of very high stakes poker here…and it’s not just limited to the politicians. Remember who wrote to the council’s Macavity Cat head of paid service Stephen Halsey in the first place? Answer…Sir Bob Kerslake, who is not only the permanent secretary in the Department for Communities and Local Government, but also the Head of the Civil Service itself.

If LexLutfur/Super Rahman wins, both Eric and Sir Bob will have some pretty serious explaining to do to Parliament. Which is partly why the DCLG said it would “robustly” contest the judicial review yesterday. Another simpler reason might be, of course, that Sir Bob strongly believes the decision was correct.

That said, I thought it would be useful to highlight here in one place all the publicly available correspondence on this issue.

Here are the letters from April 4 from Sir Bob to Halsey and from the DCLG’s Helen Edwards (in charge of the Localism section) to Will Kenyon, the partner at PwC:

bob kerslake, tower hamlets BK to SH 4 April2 PWC - Appoint finalPWC - Appoint final2These letters outline the scope. They say DCLG has received documents suggesting poor governance and suggesting possible fraud. They say PwC has had an initial review and further investigations are recommended. They say a file has been passed to the police and that the Panorama programme on March 31 has also raised further concerns. They say the inspection’s scope will relate to grants, transfers of fixed assets, the council’s publicity, and the way the council enters into contracts.

On the file to the police. We know the Met announced in May that it found “no new credible evidence of fraud”. But those files in DCLG’s possession did contain evidence of possible fraud in relation to the council’s dealings with the Brady Youth Forum. We also know that the council was aware of that alleged fraud in January (following a report by internal auditors Deloitte) but that was only reported to the police TWO months later AFTER Panorama started asking the council questions about it. It’s a good bet that PwC are asking why.

On the Panorama programme. I’m not sure Sir Bob is right to say that Panorama in its broadcast alleged “possible fraud”. It didn’t mention fraud at all. It questioned Lutfur’s governance.

On the scope of the audit, the areas look fairly clear to me, although I can see why the council might be arguing vagueness in relation to the way into enters into contracts. That said, without the keys to those doors, PwC would be pretty hampered.

On costs. Sir Bob tells the council it must pay PwC’s “reasonable fees”. Reasonable is a term loved by judges and lawyers and it means what it is. PwC isn’t allowed to lengthen the investigation merely to inflate its fees. And would it be reasonable to (as the council suggests) place a cap on PwC’s costs? PwC will go where the evidence takes them so this might well explain the frustration felt by council officers at having to produce yet more files as well as overseeing the “excellent” everyday services the council carries out.

Which brings us to the next set of letters.

*UPDATE: Thanks to Mark Baynes of the Love Wapping blog for highlighting this next letter, which I missed from the original post here. It’s a letter from Will Kenyon at PwC to Paul Rowsell, a senior director at the DCLG. In it, Mr Kenyon outlines the delays and gives examples of missing information. It’s a very useful insight into the kinds of questions being asked and paperwork sought. It’s a mind-numbing task and helps explain why auditors are paid so well… . One of the questions appears to relate to an advert placed with five Bengali TV stations, including Channel S, which was later censured by broadcasting regulator Ofcom.

 

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[No doubt, the auditors will also have come across this other example of procurement in Takki Sulaiman’s communications department, ie when in 2012 a botched deal to put up banners of the Mayor was given to Fortuna Associates, a consultancy run by Chris Payne who had a few months earlier been a mate of Takki’s as the head of advertising for East End Life.] /END UPDATE.

Here’s the letter from Paul Rowsell at DCLG to Stephen Halsey on Monday, June 30.

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This expresses disappointment at the delays caused by the council. It also uses some alarmingly strong language about “material” affects on the “future circumstances at Tower Hamlets council? Is this a first indication/warning that some central government intervention and control is being planned? (The Mr Holme referred to is Chris Holme, the director of finance at the council.)

And this is Lutfur’s letter to Eric Pickles in response yesterday:

Letter to Rt Hon Eric Pickles - 1 July 2014_Page_1

Letter to Rt Hon Eric Pickles - 1 July 2014_Page_2

Just as Eric Pickles may have tried to make some political capital out of the delay to the audit in the Commons on Monday (by triggering suggestions the council was withholding documents, when the reality could well be they just can’t find them quickly enough, or they don’t exist), Lutfur, too, goes down that route.

From his letter we learn there has been a series of other unpublished letters in which the council has been complaining about justification, scope and costs. The great champion of public scrutiny and transparency that is Tower Hamlets council and its mayor say DCLG hasn’t been transparent and that it has failed to answer questions. I think that may have caused one or two ironic giggles at DCLG.

However, on the substance…Lutfur is entitled to ask about costs and cost controls. It would seem unfair if Tower Hamlets council taxpayers were to pick up the tab for any failed governance by its politicians and officers, or none at all. If the PwC report gives a clean bill of health, then surely there must be a clawback from Whitehall. If the report is damning, Pickles would be wise to say DCLG is picking up the tab as he installs emergency measures at the council. Either way, the residents in “one of the most deprived communities” in the UK (as Lutfur says) should not be penalised.

I’m also puzzled why Lutfur has been persuaded to insert into his letter absurd references to “10 million” items of data requested by the PwC. It sounds like a cheap line concocted by interim officers and communication chiefs. Maybe someone should FoI how they calculated 10 million and how long that exercise took them. As Cllr Andrew Wood, an accountant, pointed out here yesterday:

As a qualified acceptant who has been audited many times by PWC, I agree the 10 million separate data items is complete rubbish. There might be one request to provide all invoices paid by the council over the last year which might generate one spreadsheet with millions of cells but downloading it from any normal system only takes maybe a few hours or maybe an overnight batch run.

Takki and co may think this is a headline grabbing line for some press outlets, but it makes the council and the mayor look stupid.

As for what happens next…the council’s writ will be lodged and heard before a judge imminently.

And in the meantime, DCLG will continue its contingency planning. One thought: Tower Hamlets council is still without a chief executive; if the PwC report does come back with major failings, it would seem a perfect opportunity for him to install one. The last time he did that was in 2011 when he approved no-nonsense Jo Miller to run failing Doncaster Council.

Granted, there were much bigger service failures at Doncaster but there were similar dysfunctional politics to Tower Hamlets. Jo is highly regarded in Whitehall and many think she has turned the council around. When her job is done there, might Tower Hamlets be her next challenge?

 

 

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