When Grant Thornton blew the lid on the disaster that is Croydon Council finances, one of the main causes was Labours ‘investment’ decisions and the huge amount of lending they had done to associated companies. The way this was structured was complex and so poorly run that they recommended an external investigation and report be written to try to get to the bottom of what was clearly a very deep hole.
Price Waterhouse Coopers, one of the leading audit companies in the country, was given the task of writing that report. Their main focus was to be Brick by Brick Ltd but also the convoluted LLP/Charity structure that had been set up. In addition, the growth zone, the Revolving investment fund and the Asset Investment Fund were all to be looked at.
Their 36 page report was published on the 13th of November. It was damning. The third paragraph of the report said:
‘We draw your attention to important comments regarding the scope and process of our work, set out in the appendices.’
With a four week timeframe PWC needed swift production of documentation and a co-operative approach. They got neither. Responses were slow and documents, if they existed, late in arriving. It also became clear quite quickly that there was different information on documents held by BxB to those held by the Council. They could not even be provided with audited accounts for 19/20. As such the report is in many ways incomplete and PWC themselves make clear that further investigation is needed.
Brick by Brick*
Set up in 2015/16 as a means of providing affordable housing and income to the Council, BxB has been a conspicuous failure on all fronts. PWC state that they found no up to date management accounts, financial performance forecasts or any 13 week rolling cashflow. Let that sink in for a moment. No up to date management accounts or financial performance forecasts in a wholly owned company that the council was had lent over £200m to. With customary auditor understatement, PWC described this as ‘concerning’!
With regard to BxB’s performance versus target the picture is no better. Every target that had been set for building, profit, interest payments etc was missed. BxB themselves blamed Covid and the planning department for this, despite every application they put in being passed. PWC were very clear when they stated ‘We believe COVID was a relatively minor causal factor’.
PWC went on to recommend that a ‘suitably qualified Finance Director’ be appointed to the board. Yes, you heard that right, there was no qualified Finance Director. Remember again, this company is owned by Croydon Council and was set up by them. They were lending it eye-watering amounts of money and relying on it to balance the Council’s finances. And they didn’t appoint a qualified Finance Director. For four years. In my opinion this was not an oversight.
Cllr Hall, the cabinet member for Finance and Resources, is a qualified accountant. He knew what he was doing when he helped create this company. It is my view, based on available evidence, that to run the finances of BxB as they wanted to the Labour Leadership (Cllrs Newman, Butler, Hall and Scott) deliberately created a structure that lacked the experience and qualifications to effectively challenge what was going on. If this is not the case then I challenge them to come forward and justify what they did. I can see no way a qualified accountant could omit to appoint a Finance Director to a company this large by accident.
The draft accounts, such as they were, suggested a ‘small profit’. This however is based on the company not having made any of its interest or dividend payments to the council. It is also against a backdrop of having been sold land for development at prices as low as £1. PWC stated that these transfers ‘appear’ to be s123 compliant but the way they were done is ‘inconsistent’. Further investigation is needed into these transfers.
And finally we come to the loans themselves. PWC looked at 30 loan agreements. Many were found to be in default due to the final repayment date having been passed. This is in stark contrast to the reassurances that were given multiple times that BxB was ‘up to date’ on its loans. Even with the company in default, the council continued to make new loans to BxB. The name of the person or persons who authorised further loans to a company in default, without informing Council of the circumstance, should be published along with what authority they had to do so.
For years the Conservative opposition asked questions about BxB and tried to dig at what was going on. We were deceived and denied full answers on a consistent basis throughout that time. That it took an investigation by an external company to finally start to force out into the open what has been happening is a travesty. It also clearly demonstrates that they KNEW what was happening. No Cabinet member asked a question by their opposition just makes up an answer, they look into it and then carefully choose what they say.
Brick by Brick Ltd is a disaster. It was created by the Croydon Labour party running the Council as a secretive external company in which they thought they tried to hide their actions and played fast and loose with public money. We will feel the consequences of what they have done for decades. It is absolutely shameful that the people that did this are now hiding from scrutiny and being protected by the new Labour Leader. We’re all paying for this, we should know what really happened.
*I will cover the other companies in later articles
