The cost of accountability: March 2023

Action taken by us since September 2020 to understand what went wrong in the run-up to our financial collapse is ground-breaking and never seen before in local government.  

The public sentiment expressed first in the late Summer and Autumn of 2020 has never waned in that failure should not be rewarded, and that people should be held to account for the damage to Croydon’s services and finances. 

The information on this page is accurate as of 1 March 2023 and will be monitored on a regular basis and updated as and when any changes occur. 

The costs outlined have been incurred throughout all financial years since the autumn of 2020.

The approach to accountability

The approach taken by us was to build a healthy governance culture where those responsible for the significant failings were accountable and staff can feel confident and safe to speak out when things are not right, a local government version of the NHS duty of candour. The NHS adopted this following the publication of the Francis Inquiry which examined the causes of failings at the Mid Staffordshire NHS Foundation Trust.

The consideration of accountability

Whilst it is recognised that the accountability action taken by us has come at significant cost, it has been a necessary expenditure in order to seek closure on our past failings. We need to learn from what went wrong so it can be prevented in the future and to respond to the legitimate and reasonable expectations of Croydon residents that those found to have failed in their duties are held to account. 

The actions of our former senior managers and councillors have been taken very seriously and whilst the accountability processes are not yet fully concluded, absolute best endeavours have been made to seek their accountability since the Autumn of 2020.

The need for accountability

We were issued with a Report in the Public Interest (RIPI) in October 2020 concerning our financial position and related governance arrangements. A RIPI is one of the most serious external reports that a council can receive.

This report concluded that:

“There has been collective corporate blindness to both the seriousness of the financial position and the urgency with which actions needed to be taken. For a number of years the Council focused on: improvements in service delivery without sufficient attention to controlling the related overspends; investing in the Place area without addressing whether the investment delivered the intended outcomes; and financial governance was focused on lobbying government for additional funding which was not supported by actions to contain spending within the funding provided which was its statutory duty.

Councils are statutory entities which must follow the law. The law is very clear on the legal requirement for councils to set a balanced budget. The Council’s fragile financial position and weak underlying arrangements have been ruthlessly exposed by the impact of the Covid-19 pandemic.”

Following the RIPI, a non-statutory inspection was conducted in November 2020 by the Ministry for Communities, Housing and Local Government published in February 2021 which said:

“It is clear that Croydon Council has had significant failings in leadership and management (particularly in sphere of financial management) and its governance and assurance mechanisms have failed in identifying, escalating and addressing risk.”

The Penn report was commissioned in November 2020 and was also published in February 2021, concluding that:

“It is clear from the triangulated strength and weight of opinion that concerns can be raised over the actions, the inactions and the conduct of a number of individuals. These three sets of concerns include: (1) management misjudgments and actions which led to an absence of adequate budgetary controls and mechanisms for evaluating and agreeing asset investments, and so on; (2) failures to advise members properly on the breadth and the escalation of risk which placed the Council’s core purposes in jeopardy, alongside systemic management failures of corporate management internal controls; and (3) failure to stop a corrosive top-down culture of, what is commonly described by Interviewees as, over-controlling and bullying.

In this final regard the Council’s most senior managers are depicted, by Interviewees, as bystanders to the bullying of managers and junior staff by former leading members and the former chief executive. I recognise that this can be a vexed and difficult issue to handle when it involves the leading political and managerial figures in the organisation.

But if the Council’s most senior management team, itself charged with fostering a diverse and inclusive organisational culture, is seen to stand by rather than stand up; the whole organisation is adversely affected by, what many interviewers described as, controlling, and often bullying behaviour."

Concerns were raised regarding the work done on the refurbishment of Fairfield Halls, and the external auditor decided initially to do a formal Value for Money review of the work on the Halls. Following their investigation this became a second RIPI. It is exceptionally rare for a council to receive one RIPI let alone two. This second report was published in February 2022.

The RIPI into the refurbishment of Fairfield Halls stated:

“The Fairfield Halls refurbishment project was a complex project which was delivered late and with significant additional spend beyond the amount approved by Members; the entirety of the project spend has now been accounted for as capital expenditure.

The Council’s historical arrangements failed to ensure the legality of the arrangements for the project and allowed governance gaps which prevented monitoring of the project, oversight, and wider scrutiny and challenge that may have allowed corrective action to have been taken.

Throughout the project there were individuals with both the knowledge of the many issues with the project and who had duties and responsibilities which we would expect to require action to address the known issues. The lack of appropriate action, in our view, represents a failure to discharge the duties expected from a small group of senior officers (the then three Senior Statutory Officers and the then Executive Director of Place).

This group reported to the then Portfolio Holders (the then Portfolio Holders for Homes and Gateway Services, for Finance and Resources and the Leader) who were either not briefed by officers and should have requested briefings on the project given what they appeared to know or did not take effective action in response to concerns raised by the officers.”

At an extra-ordinary Council meeting on 3 February 2022, our then Monitoring Officer announced that he had asked for the issues arising from the second RIPI, such as possible fraud and wrongdoing to be reviewed. Subsequently, an initial scoping investigation was commissioned at the end of February 2022. This laid the foundation for a detailed forensic investigation which was commissioned in June 2022. This investigation report will be considered by the Appointments and Disciplinary Commitee on 23 March 2023.

The depth of our governance and financial crisis was such that our Chief Finance Officer had to issue a section 114 notice in November 2020 declaring that we did not have enough money to cover its outgoings in that financial year. This is colloquially understood as a council’s bankruptcy notice.  This was the first time in 20 years that this had happened in a London Council.

The cost of failure

All of these widely publicised reports capture the failings that have taken place at Croydon and the staff and residents of the borough are very aware of the consequences.

• £90 million pounds of cuts to the budget and our services
• £36 million more cuts required next year 
• the request to government to allow us to borrow £369 million pounds to balance the budget

The cost of accountability

In the spirit of our commitment to building a new healthy governance culture of openness and transparency, this page includes the costs incurred to us since November 2020 in our work on accountability to take steps to hold those responsible for our serious failings.

This following information shows the costs incurred to date for the production of the Richard Penn report, the RIPIs, the disciplinary process and other related actions. We will update the page once more details are released.

Penn report

The Penn report is an independent investigation commissioned through the Local Government Association (LGA) in November 2020, after our auditors issued their first Report in the Public Interest.

The investigation looked at the reasons for our financial collapse, the actions of Croydon’s senior managers and councillors and suggests recommendations for us to consider about what formal action, if any, should be taken.

We received the Penn report in February 2021 but needed to follow the proper procedures before publishing it, including allowing other legal and formal processes to complete and giving those mentioned in the report, the opportunity to respond.

The Penn report has now been published and can be read on our website.

Recommendations of the Penn report, which include a consideration by Members of a referral to the Metropolitan Police for assessment of any further action, is expected to be considered by the Appointments and Disciplinary Committee on Thursday 23 March 2023.

Costs incurred by the Council associated with the Penn report

Legal fees from Browne Jacobson, our external lawyers, relating to the Penn report in regard to a number of individuals including our actions once the report was received such as the Maxwellisation processes and commencing two disciplinary processes and other related matters amount to £55,399.21.

Other legal costs (such as counsel fees) incurred relating to the Penn Report and related matters amount to £4,425 

Payments for the production of the report totalling £41,600 were made to Richard Penn, all of which have been fully reimbursed by the LGA and therefore the costs were incurred by the LGA:

    •    Total: £97,424.21
    •    Cost to us: £55,824.20

Fairfield Halls

On 26 January 2022 our external auditors published a RIPI following a review of our arrangements for the refurbishment of Fairfield Halls, which took place between June 2016 and September 2019.

The external auditor concluded that we, at the time, failed to ensure that proper financial control and effective governance arrangements were in place for the project, which was undertaken by Brick by Brick. It was delivered late and cost substantially more than the original £30m budget agreed by cabinet in June 2016.

Costs associated with Fairfield Halls

Legal fees from Browne Jacobson relating to the investigation regarding Fairfield Halls amount to £9,925.20. No other legal fees relating to the investigation have been incurred. 

External Audit fees in relation to Grant Thornton’s work on Fairfield Halls have also been incurred, however this information is not currently held. This is because the fee has not yet been determined by the Public Sector Audit Appointments body.  

We will disclose all external audit fees per financial year in the relevant year’s financial accounts. For the previous years, these are available on our website and this information will be included in that relevant year’s financial accounts when they are also made available on our website.

Total: £9,925.20

Jo Negrini settlement agreement

One settlement payment was made with the former CEO, Jo Negrini, at a total cost to us of £437,973. This payment was agreed by a majority vote of the then members of the Appointments Committee. 

No other settlement payments have been made in regard to the members of the Executive Leadership Team. Incorrect statements have been made in the media that the individuals whose disciplinary processes ended due to their resignations received settlement payments. This did not happen.

Following concern raised by the external auditor on the governance arrangements related to the payment, whether it was value for money for Croydon taxpayers and the officer advice to members before reaching a decision on the payment, an investigation was carried out by our monitoring officer, which was recently reported to Council on 14 December 2022. 

The public report from this council meeting references whether we can reclaim any of this settlement in the light of what has been revealed about the state of the council and our finances. That will be one of the issues considered by the Appointments and Disciplinary Committee on 23 March 2023.

Costs associated with Jo Negrini settlement agreement

Legal fees in respect of the settlement agreement were £12,237.46. This includes £7,500 Counsel fees.

Total: £12,237.46

Accountability processes

Accountability processes to date on a number of individuals include:

• action in relation to two formal complaints against two councillors
• the suspension of four ELT chief officers
• advice on the remaining ELT chief officer
• advice on the disciplinary “threshold” process for two chief officers
• advice for members undertaking the threshold processes
• advice on the handling of the disciplinary investigations and other processes

Costs associated with accountability processes

Legal fees which cover all accountability processes since November 2020 to date amount to £96,516.73.

Counsel fees which cover all accountability processes amount to £29,765.

Total: £126,281.73

Injunction action against Inside Croydon

In November 2022, two confidential reports were automatically published online following a software error and subsequently published online on the Inside Croydon website. Given the reports contained confidential legal advice relating to the above ongoing legal matters, we took legal action to protect the confidentiality of the legal advice. 

Mr Downes, the editor of Inside Croydon, gave an undertaking to the Court not to publish any further information from the confidential report that was the subject of the injunction action.

The legal fees in respect of our claim for an injunction are already published on the website.

This comprises:

Counsel's fees of £3,360 and court issue fee of £569.

Total: £3,929 

Kroll

Kroll, a corporate investigation and risk consulting firm, have been commissioned by us to investigate a number of different matters including fraud, financial irregularity, and other possible misconduct in the refurbishment of Fairfield Halls and the leak of the Penn report.

Costs associated with Kroll

We have paid Kroll £262,784 in respect of their investigation pertaining to Fairfield Halls. Kroll’s investigation report is expected to be considered by the Appointments and Disciplinary Committee on 23 March 2023.

Kroll have also been appointed to investigate the leak of the Penn report but to date no payments have been made to Kroll. When a payment is made it is will be published on our website.

Total: £262,784