SHBC – what a shambles.

We’ve been sent an extract from the latest edition of Private Eye:

Now, we’ve listened to a recording of the audit meeting.  However, we’ve not detected some of the ‘facts’ reported above.  Certainly, the auditors said that the value placed on the mall in March 2019 (the end of the audit period) was ‘toppy’ and ‘fairly aggressive’.  Although it was not necessarily wrong, a more cautious figure would, indeed, be £23 million lower.  And, at the time of the meeting just over a year later, the situation would look ‘horrific’.  However, the figure of £66 million almost certainly comes from a different source than the recording.  Nor does the recording really indicate that councillors were ‘aghast’.

What Private Eye has completely failed to report is the appalling quality of the accounting skills of the council.  The number of errors in the draft accounts meant that the auditor had to devote two and a half times more effort than budgetted to process the data.  The activity had been ‘painful and protracted’.  In comparison to ‘normal’ councils, Surrey Heath’s performance was said to be in the ‘lower quartile’.

One councillor strongly urged that the audit report – which was already finalised – should emphase the failure of management controls in the matter of the previous chief executive’s ‘additional duties allowance’.  But what struck us was that the previous chief executive was responsible for the quality and performance of the staff under her.  If she had concentrated less on her own finances, and more on ensuring the council’s competence, the audit meeting might not have had to listen to such a woeful story.

18 thoughts on “SHBC – what a shambles.

  1. The unlawful payments to Karen Wheeler were approved by the Performance and Finance scrutiny committee which clearly didn’t do a good job. Other Tory councillor heads rolled on corruption issues including the then head of the council. Therefore, in their ultimate wisdom, SHBC subsequently made the then chairman of the Performance and Finance scrutiny committee (ALAN McCLAFFERTY) into the head of the councillors. Who could possibly accuse SHBC of being corrupt and illogical?

    • We can only hope that ‘once bitten, twice shy’ applies, and Cllr McClafferty won’t let anything untoward slip through in future. But his blaming the saga on a failure of governance rather than a failure of people is going out of his way to avoid the truth.

  2. Ok so the value of the property may have decreased , which is dire, if the council want to sell it, but how has the income, from the property, performed since purchase. I understood part of the strategy was to cover for lost central government money. Has that worked?

    • Well, as far as the Square – and only the Square – is concerned, the council has always said that the purchase was not to generate income, but to regenerate the mall. But it’s a fair guess that the current and likely rental income will barely (if at all) cover the repayments and interest.

  3. The whole thing gets worse and worse. Isn’t there a case for an intervention by the Government body who monitor the overall competence of a Council? Any analysis of the risk involved in buying the town centre should have clearly shown that based on the income generated by its shops over valued the cost being asked for it.

    • There’s a case for intervention by the councillors. For years – and for understandable reasons – the etiquette has been that councillors don’t comment on the officers’ performance. But when the auditor describes this as ‘lower quartile’ (and no doubt they were being diplomatic when they said this in a public meeting), the councillors shouldn’t just sit back and do nothing. They should be acting loud and clear.

  4. The utter spinelessness of (and probable collusion or at the very least knowing and doing nothing) of the SHBC Conservatives continues to be exposed in the latest edition of Heathscene where under a section titled Appointment of Acting CE, there is no apology to residents and the wretched Whelan still gets a paragraph to come out with thanks and worthless platitudes..”with real vision and ambition””…what a load of dogs gonads. Grow some Pashen!!

    • I’ve always tried to believe that suspicions/claims that councils are up to no good are unwarranted. But thanking Whelan in view of everything that’s come to light is – as you say – spineless. A bit of honesty (correction, a LOT of honesty) is needed.

  5. The council delivers almost no services itself directly, it is mainly through contracts and partnerships. They are effectively an administrative and regulatory organisation, plain an simple. And they are certainly not property experts. The councillors have between them a variety of skills but they are not elected for those skills and operate largely as lay people advised by officials. They are not responsible for the day to day management in any way.

    Amazingly this can work well when you have a good top team, especially the CEO, a healthy organisational culture, good governance and accountability and, let’s not forget, well trained and committed staff.

    Sadly SHBC is probably in the bottom quartile for many of these essential cornerstones. What is needed is a clear strategy to move out of that bottom quartile and the leadership to make it happen. Councillors are responsible for recruiting and managing the CEO and I do hope they are up to it and get on with it.

    Shared services or creating a unitary authority may be necessary but even that won’t work unless you have good, capable people, a more open and accountable culture and councillors who will put aside politics in favour of getting things done.

    I live in hope!

  6. Thanks for this post. Is there any evidence/belief that anyone in the ‘ruling group’ of councillors is able/determined to address The Mall disaster and the seeming chaos in SHBC’s finance department?

  7. It would seem that this council needs to be put into special measures. As soon as one issue is ‘dealt with’ another turns up. Whelan was not the only one who needed to be removed there are others and this report justifies further investigations and the rolling of heads, not further cover up!

  8. The latest Financial Statements for 2018-19, dated 31st March 2019 show that the investment in The Mall has been written down by £38 million to £66 million calculated by Montagu Evans on an estimated yield of 6.3%. and rental income of about £4.2 million. BDO the audit company in their submission to the SHBC Audit and Standards Committee on 20th April 2020 commented that the valuation was “aggressive”. They were inclined to suggest that the yield should be 8 or 9%, which would further reduce the value of the asset by £23 million to £43 million. They then said the current valuation of The Mall at 31st March 2020 would be “horrific”.

    So what will the valuation be on 31st March 2020? Rents have reduced over the year, House of Fraser no longer pays rent and Primark has also put landlords on notice that it will not pay rent. The rent has probably fallen by at least £1.5 million to about £2.7 million. Yields for town centre dominant and secondary retail shopping centres are in the range of 9.5% and 12% (Savills). This would make the valuation at the end of March 2020 about £30 million a loss in less than four years of £74 million.

    And of course this value will be pre Covid 19, as the lockdown came into force on 23rd March. So this year (2020-21) the rental income will be lower and the yield even higher and consequently another reduction in the value.

    When the Mall was purchased SHBC borrowed the money from the Public Works and Loan Board (PWLB) on a 50 year term. About the only sensible decision they made in this whole sorry saga. This provided a safeguard against any diminution of value as the loan would be in place for about the lifetime of the asset and was repayable in 2066. However the Council proved yet again that it was totally incompetent and swapped the long term safety of the government sponsored PWLB loan for short term financing, saving some interest but exposing itself to demands for the loans to be repaid. Currently loans are largely short-term, that is repayable within one year. Given the diminution in capital value The Mall does not offer sufficient collateral for a lender to take the risk of non-repayment, and therefore in the not too distant future SHBC may not be able to refinance the short term loans and this could then lead to a forced sale and realisation of the capital loss.

  9. Many thanks, Peter. My point was, of course, that £66 million wasn’t mentioned in the audio recording, not whether it was ‘correct’. But, as I’m definitely not an accountant, can you point me to where the figure is reported – or derived – in/from the Financial Statement. Regards.

    • The link is https://www.surreyheath.gov.uk/sites/default/files/documents/council/Audited%20Statement%20of%20Accounts%20201819.pdf
      Page 51 and the amount of diminution is £37,703. This figure includes depreciation, but if you follow the audit trail depreciation and other equates so what is left is the reduction in value. Cost £104 million less £38 million gives the Mall valuation as £66 million.Unfortunately SHBC does not show commercial property as a separate entity in the accounts, again adding to the mystery and secrecy,, it would be very helpful if they did. Then we would know the rent and not have to rely on the valuation and yield numbers to deduce it.

      By the way you probably already knew this but in January this year SHBC tried to buy the Atrium complex! Fortunately after the fourth presentation Montagu Evans changed their advice. THE FOURTH PRESENTATION!!!! Close shave.

      Of course like the purchase of the Mall it was all done in secret.

      A submission was made to the Public Accounts Committee: Public Inquiry into Local Authority Commercial Investment, commenting on SHBC’s purchase of the Mall. If you would like a copy of the submission I would be happy to send it to you.

      • Unbelievable how underhand SHBC has behaved.
        1. The non Conservative Cllrs need to start making some serious moves to clean out the rot at Knoll Rd.
        2. The existing Conservatives who have sat through this decade of deceit and the disastrous commercial deals should consider their position and admit their mistakes/apologise/resign.
        Or
        SHBC needs to be put into the hands of whatever safeguarding authority remains to protect residents interests when a council goes rogue.

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