External auditors to Derby City Council have issued a report in the public interest under section 8 of the Audit Commission Act 1998 (the 1998 Act). This section of the 1998 Act requires the auditor to consider whether, in the public interest, they should make a report on any significant matter and bring it to the notice of the council and the public. The auditors have identified failures of governance at Derby City Council in the management of major projects and in relation to councillor conduct.
We look at the issues raised by the report and what other authorities can learn from it.
In the report, the auditors reviewed the following projects and operational issues:
Implementation of job evaluation
According to the auditors, this job evaluation project was characterised by the following failures of governance:
- The appointment of an HR consultant which did not have the intellectual copyright to carry out the necessary individual job evaluations, an issue which had been flagged up by a referee for the consultants but not escalated to the senior managers who were leading the project. When the owners of the intellectual property (IP) challenged the council, the relevant strategic director did not raise the matter corporately nor with the monitoring officer. Ultimately, the owners of the IP were engaged to complete the project and, as a result, the council incurred additional costs of £1.2 million.
- Those senior managers had not put in place proper project management, governance and oversight arrangements. Key decisions were taken in meetings which were not minuted and were outside the council’s constitutional governance arrangements. Councillors were too involved in operational matters. The pay option adopted resulted in extra costs of £3 million.
According to the auditors, the council provided substantial financial support to a firm called Webhelp in order to safeguard jobs. However, although the Cabinet were informed that external legal advice would be sought to confirm that the arrangement was lawful and compliant with European state aid rules, the auditors were unable to locate such advice. The council’s legal team was not involved and the monitoring officer subsequently intervened. Although the arrangement did have a positive outcome, the auditors concluded that the governance failures were indicative of a culture at that time, where corners were cut and decisions made outside the council’s committee and legal structures.
The auditors found a number of failings in relation to this function. These included lobbying by members of the Taxi Licensing Committee on behalf of individual drivers when licence applications were under consideration and granting taxi licences to individuals with criminal records including hate crime, harassment and making improper comments to young women.
HRIS payroll project
The HRIS payroll project was a project for replacement of the payroll computer system. The auditors found ineffective internal project management by the council leading to £0.52 million of additional consultancy expenditure which was not authorised under standing orders.
Political and officer arrangements
The auditors identified potential governance risks associated with the operation of political Cabinet (PCCM), a key forum, which officers attend. Although not a formal decision making body of the council, it had purported to make important decisions on behalf of the council and was attended by the local political agent. Further, the auditors noted that the council’s Standards Committee has been used as a vehicle for political points scoring.
Auditor’s recommendations and lessons for other authorities
While recognising that the council were actively addressing these issues, and that there have already been some improvements, the auditors made a number of recommendations, some of which are of general application, in terms of good governance. The key points worth highlighting are:
- Clear guidance should be issued regarding the status, role and operation of the PCCM and whether officers should attend.
- Clear guidance should be issued to ensure that persons who are not members or officers only attend council meetings and have access to restricted papers in exceptional circumstances and following a formal invitation.
- Clear guidance should be issued to strategic officers requiring the timely reporting of key project risks to the Corporate Management Team, Cabinet and the Monitoring Officer.
- Clear guidance to be issued about the proper role of councillors including the need for them to avoid involvement in detailed operational matters. Robust action should be taken when councillors exceed their proper role.
- Ensuring that appropriate legal advice is sought in relation to contracts for major projects and that all legal advice is commissioned through the chief legal officer or their team.
- Ensuring that robust project and risk management arrangements are in place for major projects, including a requirement to observe contract procedure rules and to identify the required resources (internal or external) to enable effective implementation.