Auditors call for improvements at Newham after unlawful spending on college

Auditors have called for improvements in financial governance at a London council after millions of pounds of unlawful spending took place without the knowledge of the section 151 officer.
The Audit Commission this week published a public interest report by audit firm PricewaterhouseCoopers which was triggered by a £9.8m overspend by London Borough of Newham on a new sixth form centre.
The investigation found that four separate pieces of internal and external legal advice given during 2013 and 2014 had concluded that the council did not have the statutory powers needed to establish the centre.
This advice was neither followed nor escalated for the attention of the section 151 officer or chief executive, the report concluded.

The report said: “Despite numerous meetings over an 18 month period, no appropriate resolution was sought to enable the establishment of the sixth form in accordance within an appropriate statutory framework.
“Despite the delegated decision not being taken properly the project proceeded as planned in full knowledge of the legal concerns and associated risks.”
The failure of the project board to obtain cost reports from contractors, revised forecasts or financial monitoring reports was also not communicated to the section 151 officer, according to the auditors.
In addition, £10.3m of work was awarded to a contractor without following procurement rules and without member approval.

However, the report also found that the college has already developed a good reputation among students and parents.
A legal opinion cited in the report said that “this has not been a frolic for the council’s own good” and that the project has “not been wasteful or speculative, but has been for a proper public purpose”.
However, PwC recommended the council should establish a central project management office for all future projects with clear reporting lines to senior officers.
It also called for a review of constitutional arrangements, including mechanisms to track delegated decisions and to “better enable the monitoring officer and section 151 officer to undertake their statutory roles.”

The council is currently implementing measures to ensure that ongoing expenditure on services provided at the campus complies with the law.
But it has admitted that there is a risk that much of the original grant funding for the project may have to be repaid and replaced by borrowing or funds from reserves.

Photo of Stratford station (cropped) by Matt Buck