Whitewash. Audit Scotland’s damning review of Council financial practices
Council offices, Chief Executive Joyce White and Cllr Jim Bollan.
By Bill Heaney
West Dunbartonshire Council has been a basket case in relation to the way it has been managed by the SNP administration.
And it is still falling down on the job in the way its £450 million budget is being managed now by a tripartite group of SNP, Independents and Tories, according to an Audit Scotland review of a rejected internal financial management report.
The Council’s abject performance, which has left it wide open to scams and abuse, will be discussed in the Burgh Hall in Church Street today (Tuesday) at 10am.
The internal audit into tendering for lucrative Council contracts within the Roads and Greenspace departments followed an allegation by a member of the public to the Council’s whistle-blowing hotline in March 2016.
The caller, who requested that their identity was not revealed, alleged that senior officers within the Council had received hospitality from a Paisley-based company.
This included champagne and grand cru Spanish wine to wash down T-bone steaks at £78 a throw, double helpings of expensive fish dishes and at least one round of golf costing £650 at an exclusive Loch Lomondside leisure resort.
This was at a time when the company, whose name is covered up in heavily redacted documents, was employed by the Council to undertake work within two service areas, and that contracts were being awarded to that company as a result of hospitality provided.
Internal auditors examined a number of documents including receipts provided by the person who made the allegations, which had names of individuals handwritten in pen on the back.
But when these receipts were queried as part of the auditors’ interviews with the employees whose names appeared on any of them, some of the employees said they were not there and produced alibis for this.
It was revealed at earlier meetings of the Council that other employees had been there but had paid their own way. The hospitality allegations were found by the auditors to be unsubstantiated.
The auditors also analysed 27 contracts relating to 11 different contractors within the two Council service areas across the period 2013 to 2016 and found that within this sample, procurement procedures had not always been followed.
It found that most of this work was awarded outwith the Council’s own defined methods of procurement for such work.
A summary of these findings, accompanied by an action plan outlining how these procurement issues were being addressed, was presented to the Council’s Audit Committee on 12 December, 2018.
Some councillors expressed concern later that this had been “sneaked through” that committee at a quiet time of year.
Audit Scotland’s report states that a disciplinary process was undertaken, in line with the Council’s Disciplinary Policy, in relation to the procurement issues.
This concluded in May 2018 and found there was no basis for action to be taken against any individual employee.
Police Scotland was notified by Internal Audit about the matter in May 2016 soon after the allegation was first received and conducted its own investigation.
No criminality was established and no further action was taken. This concluded the police investigation, although that was resurrected recently when Community Party Cllr Jim Bollan said additional information had come to light and been passed on to the police in Clydebank.
A copy of a heavily redacted report was issued to all elected members on February 7, 2019, but the elected members said they were dismayed – principally because the auditor who compiled it was not allowed to speak to it – and agreed unanimously not to accept it and that it should be passed to Audit Scotland for a review.
Audit Scotland was contacted by the Council and confirmed that it would review the approach taken by the Council as part of its routine wider scope audit responsibility.
The Audit Scotland review, which will come before the Council today (Tuesday) included consideration of the work and findings reported by Internal Audit on contract tendering procedures.
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This review incorporated: • Consideration of the 2018 Internal Audit report I/038/17, Investigation Roads and Greenspace – Allegation of Hospitality and Tendering and Contract Arrangements. • Interviews with officers, and an elected member • Observation of the Council meeting on 14 February, 2019 • Review of relevant Council policies and procedures • Review of a number of documents provided by third parties relating to the allegations of hospitality being provided to council employees.
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Audit Scotland provided a summary report on its review of the Investigation into Tendering and Contracting Practices in Roads and Greenspace Services to the Council on April 25, 2019.
As already demonstrated in the action plan presented to the Audit Committee in December, a number of required improvements, particularly in relation to procurement, had already been identified as part of the original investigation.
As reported to Audit Committee in December and March this year, work has been undertaken to address these improvement actions.
These actions, together with the specific recommendations arising from the Audit Scotland review, have been incorporated into a comprehensive action plan.
Audit Scotland’s team agreed with the conclusions reached by internal audit (that the evidence was insufficient) and were satisfied that the evidence compiled by internal audit supported the conclusions reached and reported.
Meanwhile, Internal Audit has concluded that procurement policies were not always followed in Roads and Greenspace.
It said: “This resulted in work being awarded without a tender process or without seeking sufficient quotes from contractors.
“Managers stated this practice was undertaken due to delivery pressures and the requirement to continue to deliver essential services.
“In practice some existing contracts had lapsed and in the absence of a replacement contract, contracts with historic rates were used with existing contractors.”
Levels of non-compliance were and continue to be highlighted to Elected Members through performance indicators which are reported to Committee and Council through a range of reports.
Within the Council’s current Financial Regulations there is a provision for the disclosure of departures from the Council’s normal financial procedures to Elected Members, at the appropriate committee where expenditure exceeds or is likely to exceed £50,000.
“It has been highlighted throughout the audit process that this has not been done for all contracts and going forward additional measures are being implemented to address this,” the AS report states.
The most recently reported performance for recorded on contract spend was 74% (for 2017/18) with a target of 75% for 2018/19, this performance has increased steadily since 2011/12 when it was reported as 44%.
The Council has now set a target of 90% of all spend being on contract by the end of 2020/21. Additional controls have also been introduced to monitor spend against contracts within Roads and Greenspace.
A Roads Civils Framework agreement has been in place since May 2018 which has introduced a definitive fixed pricing structure for projects in this service area.
WDC Chief Executive Joyce White states in a paper for the special meeting: “As reported to Audit Committee in December 2018, an action plan was developed for the Council to address specific procurement issues raised in the internal audit and is progressing.
“Procurement practice, legislation and guidance has continued to evolve in recent years and in recognition of this, the Central Procurement function of the Council has been enhanced with new approaches developed and significant work undertaken to increase the percentage of spend that is recorded as on contract.
“This has included the recruitment of additional staff and the provision of further support to staff involved in the tendering process.”
In regard to the Council’s disciplinary process, the elected members of the SNP/Tory-run council have been told: “The findings of the internal audit investigation were reviewed and considered to ascertain whether a disciplinary process should be followed.
“A disciplinary process was undertaken, in line with the Council’s Disciplinary Policy, in relation to the procurement issues and found there was no basis for action to be taken against any individual employee.
“The hospitality allegations were found to be unsubstantiated and therefore did not form part of this process.”
Audit Scotland in its review stated that it was the opinion of its team that these conclusions were reasonable.
They explained that in determining whether any disciplinary process was required, consideration was given to whether there had been any breach of the employee code of conduct.
At the time when these contracts were awarded, the wording of the policy on the code of conduct was not explicit and therefore the associations did not constitute a breach.
The code was revised in October 2018 to provide clearer instruction around the declaration of any such relationships and requirements around the register of hospitality.
In light of the Audit Scotland report, this element of the disciplinary process has further been reviewed by the Strategic Lead – People and Technology and the Strategic Lead – Regulatory.
The outcome of this review is that they agree with the view taken by Human Resources at the time that there was no breach due to the wording of the policy in place at the time.
Further revisions to the code will now follow in consultation with the Joint Trades Unions.
Remarkably, the Audit Scotland review states: “There are no people implications arising from this report.”
The internal (Council’s own) audit report advised that as a result of the lack of formal procurement practices having been implemented, the services could not prove best value had been achieved.
This has been reinforced by Audit Scotland in their report which states there are no direct procurement implications arising from this report.
However, organisationally, an ongoing improvement in practice is required to maximise spend that is on contract which will include improved compliance with Financial Regulations across the Council.
The Council is required to ensure best value for Council tax payers. The report identifies that as a result of lack of compliance with Financial Regulations the Council cannot prove best value has been achieved.
“Going forward increased levels of compliance will reduce this risk significantly,” it states.
There are said to be no equalities issues arising from this report which is said to have been subject to consultation with Council colleagues across regulatory, resources and people and technology.
Ms White states: “The improvement actions outlined in this report will contribute to the Council’s strategic priority of efficient and effective frontline services that improve the everyday lives of residents.”
The debate on this review is anticipated to be hot and heavy today with many of these findings disputed by politicians of all shades, although the SNP/Tories are likely to agree the report given the information that there will be no police inquiries and the negative media spotlight will, for the moment, cease to shine on the Council.
No disciplinary action required, says Audit Scotland review
By Bill Heaney
Audit Scotland’s findings on West Dunbartonshire Council’s procurement practices and contract management reveal a catalogue of inefficiencies and cover-ups.
In March 2016, Internal Audit was made aware of allegations of receipt of hospitality and breaches of tendering and contracting practices in Roads and Greenspace services.
In December 2018, a summary of Internal Audit’s findings on these issues was presented to the Audit Committee. The Audit Committee noted the findings and the action plan for improvements in Roads and Greenspace services, and some generic actions for all council services.
In February 2019, all elected members were provided with a redacted version of the Internal Audit report. During the investigation period, members of the Audit Committee were not updated on progress.
It would have been appropriate to update the members of the Audit Committee given the time taken to conclude on the investigation.
Internal Audit reported that in the period 2013/14-2015/16, council procurement policies and procedures had regularly been breached in awarding Roads and Greenspace contracts to suppliers.
This resulted in most work being awarded without a tender process or without seeking sufficient quotes from contractors.
Internal Audit said this left the council at significant financial and reputational risk.
Internal Audit has also reported procurement issues in fire detection and alarm services and issues are emerging from their ongoing work in social care service contracts.
Departures from the financial regulations where expenditure exceeds or is likely to exceed £50,000 are to be disclosed to members, at the appropriate committee.
Audit Scotland have identified that this has not been done for all contracts.
For these contracts the Council has, therefore, not demonstrated to members that it has achieved Best Value in procuring these services.
Any impact of this on the council’s costs cannot be quantified.
In plain language this means it is impossible to estimate how much money might have been saved if the proper procedures had not been ignored.
Members of the Senior Management Team were aware that procurement practices were not being followed for some service contracts, over a number of years.
The managers accepted this approach was due to staffing pressures to secure delivery of services.
Improvements were implemented over time, and are ongoing. Additional staff have been employed since 2015 to work in the Corporate Procurement Unit.
The Council is reporting that the proportion of contracts awarded which comply with the regulations was 72% in 2017/18.
Officers recognise that this needs to increase and have set a target of 90% of all spend being ‘on contract’ by the end of 2020/21.
The ongoing improvements to procurement practices have been reported to members.
However, there is no explicit reference to any ‘off contract’ spend that breaches the council’s procurement regulations, in the 2017/18 Annual Governance Statement or the Annual Procurement Report.
The 2018/19 reports should include reference to where procurement practices have breached the council’s procurement regulations.
Audit Scotland have identified that the council did not have effective controls in place to monitor revenue spend consistently against contracts across all services.
This is of particular concern where contracts are being awarded outwith the procurement processes. Since January 2019, additional controls have been put in place to monitor spend against contracts.
In their opinion, the council’s controls to ensure personal relationships between officers and suppliers do not influence the awarding of contracts were not effective.
It is not possible to identify whether this influenced the awarding of council contracts.
Senior officers should now establish and report to members on the full range of services where procurement procedures are not followed.
This should be included in the council’s Annual Governance Statement in the 2018/19 accounts.
The Council’s own investigation of the allegations, in Audit Scotland’s opinion, revealed that the time taken by Internal Audit to investigate and report on the allegations to the Audit Committee, between March 2016 and December 2018 was excessive.
The format of the Internal Audit report was not appropriate for an investigation of this nature and could not be easily shared with members.
The summary findings presented to the Audit Committee in December 2018 lacked the level of detail required by members for them to effectively scrutinise the issues identified.
Despite our views on the format of the report, based on the evidence reviewed by us, we agree with the conclusions reported by Internal Audit.
Internal Audit reported that the allegations of hospitality were not proven.
During the investigation, Internal Audit were in contact with Police Scotland to share information about the allegations.
Internal Audit reported that, ‘in May 2017 Police Scotland concluded that they would not be progressing this matter any further as in their opinion there was insufficient evidence to build a criminal case in relation to the allegations of the receipt of hospitality linked to procurement activity.’ Police Scotland has confirmed this.
As a result of the Internal Audit findings, a disciplinary process concluded in May 2018. The process found there was no basis for action to be taken against any individual employee regarding the procurement regulation breaches and the allegations regarding hospitality.
In our opinion, these conclusions are reasonable.
No disciplinary action has been pursued against any employees relating to the Internal Audit conclusion that staff failed to declare close personal relationships with contractors, in breach of the council’s Code of Conduct.
Audit Scotland agrees with the conclusion of Internal Audit that the employee relationships should have been declared to comply with the council’s employee Code of Conduct.
And they recommended in their action plan that senior officers should reconsider whether action should be taken regarding any breaches of the council’s Code of Conduct.
Officers have now considered this and are of the view that no disciplinary action is appropriate.
The Council’s Monitoring Officer disagrees with Internal Audit’s assessment that employees had breached the Code of Conduct “due to its wording” at the time.
Audit Scotland feel there has been no breach of the Code of Conduct and the matter was fully considered by managers at the time, with no additional evidence now available to warrant review.
What the Council’s own internal report said:
Internal Audit conclusions
The overall findings of the 2018 Internal Audit report were:
• the allegations of receiving hospitality were not proven
• personal relationships were not declared which is a breach of the council’s
Code of Conduct
• procurement policies and procedures were “regularly circumnavigated”
• work in Roads and Greenspace had been awarded without a contract or
• the council’s document retention policies had not been followed
• there was a systematic failure to follow appropriate policies and procedures
• the procurement policies in place across the council were “sufficient”.
Internal Audit reported that ‘the lack of adherence to procurement policies
and procedures has led to an increased risk in the following areas:
• ‘increased opportunity for fraud and corruption including bribery and
falsification of invoices
• negative impact on reputation in the market place
• creation of a culture of non-compliance with all control measures leading to
failure in corporate governance
• failure of the council to obtain or demonstrate “Best Value”
• inability of the council to determine resource requirements in service areas
• poor quality of work
• risk of litigation or enforcement in the following instances:
• from contractors who believe they were not able to bid for work.