An independent review of the council’s property investments has been highly critical of its controversial house building company Brick by Brick recommending the removal of its two directors.
The report due to go to Wednesday’s cabinet meeting is damning of the financial and governance structure of Brick by Brick which is overseen by Colm Lacey (pictured left) who is thought to be on a salary of at least £150,000 and his co-director Martyn Evans.
In the meantime funding for all new schemes have been frozen and all land transfers halted with PricewaterhouseCoopers recommending that Duncan Whitfield and Ian O’Donnell, be appointed as non executive directors.
Mr Whitfield is Southwark’s director of finance and governance and Ian O’Donnell, the CIPFA accountant who found that 75 areas of the borough’s governance did not meet best practice.
PwC were engaged by the council to carry out a strategic review of Croydon companies and other investment arrangements. Its remit was to spend 75 per cent of the the review analysing BbB.
The council’s financial situation became untenable prompting the section 114 in part due to the non payment of £32million owed in dividends and interest payments by BbB.
PwC were critical of delays in receiving and the quality of information from BbB which they said impacted on the depth of review analysis they were able perform, in particular in relation to the current financial position and forecasted performance of the house builder.
It identified that BbB’s governance structure and practices require ‘significant improvement’. In particular, it identified a need for greater financial stewardship and a qualified Finance Director.
BbB’s loan portfolio it says ‘has not been properly managed by the council, and several of the Company’s loans are technically in default as a result.’
The review continues: “BbB’s ambitious strategy of developing large numbers of small, complex and more risky sites has led to significant delays. This strategy has put Croydon’s investment at risk. “
The 2016, the cabinet proposal for the establishment of BbB set out plans to maximise the use of the council’s assets to deliver new homes through an innovative commercial model which it said would benefit the council financially and help meet savings targets.
A number of key sites were identified for development but as of October 2020, the delays in bringing new homes to the market had put the Council at serious financial risk and resulted in only a handful of new homes being available.
As a consequence, savings were not made and the severity of this situation wasn’t exposed until late in 2020, as formal controls that should have been in place ‘were absent’.
Despite the damning criticism of BbB, PwC concludes that continued investment in BbB was required to be able to generate a cash return for the council’s investment which includes a loan of over £200million.
PwC also reviewed the activities of the Croydon Affordable Homes Limited Liability Partnership group structure which was set up by the council to to increase affordable housing.
The recommendation was similar to that of BbB in criticising the governance arrangements of the CAH LLPs which he said ‘require significant strengthening’, as they have been run with ‘insufficient financial oversight’.
The LLPs’ latest financial statements were not available for review, but the FY19/20 forecast outturn was £317,00 (68 per cent behind target) behind plan, which was due to bad debts and voids.
It also indentified an ongoing mismatch of tenants to appropriate properties, resulting in the increase in rent arrears.
The operational and business model for the CAH group of LLP, PwC reported “requires detailed review before further investment is made by LBC, and dedicated oversight of the LLPs should be established. “