Exeter City Council’s external auditor has broadened its inquiry into the council’s governance and financial and performance management arrangements to investigate Exeter City Futures and several subsidiary companies, following the failure of Exeter City Living.
Among these are Exeter Canal and Quay Trust, to which the council leases much of the property beside the quay and canal at nil rent, and Exeter Science Park, in which Devon County Council, East Devon District Council and the University of Exeter are also shareholders.
In an interim report covering both of the last two financial years the auditor said that the number of “significant weaknesses” in the council’s arrangements to secure economy, efficiency and effectiveness in its use of resources, known as “value for money” arrangements, had increased since the previous year.
The auditor also said that the council’s value for money arrangements had not improved in relation to what it describes as the council’s “alternative delivery models” and that its performance management needs to “significantly improve”.
Presenting several “key recommendations”, actions set out by the auditor that the council should take to address such weaknesses, the auditor’s report also admonished the council for not progressing its previous recommendations more promptly.
Value for money arrangements and key recommendations summary.
Source: Auditor’s 2021-22 & 2022-23 value for money report.
The auditor said that the council had “not made sufficient improvements in 2021-22 and 2022-23 to address the governance arrangements for Exeter City Living” which had led to “decision-making resulting in significant loss or exposure to financial risk”.
It added that it had also concluded that “effective governance arrangements” had not been in place for other council-connected entities, after broadening the scope of its governance review to include them, which it said could also expose the council to similar risks.
The report identified a range of issues in council subsidiary management. These included inconsistent approaches to governance as well as a lack of oversight by councillors, a lack of performance monitoring, a lack of objectives against which performance could be monitored and a lack of clarity over who occupied the council shareholder representative role.
It also criticised the council for not reporting its wider performance against its own corporate plan priorities for more than three years, despite it repeatedly saying it would introduce a performance management framework to do so since 2020.
As a result, the report said, the council has no proper means of assessing its progress against its strategic objectives nor has scrutiny had any opportunity to challenge or review its performance.
Exeter City Futures and subsidiary company governance arrangements.
Source: Auditor’s 2021-22 & 2022-23 value for money report.
The auditor also raised concerns around the secondment of the council’s then-CEO, Karime Hassan, and another senior director to Exeter City Futures for a total of five days a week from January to December 2022.
It said no secondment agreement was put in place and the council neither considered how the secondments would be monitored or assessed nor reviewed the secondments or its relationship with the company.
It added that the decision to terminate Karime Hassan’s employment with the council was taken as the secondments ended, and that the company was liquidated the following summer without a record of the decision being made public.
The auditor’s report also focussed on the lack of transparency around Exeter City Futures’ involvement in Exeter Development Fund, and said oversight and decision-making about the fund should take place in a public council committee from now on.
It made a total of eleven governance and financial and performance management recommendations to the council and identified eleven others it had made previously but which had not yet been addressed.
It also criticised the council’s approach to appointing then-Deputy CEO Bindu Arjoon to replace Karime Hassan as council CEO, among several other issues.
Exeter Development Fund governance and new CEO appointment arrangements.
Source: Auditor’s 2021-22 & 2022-23 value for money report.
In an accompanying report presented to last month’s meeting of the council’s audit and governance committee, the auditor also identified new issues and risks including the council’s purchase of the Guildhall shopping centre leasehold and a March 2023 valuation of St Sidwell’s Point leisure centre that had concluded it was worth £7 million less than the £45 million it had cost to build.
At the meeting the auditor explained that following standardised RICS valuation guidance had not captured the high cost of the specifications the council had adopted in constructing St Sidwell’s Point, and that a revised approach was now being used which was expected to produce a more accurate value for the building.
The meeting was also presented with the final statement of the council’s 2022-23 accounts before the auditor signs them off as concluded, which is expected to take place shortly. These confirm that ex-CEO Karime Hassan received a total of just under £370,000 in pay and benefits in his final year at the council.
Half the money took the form of employer’s pension contributions (marked as including strain payments), nearly nine times as much as he received the previous year. Pension strain payments are typically made to compensate for unexpectedly early employment termination.
The auditor has yet to finalise its 2021-22 council audit findings following objections raised by local electors during that year’s public accounts inspection period.
The auditor said its investigation of “specific aspects of the matters raised” continues, “having carefully considered the grounds for both objections and further information highlighted by both correspondents”.
