WHILE Warrington Borough Council’s controversial investment in Redwood Bank has been found not to be unlawful, external auditors have recommended the council should review its governance arrangements for authorising major investments.
Grant Thornton’s report into the public objection to the 2017/18 WBC Accounts, which has now been made public 13 months after a Freedom of Information request by retired accountant Richard Buttrey, also says the council should ensure that there is appropriate scrutiny of any changes in the agreed approach made following initial member approval.
Warrington Borough Council agreed to invest £30 million in the new challenger bank in January 2017 – for a business that was set up with an initial £650,000 investment.
The investments to date have been made in Redwood Financial Partners Ltd (“RFPL”) as opposed to Redwood Bank Ltd (“RBL”). RFPL is the 100% shareholder of RBL.
A further £2m “top up” investment has since been made.
The council has a 33 per cent share and the bank has a regional head office in the town, based at The Base.
Commenting on the release of the report Mr Buttrey said: “Until now this report has been confidential. It’s not clear whether even all members of the Audit & Corporate Governance Committee are aware of the details, and certainly, most other councillors weren’t.
“It has taken 13 months for this to be released in the public domain under a Freedom of Information request which was initially refused.
“A subsequent internal review request was ignored and it took the intervention of the Information Commissioner with a letter to the Chief Executive before it was released.”
Mr Buttrey raised concerns over the council’s investment being in a holding company Redwood Financial Partners Ltd (RFPL) and not Redwood Bank Ltd 20 RBL.
In their report, the external auditor’s Grant Thornton, said “The Council have noted that the lead Executive Board member at the time, Councillor Russ Bowden, was provided with regular detailed updates about the change in structure.
“However, this is not the same as the Executive Board making the decision and being aware of the change. In fact, we are not persuaded that on the materials which were before the Executive Board when they made the decision that it would have been clear that there was a potential alternative proposal to directly investing in the Bank.”
They went on to say “It is not straightforward to determine whether the change of corporate identity in terms of the investment vehicle is a material change or “purely technical” as claimed by the Council.
On discussing the decision to invest in RFPL, not RBL the auditors went on to say: “The question is one of strict construction of what the Executive Board was told and what was meant by way of its recorded decision in the minutes -not what ended up being advisable but was not before Councillors at the time.”
Referring to RFPL owning only 90% of RBL they added: “However, it is regrettable that this was not mentioned in the reports to the Executive Board so that the precise nature of the shareholding being acquired was clear.
Discussing the wider question of the investment in RFPL not RBL, they concluded it was not as clear cut as WBC had presented it.
The argument as to whether the switch represented a ‘material change’ was, in their view, “finely balanced and not entirely clear”.
They went on to say: “We are of the view that the Council should arguably have reverted to the Executive Board to confirm its decision, once the change in investment approach was likely.
“The Council should also note and consider the governance weaknesses identified here and ensure that lessons are learnt for the future.”
They went on to say:” We recommend that the Council reviews its governance arrangements for authorising major investments to ensure that there is appropriate scrutiny of any changes in the agreed approach made following initial member approval, and in particular, consider how it can ensure that officers are able to identify where changes of approach may require further member approval.”
A council spokesperson said: “The review from Grant Thornton concludes that the external auditors found no clear evidence that the investment in Redwood Bank was unlawful.
“We were always confident that this would be the case, given the detailed due diligence and external support we received, and that we evaluate and assess in detail the benefits and risks associated with any investment we make. These are always central considerations before any final investment decisions are made.
“We are, however, always looking to develop our processes and acknowledge areas for improvement in the report, which we have been implementing since the report was first published.”
A full copy of the report can be read here CLICK HERE
10 Comments
Would these be the same auditors, relatively inexperienced in Local Government audit, who took over after the scrapping of the Audit Commission, and have recently been fined £2.3 m for botched audits in the commercial sector?
https://apple.news/AcVWwNYUHRHuMcyjCQSQnaQ
Mr Barr Yes these are the Same auditors that you were happy with when your party were the official opposition and on many occasions you clearly stated there was nothing to worry about and it was just a bunch of key board warriors trying to stair up trouble
Bit of a straw man argument there Bob. Play the facts not those assessing the facts.
In any case you seem to be suggesting that because they weren’t diligent enough with PV that they haven’t (or can’t) have been diligent enough with WBC. That’s a strange thought. Even Russ B I suggest wouldn’t think that. He and others are complaining that they’ve been over analytical as far as I read the runes.
Agreed. Moreover, you don’t have to look too far to see some of the top “audit” names have had their knuckles rapped for not conducting some of their own audits properly. It seems the company WBC engaged and paid £40,000 to advise on “Redwood Bank valuation 2017/2018” has itself been criticised and fined by the FRC. Which required it “to review and amend its audit policies and procedures…”
Good spot!
Bowdens now has a new job with the nuclear inspectorate,in the released report it clearly says Bowden sat on vital information regarding the actual purchase of a holding company rather than the bank so it’s possible the scrutiny committee were at best misled what could possibly go wrong if Bowden applies the same managerial techniques in his role in the nuclear industry.
To be clear Steve, as the auditors said it’s not a question of the Executive Cabinet being misled by Bowden, they weren’t being led at all.
What they say is that Bowden didn’t bother keeping them updated with changes of which he was aware being made to the Redwood structure before the Cabinet meeting that took the decision.
The council appear to be still peddling the line that the auditors found the investment “not to be unlawful”.
No the auditors found no such thing.
What the auditors said is “We consider that an application under section 28 to the Court is not warranted as there is no clear evidence the Council did act contrary to law.”
That is quite different. In fact the auditors confirm that only a Court could determine the question of legality and they have decided on balance not to ask the court to decide.
The absence of ‘clear evidence’, particularly with this council who are a stranger to providing information, as has been widely evidenced elsewhere, does not mean that there may not be other evidence or that the evidence the auditors do have, which if put before a Court, would not result in a declaration by the court of illegality.
Is it the difference between “guilty” or “not proven” as the Scots might put it?
For all the belated cries of “no clear evidence” this administration seems to have spent an awful lot of money (which could have more beneficially used for the people of Warrington) in seeking financial advice to justify its stance and investment strategy. Sums in the region of £180,000 and £200,000 are listed against those objectives.
Throughout this unsavoury episode the principles for governance set out by Lord Nolan seem to have at best taken a back seat and at worst ignored completely.
Yes, a good analogy I suspect.
Certainly nothing is proven since nothing has gone to court.