Hastings councillors back recommendations after highly critical report
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On Thursday (December 7), Hastings Borough Council’s audit committee discussed an interim value for money report from external auditor Grant Thornton — a document highlighting several concerns about the way the council has managed its finances and sets out routes to improve.
After discussion, councillors endorsed all 12 recommendations contained within the report, which included four key recommendations on areas of particular concern.
These key recommendations included calls for the council to review its approach to commercial investments, with the report highlighting issues surrounding the authority’s plans to build an 84-bedroom hotel — to be operated by Premier Inn — at the former Cornwallis Street Car Park.In the report, a spokesman for Grant Thornton said: “The council did not carry out sufficient due diligence prior to entering into a contract with PIHL and Whitbread Group PLC.
“Whilst the council secured an independent valuation, it did not give appropriate detailed consideration to: i) the risks of termination of the least at 20 or 25 years; ii) the risks of converting to an alternative use after 20 or 25 years; iii) the risks of cost inflation between entering into a contract … and letting a construction contract; [and] iv) the risk of a gall in the value of the asset.
“The council has entered into commercial investments with the intention of producing an income stream to support the revenue budget. The council has significant capital tied-up in investments where risks were not effectively assessed in advance and are now unlikely to [bring] the anticipated income stream to the council.”
As previously reported, the council may face legal action if it fails to build the hotel, but will need to commit more money to the project to do so.
When first agreed in October 2019, the hotel building project was expected to cost around £7m to build out. This estimate had risen to around £13.6m, when the scheme was last discussed publicly in September.
Concerns around the decision-making which led to this position were a feature of the committee’s discussions.
However, Darren Wells, a representative of Grant Thornton who was present at the meeting, said: “We are not seeking to apportion or allocate blame in this instance. What we are saying is, if you look at the decision-making holistically it wasn’t strong enough.
“That ultimate responsibility doesn’t rest with one officer, it rests with the council as a whole and ultimately with cabinet as the decision-making forum.
“Therefore it would be for cabinet, then and in the future, to ensure it has sufficiently robust and in-depth reports available to it and appropriate advice from senior finance people, senior legal people to ensure it can take a robust decision.“We don’t think that was in place for the Cornwallis Street hotel development.”
Grant Thornton also raised concerns about the council’s commercial investments more broadly, with the auditor saying the council should review its investments to “re-evaluate the potential risks and rewards, and their impact on the council’s future financial sustainability.”
In light of this recommendation, Conservative group leader Andrew Patmore called on officers to ensure the council’s soon-to-be-published asset management plan provided the information necessary to achieve this goal.
Cllr Patmore said: “We are being told [the asset management plan] is not going to be the panacea that we are looking for, yet audit and the report from Grant Thornton really outlines the fact that we should understand the risks and rewards of those individual commercial purchases.
“We invested huge amounts of money in retail investment, in retail parks … whether it was North Sedlescombe Road, Bexhill Retail Park, the Aldi Estate, Jewsons [and] we’re adding up here to multi-million pounds worth of investments. Each of one of those investments had very specific targets and actually quite small margins in a commercial sense.
“We’ve been through covid and we’ve also been told, for example at the Bexhill Retail Park, that rents have been reassessed and reduced. So the council itself, the members, would really like to understand how those investments are doing.”
In response, the council’s chief finance officer Kit Wheeler said: “I don’t disagree with the recommendation that we should review all of our projects and our appraisals. I think that is good project management; to review what has gone before so you don’t repeat the errors of the past.”
He added: “The reason I welcome these reports — and other advice from the likes of CIPFA and others we get in — is around really building a safe, secure approach to our financial situation. Our wealth, our assets whatever it might be.
“We are doing everything we can to get to that panacea you talk about. I hope we do get there and I have every confidence that we will get there and we are going as fast as we can. But at this moment in time, we are not quite there yet.”
Mr Wheeler went on to say the assessment management plan is likely to be published next month.
In a report to the committee, Mr Wheeler also stressed how the council had already taken steps to address some of the specific concerns raised by Grant Thornton. He said these were not fully included in the report as they fell outside of its 2021/22 to 2022/23 timeframe.
In its other key recommendations, Grant Thornton also called on the council to: ensure its savings and income targets address funding gaps and incorporate an element of headroom for any slippage; reconsider the depth of its annual internal audit coverage; and to review its governance arrangements in relation to the Hastings Housing Company Limited (HHC Ltd) — a limited company set up (and wholly owned by) the council to buy and rent properties.
The auditor had been highly critical of the arrangements surrounding HHC Ltd, saying there had been “no proper accountability, transparency or scrutiny of the company’s performance”, a responsibility which ultimately fell on the council’s cabinet.
They went on to say that the company — which the council has borrowed more than £5m to finance — did not “appear to be financially sustainable in the long term.”
The auditor made several other recommendations in its report. These included ‘disinvestment’ from non-priority areas of council spending; appointing independent members to the council’s audit committee; and implementing the recommendations of the LGA Peer Review.