Managers sacked and contracts closed as council probes millions in overspent cash
PUBLISHED: 09:16 17 December 2018 | UPDATED: 09:09 18 December 2018
Senior managers have been suspended and sacked for gross misconduct amid a catalogue of claims about financial malpractice.
Senior managers have been suspended and sacked for gross misconduct amid a catalogue of claims about financial malpractice.
Newham Council’s repairs and maintenance service (RMS), which is responsible for council homes and gas and highway works in the borough, had a “complete lack of control of financial management” that resulted in “alleged malpractice of financial operations and significant overspends,” according to a damning council report.
“There has been significant mismanagement at the highest level within RMS and that a culture has developed where some staff have perceived themselves as operating as a separate entity,” the report adds.
During 2017/18 expenditure in one part of RMS alone skyrocketed from £283,000 to £9.4 million, meaning the division overspent by more than £8.7m.
The true figure is likely to be higher as the council is still investigating.
An investigation by the Recorder has learned of:
• Staff claiming allowances of up to £14,000 and separately for overtime which they may or may not have worked, including one claiming for up to 66 extra hours a week
• One person caught making payments of £800 a day to an external consultant
• Companies being issued fuel cards for Newham’s Folkestone Road depot to fill up with, leading to fuel costs soaring into the millions
• Bonus and incentive payments dished out to plumbers and carpenters worth three times their basic salaries
• One supplier carrying out bathroom fittings at triple the expected rate
• Allegations of parts and equipment, including expensive pumps, being bought by RMS employees with council money and given to external contractors who would then re-charge the council to deploy them
Fourteen mostly senior staff members have left, been suspended or resigned, with at least three people sacked for gross misconduct and five cases under investigation.
How any of this happened – and whether everyone has been held to account – is not yet fully known, and police are not involved.
In July 2017 two whistleblowers raised the alarm over possible mismanagement, leading to an internal fraud investigation which scrutinised sources of the colossal overspend, mostly attributed to irregular procurement and poor pricing.
The issues were first reported to the council’s audit board last autumn.
A council spokesperson said: “In July 2017, Newham Council identified concerns around the management and financial expenditure within RMS.
“These allegations were part of an internal audit, the claims were investigated and, where necessary, staff were dismissed.
“Many of these allegations were considered as part of the investigation and subsequent disciplinary actions. However, a number were not substantiated with evidence.”
RMS’ operations director Tony Abbs was suspended in July 2017 and has since been replaced, and has not responded to our request for comment.
The head of repairs, Barry Marbe, was suspended and later resigned, the finance controller Ananda Sirisena resigned, and at least one repairs manager and the payroll clerk have also resigned.
At a meeting last week, councillors were told that the fraud allegations were not substantiated.
The director of commissioning for RMS is Simon Letchford, an ex-Met borough commander and former head of enforcement, who has been approached for comment.
Cllr John Whitworth, who was present at the meeting, said: “I think it was poor accounting. Mr Letchford is the ultimate person responsible, but it doesn’t mean that he knew what was happening. We are optimistic that they’re going to turn it around.”
Spending records for RMS reveal a disproportionate number of payments recorded as “miscellaneous expenditure” over the last year.
In the first month of the financial year, RMS spent £1.4m in 517 payments to suppliers, of which 316 were logged as “miscellaneous”.
Travis Perkins, which is based on the same site as RMS in its Bridge Road depot, was paid a total of £10.6m for house-building materials.
The firm is now set to pay the council back a rebate of £256,000 and its contract with the council ends in January 2019.
A spokesman for Travis Perkins said it supplies materials to Newham Council through a store to help “optimise repairs and maintenance productivity, whilst minimising cost”.
Many firms engaged by Newham over 2017/18 have seen their contracts end or are still in limbo over what will take place next year.
A total of 101 are now going through a full accreditation process.
One local white goods supplier, which received £621,060 over 2017/18 for work in social housing, had all work stopped in December 2017.
The owner said: “They said it was down to overspend with us and other contractors, but I’ve been very good value for money. I didn’t like the way it was done.”
A comprehensive ‘recovery plan’ for RMS, which has 250 in-house staff, is now under way and aims to improve compliance across the division.
The allegations came to light under the tenure of the previous mayor, Sir Robin Wales, who has said he was actually the first to raise the issue.
He told the Recorder: “The first concerns raised about RMS were raised by me, personally, when reviewing the operation as part of our small business programme.
“A week or two after, a whistleblower made a number of specific allegations.
“We suspended the efficiency review until we could investigate fully. When I left office actions arising from that report had not been completed.
“I am surprised that, seven months after taking office, and a full year after she became aware of the problem, the current Mayor has not commenced criminal prosecutions or announced that there is insufficient evidence to proceed.”
Questions have also been raised about scrutiny of RMS carried out through OneSource, the back office support service shared by Newham, Havering and Bexley.
A former council officer, who asked not to be named, said: “First-hand experience of RMS and accounts of people both pro-actively and re-actively caused me significant concern, about not just the use of public money but also the quality and potential safety of some of the works that were undertaken.
“I was aware for some considerable time there was a significant level of effort put into an investigation around the wider concerns. I was not convinced about the overall approach and the rigour of what I had seen, or the outcomes of the investigation.”
Huge overtime and bonuses
Documents show that a number of RMS employees have been both claiming for extraordinary levels of overtime and receiving up to three times their salary in bonuses.
An internal review found that 26 people in the division, from senior management to depot staff, received £1,000 or more in overtime between April and September last year – with two pocketing £11,220 and £10,662 in six months.
One individual in the highways division was regularly claiming for 60 to 66 hours’ extra work on top of a normal 36-hour week.
Another was found to have “line manager approved” his own claim, while elsewhere line managers signed off on claims for people they were not directly responsible for.
Staff were also recorded as being on annual leave while claiming on-call allowance.
Many others did not log into the computer system once during the shifts they claimed to have worked.
Investigators concluded the head of repairs had “permitted working practices that have contravened the council’s financial regulations”.
They also advised senior management look into the matter “as a duty of care” given that official records suggested employees were working up to 102 hours a week.
Three managers were dismissed for gross misconduct over the findings in August 2018, but all three are appealing the decision.
One of the managers, who walked away with a total of £3,759.42 in overtime pay over that period, said they had been advised to make the claims by their own boss.
They said: “This was nothing that wasn’t common knowledge and they have treated us like absolute dirt. I don’t feel I was claiming wrongly; I was directed to do that.”
A series of stunning bonus and incentive payments have also separately been dished out to operatives at RMS, worth two to three times their income.
Between April and September, one carpenter on a basic salary of £12,253.08 was given £42,232 in bonuses and incentives.
And two plumbers earning £12,973.86 each pocketed £47,421 and £34,038 on top of their normal wage.
Potentially incorrect payments to staff in RMS had been raised by a whistleblower in the finance section as far back as 2015.
This person had claimed that about 10 people were regularly receiving “make-up pay” of up to £10,000 over six months, as well as claiming was being charged for supplies it should not have been.
The same employee later complained against Newham Council for “detriments on the grounds of protected disclosures” and discrimination.
The claims were dismissed at an employment tribunal in September this year and they were ordered to pay the council £6,000.
Highways logs massive overspend
Part of the investigation shed light on a colossal overspend within the highways division of RMS, the ex-head of which has said he was “caught up in a witch hunt”.
Highways is thought to take up the lion’s share of RMS’s overall budget and reportedly saw its number of jobs go through the roof in 2017/18.
The problem was compounded by companies being provided with RMS-hired vehicles and issued with fuel cards to fill them up at will.
An internal council report states: “A significant area of change has come from the Interim Operations Director ceasing all involvement, from end of December 2017, with the 20 ‘contractors’ that were delivering highways planned maintenance.”
One plant and machinery firm received a grand total of £2,750,059 over twelve months.
Of the 478 payments made to this firm, 472 had been logged as “miscellaneous expenditure”.
Separately managers were rapped over how they procured contractors. Highways had ended up recruiting through third parties as the preferred staffing agency, Adecco, does not provide highways workers.
In one exchange in November, fraud investigators raised concerns about two Algerian builders who were paid £38,406 in total and cost the council an extra £2,520 in fuel.
They added the council could not be sure that employees were registered with HMRC or were tax-compliant – or, in one case, if a man driving a 3.5-ton tipper truck had a valid driving licence.
In a report seen by the Recorder, they said they had “no records that the workers being paid for exist and attend work that is invoiced for”.
Elsewhere another company working in Stratford was advised to engage in ‘invoice-splitting’ so payments could be signed off without delay.
The company split its payment of £141,572 into three lump sums worth £50,000 or less, meaning fewer officers would be needed to sign it off.
Before receiving the advice, the firm had already sent in a credit note, and so ended up being paid twice by the council. The duplicate payment was subsequently repaid.
Highways work was stopped temporarily in December 2017 except for street lights and vital repairs.
It is still forecast to overspend by £1m this year in light of the seriousness of the financial position, while work is currently taking place to establish if clients have been charged correctly and “any blockages in the process of charging”.
The then-senior repairs manager for highways, Paul Forrester, resigned in May this year.
He told the Recorder he was disgruntled with the investigation process and the firms were “bona fide contractors”, while the duplicate payment was a “clerical error” outside of his control.
He added: “Highways exploded [last year] and grew massively quickly. The volume of work that came in was vast, and the council processes couldn’t keep up with the amount of work.”
“I followed instructions by officers that had been there a very long time, and they shot the new boy.
“It’s a rare old mess and nobody seems to want to take responsibility for the mess it’s in. Get it done, was the attitude; it doesn’t matter what it costs or what it takes, just get it done. The process isn’t right and I’m happy I left with a clear conscience.”
Repairing the repairs service: What happens now?
Although the initial fraud probe has wrapped up, a number of separate lines of inquiry into RMS are still being pursued by the council as it moves to clean up the division.
HR investigations into staff members’ conduct are expected to wrap up shortly after a string of departures.
New faces, from senior managers to gas engineers, are being recruited and management training and staff vetting have been carried out across the board.
Closer fleet supervision is planned, and the majority of last year’s suppliers have now been stopped or moved onto the DPS system.
Operatives from auditing body Mazars, where the current head of assurance used to work, have been drafted in and produced an un-publically published report last September on allegations of misconduct.
Over the next year there are also plans for a programme of “culture change” and a number of softer changes have already been made, including ‘toolbox talks’ and a uniform refresh.
Meanwhile, it is understood a separate hired company is looking into reports that the correct tax has not been deducted from RMS staff.
A council spokesperson said: “A number of investigations are still on-going and Newham Council are unable to comment on individual cases. The RMS item has been exempt at audit committee due to these on-going investigations.”
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