Inquiry finds grants were handed out by Lutfur Rahman’s council to ‘ineligible’ organisations and criticises authority for ‘obfuscation and denial’

This article is more than 5 years old

This article is more than 5 years old

A report has found systematic failings in the conduct and governance of Tower Hamlets council, and claims its approach to an inquiry into financial dealings was one of “obfuscation and denial”.

The 193-page report, ordered by the communities secretary, Eric Pickles, says the east London council, run by directly elected independent mayor Lutfur Rahman, awarded more than £400,000 in grants to “ineligible organisations” in one case after an intervention by a council member.

It was criticised for failing in its duty to acquire best value for local taxpayers.

The report, by accountants PricewaterhouseCoopers, also questions the nature of public spending on media advisers for Rahman, the former Labour politician who now runs Tower Hamlets as an independent.

PwC said some of the mayor’s evidence seemed “at odds” with other information it had seen.

Pickles ordered in the firm in April to inspect the grant-making process, sale of properties, governance arrangements and spending on publicity following allegations of favouritism to some communities.

PWC reports that the council’s response to the identification of issues raised in the report “suggests a tendency towards denial or obfuscation rather than an inclination to investigate concerns raised”.

“Despite its public assertions of support for the inspection, at various stages [the council] raised a number of obstacles to our progress which have significantly delayed the provision of information or documentation and which in large part led to our request for an extension of the timetable for the inspection.

“The authority tended to pronounce allegations to be baseless and/or politically motivated without having conducted what we would consider to be an adequate investigation into the issues raised.”

The council sought a judicial review to block the investigation process and PwC claims that some files have been withheld. It states: “In relation to the matter of grant-making, we conclude that the authority is failing to comply with its best value duty.”

It finds a “lack of transparency generally over the rationale for decisions as to grant awards. Where application processes exist, the evaluation of these applications has been to a significant extent overridden … without any clear rationale.

“Grants have been awarded to organisations which were ruled ineligible or which did not meet the required evaluation score.”

It cites one process whereby “one member in particular … intervened to make significant changes to the officer recommendations”.

As a result, “applicants [who had not met the minimum criteria for an award after evaluation] were recommended to receive, in total, awards of £407,700”.

Tuesday’s report also states: “In interview, the mayor told us that he had not been involved in the detail of awards, although he had kept abreast of things generally through occasional high-level discussions with one member in particular.

“This is somewhat at odds with an email dated 8 August 2012, shortly after the initial circulation of the original officer recommendations, which stated that ‘the mayor has requested a vastly-expanded appendix 1’.

The report finds that in three of the four property transactions examined in detail, namely Poplar town hall, Sutton Street depot and Mellish Street, the authority “failed to comply with its best value duty”.

It says: “The authority accepted a late bid from the winning bidder after other bids had been opened, creating a risk of bid manipulation.

“The winning bidder also asked for and was granted changes to the contract it had signed, which further undermined the purpose and credibility of the contract race process.

“The winning bidder was, as a matter of fact, connected to a person with other business interests that had an association with the mayor.”

PwC also questions whether spending on media advisers to the mayor were genuinely for the benefit of the authority or “of a party political nature pertaining to the mayor”.

The report concludes: “We found a lack of control around the monitoring of the demarcation of activities, based on a lack of clear documentation of those activities. Where in one case there was somewhat more information, some of this was at best ambiguous as to which side of the line the activities lay.

“In our view the current governance arrangements do not appear to be capable of preventing or responding appropriately to failures of the best value duty of the kind we have identified. This calls into question the adequacy of these governance arrangements.”

PwC also found that some of the council’s most important officer roles, all of which have been directly accountable to the mayor, had frequently changed and, since July 2012, the authority has had no chief executive.

Rahman said: “In April 2014, Eric Pickles announced that he was concerned about potential fraud. These allegations have been rejected by PwC. The report highlights flaws in processes. These are regrettable. We will learn from this report and strengthen our procedures accordingly. I was always confident wild claims about fraud would not be substantiated. Both my officers and I want to get on with our jobs serving all residents in Tower Hamlets.”

A council spokesperson said: “Whilst the PwC report identifies some process and governance issues that needed to be improved, the council notes that no evidence of criminality or fraud has been identified by the government appointed forensic auditors.

“In our view there is no evidence that these flaws of process are ‘regular or endemic’ meaning that there is no failure to comply with our best value duty.”