Posted by: westlancashirerecord | January 19, 2018

Poor VAT Governance At WLBC?

How often have we read about what went wrong recently at Carillion and the outcome suggesting that effective governance was lacking? Governance forms a major part of the WLBC Constitution, as it states “Partnership Governance. Governance arrangements are in place for partnerships that are appropriate for the specific arrangement. For example, there is a framework of contracts governing the Council‟s relationship with the Leisure Trust/Serco and Lancashire County Council/BT Lancashire Services (BTLS) and a Parish Charter on joint working with Parish Councils”.

How interesting to find reference to “Council’s relationship with the Leisure Trust/Serco” as a subject of partnership governance. Council itself had a relationship with Serco following its shotgun marriage, reported at its meeting on 21st September 2004 Cabinet took an urgent decision in respect of the proposed Leisure Contract and agreed to what Councillor Westley introduced in the report of the Deputy Chief Executive, as contained on pages 757 to 769 of the Book of Reports reminding members of the Council’s decision to enter into a contract with Serco and advising of that company’s desire to undertake improvement/enhancement works at the facilities to be included in the contract prior to the Christmas period. It involved “a contingency sum of up to £610,000 be approved within the Capital Programme to cover the potential costs of reimbursing Serco for improvement works to leisure facilities”.

One issue which arose during negotiations in August/September 2004 was that if Serco were to maximise income (and thereby minimise the management fee) the facilities needed to be in as good a condition as possible at the commencement of the contract, which is currently anticipated will be the 31st December 2004. What followed was a reference to VAT  “There is a risk that if the Council has to reimburse Serco for its improvement expenditure then the VAT deminimis level could be exceeded, which would require a significant payment to be made to Customs and Excise. Consequently immediate action would be required to minimise the Council’s VAT liabilities in the unlikely event that contract negotiations fail. The position will therefore be kept under close scrutiny (by officers of the Finance Division) in this respect”.

So with VAT on its mind the WLBC confirms it is responsible for ensuring that its business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for and used economically, efficiently and effectively. The Council also has a duty to make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness. To discharge this overall responsibility, the Council must have in place proper arrangements for the governance of its affairs, facilitating the effective exercise of its functions, which include arrangements for the management of risk.

Despite all of that, and with WLBC having approved and adopted a Local Code of Corporate Governance, which is consistent with the principles of the CIPFA/SOLACE Framework Delivering Good Governance in Local Government, VAT  fraud took place within a WLBC/DCT Leisure Ltd direct contract. DCT Leisure Ltd was the contractor for the Beacon Park Golf Course, and not only contracted but extended on its performance, courtesy of Cabinet: 15th March 2005 and Council: 27th April 2005, Relevant Portfolio Holder: Councillor David Westley, Beacon Park Golf Course – Future Management. To inform Members of the impending completion of the first 5 years of the lease with DCT Leisure Limited for the management of Beacon Park Golf Course, Driving Range and Visitor Centre. That, subject to the agreement of Council the Deputy Chief Executive, in consultation with the Portfolio Holder for Community Services be authorised to negotiate and conclude a further management agreement and grant of a lease (subject to all necessary consents being obtained) with DCT Leisure of the land and premises at Beacon Park for a period of 5 years, with a further 2 options to renew the arrangements for a further 5 year period. That an exemption from the requirements of Contract Procedure Rule 7 be made for the reasons set out in section 5.0 of the report. Members may wish to acknowledge the success to date of the ground breaking partnership with DCT Leisure in managing the Beacon Park Golf Course over the last 5 years.

Given the proposed income to the Council of £25,000 it is estimated that the capitalised value of the asset to the Council in disposing of the 5 year lease with options will be in the region of £280,000. Whilst this is considered the best deal available in the circumstances in relation to its current use, it is not certain that this represents the best possible unrestricted value of the unencumbered premises. However it is certain that the difference between this value and any higher unrestricted open market value would not exceed the £2 million limit imposed under the Local Government Act 1972: General Disposal Consent (England) 2003. Therefore given the environmental and social benefits the continuation of the service will bring to the area then the Council is able to exercise its powers under this Act to dispose of the leasehold interest as described in this report. The Council and users of the facility have benefited greatly from the involvement of DCT Leisure at the Beacon Park Golf Course. On the results shown, improvement to facilities, and the financial outcome, it would appear to be appropriate to continue the partnership arrangement.

But how was DCT Leisure Ltd being monitored by WLBC? How was WLBC governance being applied? Probably not at all because by December 2009 its abbreviated accounts showed rapidly depleted total assets and no provisions for liabilities. The Directors declared “Going concern. At the year end the company had net current liabilities of £69,508 which indicates that the company may not be a going concern. The director has reviewed the future cash flows and in their opinion the company will be able to meet all debt as it becomes due. On this basis the financial statements have been prepared on a going concern basis”.

Yet no further company accounts were ever registered as required by company law, and at an extraordinary general meeting of the members duly convened and held on 14 March 2012 the following special resolution was passed…”That it has been proved to the satisfaction of this Meeting that the Company cannot by reason of its liabilities continue its business and that it is advisable to wind up the same d that the Company be wound up voluntarily”. It was signed Mark Prosser Chairman. As we have published already “Unsecured non-preferential claims were Trade and Expense £7,294; Former Employee Tribunal Claim £11,551, Director £700, HMRC (VAT)  £55,000, Employee Redundancy £4,515″.

The Audit and Governance Committee is charged with monitoring Contract Procedure Rules, Financial Regulations and other provisions of the Constitution. This Committee also considers how well the Council has complied with its own and other published standards and controls in so far as these contribute to the adequacy of its framework of internal control. A range of actions to improve contract management have been delivered including the provision of training, improvements to management information systems, and more detailed scrutiny . This has enhanced performance in this area, and Internal Audit will further examine processes relating to contracts to ensure that value for money services are delivered.

The 7 principles of public life were published on 31 May 1995 and were included by WLBC to promote a culture of integrity and accountability in contractors and suppliers of goods and services. For the purposes of this policy, fraud may also include the Audit Commission’s definition, which is “the intentional distortion of financial statements or other records by persons internal or external to the Organisation which is carried out to conceal the misappropriation of assets, evasion of liabilities or otherwise for gain”. That’s exactly what happened at DCT Leisure. It was either undetected by WLBC or audit or simply ignored. Which is it? 

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