Green Party Councillor Ian Driver has challenged the accounts of Thanet District Council for 2012-13.In a letter to the District Auditor, dated 12 August (1), Driver demands that a payment deferral agreement with Transeuropa Ferries Ltd which led to the Council losing £3.3million following the company’s liquidation in April 2013, be declared unlawful because it may have broken European Union State Aid rules.
He also claims that legally binding financial duties and the Council’s own Constitutional rules have been ignored in order to ensure that the payment deferral agreement was kept “top secret” and restricted to a tiny group of top town hall bosses and senior politicians (2).Said Driver “I am appalled by what has happened! Throughout the 2012 -13 financial year Transeuropa Ferries was racking up debt to the Council of more than £100,000 per month, yet this reckless gamble with public money was deliberately hidden from virtually every elected councillor and kept off the public record so that Thanet taxpayers would not find out”.
“Had Council bosses and the Council Leader been open and honest about what was going on then I am certain that action could have been taken to have reduced this astronomic debt which will eventually have to be paid for by the taxpayer.”“I sincerely hope that the Auditor investigates my complaint and names and shames anyone who has acted improperly. There is no place in Thanet Council for anyone who breaks financial rules and regulations and plays fast and loose with other peoples money”
If the Auditor agrees that the management of the £3.3 million debt broke any laws he can take the matter to court and ask for these actions to be declared unlawful. He can also issue a Report in the Public Interest which explains what the Council did wrong and what actions it must take in future to manage its finances more effectively(1).Ends
Dear Auditor 12 August 2013Thanet District Council Accounts 2012-13
I am a registered elector and council tax payer in the Thanet District Council area and I am writing to you submit a formal objection to the Council’s accounts for the financial year 2012-13.
My objection relates to the £3.3 million debt owed to the Council by Transeuropa NV and associated companies which is mentioned and provided for in the draft accounts. I believe that the Council failed to deal with this issue in an open and transparent manner has acted both negligently and unlawfully in relation to it’s management of this debt. These unlawful and negligent actions led the Council to lose money and prevented it from considering a range of options which may have reduced its losses.
I would like you to investigate my objections and, if appropriate, have the debt deferral agreement and associated actions declared unlawful, issue a Report in the Public Interest or take any other actions you deem to be necessary.
I set out the grounds for my objection below.
1. I have been advised by the Council that the £3.3 million debt resulted from a fees and charges payment deferral agreement between the Council, Transeuropa NV and associated companies This Agreement is, in my opinion, contrary to Article 107 of the Consolidated Treaty on the Functioning of the European Union and contrary to Community Guidelines on State Aid For Rescuing and Restructuring Firms In Difficulty. It is likely, therefore, that the Council has acted unlawfully in making this agreement.
2. I asked the Council to see copies of risk assessments of the payment deferral and repayment agreements with Transeuropa NV and associated companies, including any assessments carried out in 2012-13. The Council refused my request. It therefore seems unlikely that the Council undertook proper risk assessments of the payment deferral and re-payment agreements in 2012-13. Considering that the debt owed to the Council, by Transeuropa NV and associated companies grew to more than £3 million in the 2012-13 accounting year it is reasonable to assume that the agreements with these companies would have been subjected to robust risk assessments in order to protect the public purse. Failure to properly assess the Council’s financial risk is contrary to section 4.1 and 5.4(d) of the The Accounts and Audit Regulations 2003.
3. I have been advised that the debt deferral and repayment agreements with Transeuropa NV and associated companies were reviewed in the autumn of 2012 and that it was decided to continue with the existing arrangements. Although in the 3 months immediately preceding the 2011-12 Audit sign-off 3 repayments had been received by the Council, this decision nevertheless had significant financial implications and should have been treated as a Key Decision in accordance with section 8 of The Local Authorities (Executive Arrangements) (Access to Information) (England) Regulations 2000 and included in the Council’s Forward Plan. Failure to treat this decision as a Key Decision and include it in the Forward Plan meant that councillors were not made aware of what had been decided and were denied the opportunity to scrutinise and discuss a significant financial matter which had a direct bearing upon the 2012-13 budget. The failure of the appropriate Council officers to identify this decision as a Key Decision is, in my opinion an extremely serious oversight.
4. I believe that the Section 151 Officer may have failed in her statutory duty to provide an adequate report to Councillors on the “robustness of the estimates made for the purposes of the calculations” of the Councils 2012-13 budget At the time of the budget setting process the section 151 officer was aware that Tanseuropa Ferries and its associated companies were in serious financial difficulties; had run up a debt of more of £2million to the Council and that this debt was continuing to grow at the rate of more than £100,000 per month. Despite any on-going discussions about potential investment into Transeuropa I believe that it was, because of the large amount of money involved, incumbent upon the Section 151 officer to provide the Council and its elected members with robust budget estimates including an account of this large and growing debt. She did not. In my opinion this omission might be contrary to section 25 of the Local Government Act 2003.
5. I do not believe that the payment deferral and re-payment agreements between the Council, Transeuropa NV and its associated companies, which are mentioned in the 2012-13 draft accounts, and which gave rise to the reported £3.3 million debt in the 2012-13 draft accounts, exist in a properly documented format. If this so it would be an extremely serious administrative failure and would probably be contrary to section 4(a) of the Accounts and Audit Regulations 2003 which requires the Council to keep up to date and accurate financial records.
6. I am concerned that the Council does not appear to have followed the provisions of its own constitutional rules in managing the Tanseuropa debt during the 2012-13 financial year. I would like to raise the following issues
• Following the review of the Transeuropa debt deferral and repayment agreement in autumn 2012 and the decision to continue with these arrangements, the Monitoring Officer appears not to have informed councillors and the public of this executive/ delegated decision (as required by Financial Regulation A13).
• It is my opinion that following the review of the Transeuropa payment deferral and repayment agreements in autumn 2012, the decision to continue with these arrangements was, because of the risk of significant losses to the Council, a decision which was "contrary to, and not in accordance with", the previously agreed 2012-13 budget. As such Rule 3b of the Council’s Budget and Policy Framework Procedure requires that this matter should have been referred for decision to a meeting of full Council. This did not happen. Had the Constitutional rules been followed then councillors could have considered and discussed a range of options and alternatives to deal with the problem which may have reduced the level of debt and any losses to the Council.
• Rules 3b of the Council’s Budget and Policy Framework and Regulation A15 of the Council’s Constitutional Financial Procedure Rules require the Monitoring Officer to inform officers, cabinet members and councillors when a decision is made which is likely to be "contrary to, or not wholly in accordance with", the budget. I believe that the decision made, following the autumn 2012 review of the Transeuropa payment deferral and repayment agreement, to continue with these arrangements was, because of the high risk of significant financial loss to the Council, was a decision which "was contrary to and not in accordance with the budget". I believe that the Monitoring Officer may have failed in his Constitutional duty to inform the required persons of this fact. Had the decision been properly referred Full Council would have had the opportunity to discuss a range of options and alternatives which may have reduced debt and losses to the Council.
• Appendix B 3.2 of the Council’s Financial Procedure Rules requires the Section 151 Officer to ensure that any “significant variances from approved budgets are investigated and reported to Members by budget managers regularly”. During the course of the 2012-13 financial year Transeuropa NV and its associated companies defaulted on their debt repayment agreement with the Council and the amount of debt owed to the Council grew to over £3million. In my opinion this was a significant variance from the previously approved Council budget for 2012-13, but it appears that the Section 151 officer made no arrangements for this variance to be reported to elected members. Had this happened then it would have been possible for councillors to have discussed a range of options and alternatives which may have reduced the debt and subsequent losses to the Council.
7. Finally, I am very concerned about the lack of openness and transparency in the Council’s management of the Transeuropa NVs debt during the financial year 2012-13. The Council have advised me that knowledge of, and decision making about, this large and growing debt was restricted to a small group of senior managers, the Leader of the Council and the Cabinet Finance portfolio holder. Restricting knowledge about such a critical issue to such a small group and not engaging (for whatever reasons) a wider body of councillors, prevented the discussion of a range of options and alternatives to deal with the problem which may have reduced the debt and any losses to the Council.The failure of the Council, its senior officers and Cabinet, to manage this important financial issue in a proper and transparent way is very disappointing. I hope that in investigating my complaint you will identify areas in which the Council’s managers and decision makers can improve their practices so reducing the chances of the Transeuropa Debt problem happening again.
I regard the matters identified in this letter serious enough to merit you producing a Public Interest Report