For most of the 15 years of its existence, the Salford Star has used the Local Audit and Accountability Act (LAA Act) to try to get more details and explanations from Salford City Council on its annual spending. And most times, the answers from the Council have been either more confusing than the accounts themselves, or, we believed, were deliberately complicated and unfathomable, having waited for ages for a response.
It seems that the Salford Star was not alone. A new report out today from Research for Action, and titled Democracy Denied: Audit and accountability failure in local government, amalgamates a whole series of experiences from people using the Act.
The report concludes that "It demonstrates serious accountability gaps, reveals the significant role played by private auditors in disempowering residents, and shows a concerning lack of accountability on the part of local authorities.
"The absence of robust external oversight, in the context of a deepening crisis in local government finance with deeply intertwined public and private sectors, undermines local democracy" it adds.
The forty page report* begins by examining how local government has changed over the last thirty years, with the municipal bin emptiers now getting involved in outsourcing services, public/private joint ventures and the like, which has, it explains "complicated decision making and oversight of the use public funds".
Think the City of Salford Community Stadium (AJ Bell) with the Council's joint private company with Peel Holdings. Or the horrendous deal for the public that Salford Council had with Urban Vision until very recently. Or the Council's investments in office blocks. The Salford Star has been trying to shine a light on the finances of these things for years with very little success – because no-one has been exactly straight with any divulged information. Indeed, information, we believe, was obscured rather than explained.
"Councils have become commercial actors in a financialised economy where they are encouraged to borrow from capital markets, hedge against risk, enter into public-private partnerships and make speculative commercial property investments" states the report "When things go wrong, this risk-taking jeopardises the delivery of basic services: interest payments are prioritised over service spending."
Meanwhile, the independent Audit Commission, which monitored the standard of local council audits, was shut in 2015, and councils can now appoint their own auditors, in a situation where private companies are effectively "gatekeepers to public interest concerns".
Hand in hand with this, states the report, is the "marginalisation" of back bench councillors with the decision making in the hands of a directly elected Mayor or Cabinet, plus, in many councils like Salford, no effective opposition.
The report looks specifically at LOBO loans and PFI deals. LOBO loans are long term bank loans taken out by councils, and in 2016, the Star reported that Salford Council held £275.2million of LOBO loans, and was paying £13.6million in interest per year (see here).
"Usually starting with a low initial 'teaser rate', the loans give the lender (bank) the option to change the interest rate on pre-agreed dates" the report explains "The borrower (council) can then choose to accept the new rate or pay the loan back in full. This is the only way the council can exit the loan without paying a large exit penalty. Effectively, it means that authorities are locked into the contracts for their duration, up to 70 years.
"The loans also contain complex financial arrangements known as embedded derivatives, which makes them inherently risky - a lose-lose bet for councils" it adds "Ex-trader Rob Carver, who gave evidence in a Parliamentary inquiry into the loans in 2015, said he 'Would not do these deals if you put a gun to my head'."
Meanwhile, Private Finance Initiative, or PFIs, have been described as 'outsourcing on steroids'. Back in 2018 the Salford Star reported that "schools and Pendleton Together Housing schemes set up under the Private Finance Initiative are costing Salford Council £18.7million per year – after Government grants. Over the life of the schemes, interest payments alone will be over £242million, with a total PFI liability of £804,931,000. Much of this money will end up in offshore companies." (see here)**
The Salford Star objected to Salford City Council's accounts of 2016-17, in relation to five PFI schemes across the city, arguing that the Council's decision to enter into the agreements was 'irrational and unlawful', and based upon advice from audit consultants which was not in the public interest. We also argued that the 'value for money' calculations were rigged to make sure that PFI was seen as the only viable option.
We added that monitoring and checks on the PFI schemes, including 'the decision to accept the self-certification and sign off that these buildings were safe', were unlawful and irrational, and that the exit arrangements on the PFI schemes 'do not represent value for money'.
We the argued that the Council's auditors, Grant Thornton, was also the external auditor for Pendleton Together Operating Ltd (PTOL), which delivered one of the schemes, and there was thus a conflict of interest.
It took over two years to get a response – which came from Grant Thornton itself. The company decided that there was no conflict of interest...because it was a separate team doing the audit and that Salford Council and PTOL didn't see a conflict of interest!
The Grant Thornton 16 page response didn't agree with any of the Star's assertions, and stated that it would not be issuing a public interest report on the matter because it didn't believe the Council acted unlawfully, nor did it identify any governance issues or monitoring deficiencies.
The response, which did give lots of other information, was never shared on the Salford Star website because it had 'Confidential' printed on every single page. When we asked what this meant Grant Thornton responded:
"Whether a statement is a public document, or a private letter to an individual, is not a matter that has been tested in a court of law. We would suggest that anyone considering publication considers obtaining their own legal advice."
We saw this as a veiled threat, and the example is cited in the Democracy Denied report, stating "auditors made objectors feel that sharing their communications could be risky..."
The two year wait for a response was 'normal', with the report adding that "Of the 83 objections we have followed, there have now been 55 decisions issued. In 21 of these cases auditors took more than two years to reach and produce a decision letter". It's absolutely shocking.
"Where they did respond, those responses were overwhelmingly poor in quality of both arguments and the work done to back them up" the report comments "Across the country, residents were left feeling that their concerns had not been taken seriously.
"...They failed to provide evidence for their decisions or to share evidence they referred to, and consistently made favourable assumptions about questionable council behaviour they should have been scrutinising, demonstrating a concerning lack of professional scepticism" it adds "This failure creates a worrying oversight vacuum, where local authorities' increasingly commercialised and financialised dealings are left unchecked and unchallenged."
And so the report continues, highlighting cases where objectors concerns were thwarted completely, or where auditors lacked expertise on local government finance. The main findings of the report mirrored the Salford Star's experience over 15 of trying to shine a light on Salford Council finances...
"Based on our findings, the apparently wide-ranging inspection powers of the LAA Act are being undermined in a number of ways by local authorities" it states "Councils often fail to publicise rights (even though the legislation requires this) and take so long to respond that residents cannot file objections informed by the information received. Councils frequently treat inspection requests as FOI requests; question non-residents' rights to inspect and are inflexible in making documents available online.
"They also interpret the legislation as narrowly as possible, refusing to share documents related to the accounts, and often present the inspector with the data in a form that is simply impenetrable" it adds "Only a very small number of people reported being able to access useful information in a manner intended by the legislation.
"This lack of transparency has serious implications for residents' ability to hold their local authorities – and elected representatives – to account" it concludes "When access to information is curtailed, local people do not even know what money is spent on, and without information do not have the evidence to challenge those decisions. This is further amplified when the council enters into outsourced or arms-length arrangements to provide services such as PFI schemes, housing associations, or tenancy management organisations..."
And even worse..."Even though in theory, the LAA Act gives the public rights to inspect council accounts, ask questions about them and file objections on issues they believe should be investigated, in practice these rights are not fit for purpose. Councils and auditors alike obstruct their use...It is time to re-think local authority audit..."
* To read the full report: Democracy Denied: Audit and accountability failure in local government – click here
** Salford City Council PFI Average Payments per Year as recorded by the auditors in 2019...
1. Pendleton Together PFI (PTOL) £7.533million per year.
2. Eccles Special High Schools Project (Irwell Park, Newcroft and Oakwood) £1.159million per year
3. Salford High Schools Project (Buile Hill and Harrop Fold) - £2.574million per year
4. BSF Wave 3 Phase 1 (Irlam and Cadishead High School and Walkden High School) - £3.459million per year
5. BSF Wave 3 Phase 2 (Moorside High School and Primary, St Ambrose Barlow RC High School and St Patrick's RC High School) - £4million per year.
Most of the contracts run until the 2030 decade. Do the maths!
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