Council apologises after auditor finds failings in £10m loan to football club

A borough council has issued an unreserved apology after a report by its independent auditor identified significant failings in its approach towards making a £10m loan to its local football club.

The audit committee at Northampton Borough Council had commissioned a report from PwC into the making and managing of the loan to League One club Northampton Town. Much of the loan, which was intended to be used to pay for improvements to the Sixfields football stadium, is said to be still unaccounted for.

PwC identified a number of areas where the council’s management of the loan was inadequate, and where processes must be improved.

In its report, which can be found here, PwC concluded that the council’s Cabinet had approved a loan of up to £12m, but this decision was based on limited information as a business case had not been made available.

PwC also noted that a number of conditions were made by Cabinet but the auditors’ investigations could not confirm that these had been complied with fully, addressing all concerns. For these reasons, PwC said it had been unable to confirm that decisions taken were in line with the delegated authority.

“There were loan agreements established to formalise the provision of finance and drawdowns of the finance were made in line with the relevant terms and conditions and established procedures requiring approval from officers. The information reviewed demonstrates that there was a lack of formal processes implemented and adhered to regarding risk management, project management, management information and performance management,” PwC said.

It added: “Whilst there is evidence to show the council has challenged some areas and professional advice has been sought, the fact that the council has taken months to identify and collate a series of thousands of emails to evidence the adequacy of the actions undertaken highlights that the arrangements were informal and did not follow a strict procedural process. Where issues have been identified the volume of evidence available makes it very difficult to demonstrate that all issues were adequately resolved.”

The incident demonstrated the need for careful thought, structure, independent advice and monitoring in making a decision on a transaction which was significant and unusual, PwC said.

The auditor said it had attempted to reconstruct the thought process for the decision made and for subsequent monitoring. However, its view was that the council had failed to demonstrate this in its data room. “This was made extremely difficult because of a lack of an approved business case, appropriate independent advice and documented risk management and governance processes. These documents need to be at the same time concise and comprehensive. We found the documentation we were presented with to be neither.”

PwC added that the significant time invested by the council in retrospectively collating information and evidence to demonstrate adequate governance, risk and performance management indicated that this was not undertaken in a formal, process driven manner at the time of inception.

“The fact that there are thousands of emails and sources of evidence to demonstrate the actions undertaken is confusing and fails to demonstrate adequately ownership and control of the situation,” it said.

“It is apparent that the overriding focus on the Sixfields redevelopment was on the operational aspects and subsequent governance arrangements failed to identify and address adequately the loan agreement.”

Issuing an apology, the borough council said that:

• Issues raised by PwC would be added to an action plan it had already put in place.
• A new corporate governance framework would be put in place to guide the management of all major projects.
• The issuing of any new loans had been put on hold pending the implementation of due diligence guidelines that had been reviewed by the council’s banker, Barclays.

The new governance and risk management framework are to be the responsibility of named officers, who will ensure it is complied with across the organisation.

The audit committee had been asked to monitor rigorously the implementation of and compliance with the action plan through regular reports at every one of its meetings, the council said.

Cllr Jonathan Nunn, Leader of Northampton Borough Council, said: “First and foremost, I apologise for the past failings highlighted in our auditor’s report. The council’s management of this project fell seriously short of the standards people have a right to expect from their council, and that is wholly unacceptable.

“When the loan to the football club went so badly wrong, we asked our auditors to look at what happened and they have given us clear advice on the improvements that must be made. I accept that the council failed to manage this loan in a proper way and clear action must be taken to show that lessons have been learned.

“The council already has an action plan in place to address these failings and I have asked the chief executive to demonstrate that management controls have been strengthened. The council must reduce the chances of something going so badly wrong again.”

External auditors KPMG are also carrying out an independent review into the loan. A separate investigation into matters related to the previous management of the football club is meanwhile being carried out by Northamptonshire Police.