Meeting documents

AUDIT OF ACCOUNTS 1998/99

OBJECTION RELATING TO OPEN SPACE LAND :

REPORT OF EVERSHEDS TO THE COUNCIL

ON THE DISTRICT AUDITOR'S DECISION AND STATEMENTS OF REASONS

Introduction

Mr A Johnson, a local government elector for the area of the Council made an objection to the 1998/99 accounts of the Council.

The objector contended that as part of the Council's large scale voluntary transfer of its housing stock to Somer Community Housing Trust Limited, open space land was included in that transfer without the Council having first complied with its obligation to publicly advertise its intention. The objector further contended that the unlawful inclusion of the open space land in the sale reduced the price that Somer had to pay to the Council by £6,026,361.

The objector invited the District Auditor to apply to the court for a declaration that the item of expenditure was contrary to law. The objector further contended that the unlawful inclusion of open space land in the sale had given rise to a loss in the Council's accounts caused by the wilful misconduct of three Council officers and invited the District Auditor to find that the loss had been incurred or deficiency caused by the wilful misconduct of one or more of those persons and certify that the sum of the amount of the loss or deficiency was due from one or more of those individuals.

The Decision and Statement of Reasons

On 24 September 2002 the District Auditor issued his decision, Statement of Reasons and via the Audit Commission a press release highlighting the decisions he had made.

The District Auditor has dismissed the objection in relation to the most of the open space land on the basis that most of it was held immediately before transfer for housing purposes and therefore, was not subject to the requirements to publicly advertise. However, the requirement to advertise applies to a small proportion of the overall transfer. The District Auditor found that the Council was not entitled to dispose of the open space land in question without having complied with the requirement to advertise and therefore holds that the Council was not authorised to dispose of the open space and acted unlawfully in so doing.

The District Auditor then further considered whether the unlawful disposal of the open space land in question gives rise to an item of account which is contrary to law. He concluded that the Council received less than it should have done if that land had been excluded from the sale and therefore that the entry in the Council's accounts recording the receipt from Somer in consideration of the sale is contrary to law to that extent. He does however acknowledge that the failure to advertise in relation to the three areas of open space which were unlawfully included in the sale had only a strict limited effect on the purchase price.

Having concluded that the item of expenditure was contrary to law, he considers the exercise of his discretion to make an application to the Court and decided against so doing for the following reasons: -

1. The Council now accepts that it should have advertised the proposal.

2. There is no justification for the expense of a Court declaration.

3. The Court cannot make an Order in respect of a shortfall in income.

4. The costs of an application would fall to be paid by the local tax payer without any compensating benefit.

5. The unlawful conduct is unlikely to reoccur as the Council accepts the need to advertised its proposed disposal of open space land

The District Auditor has also declined to issue a Public Interest Report.

The District Auditor goes on to find that there is no basis for an application to the Court to certify that any sum is due from any individual officer. Full legal advice was taken and in good faith acted upon. Moreover, in his view, the unlawful disposal of three areas of open space has not caused a loss to the Council. Although the Council received a lower sale price than it otherwise would have received, the costs of maintenance of those areas are no longer the responsibility of the Council because of the lease arrangement. In consequence, the Council disposed of a liability. He is therefore satisfied that the three named officers were not guilty of misconduct, even less, wilful misconduct.

However, the District Auditor does go on to criticise the Council in respect of its alleged dilatoriness in providing information and documentation to enable the District Auditor to pursue rigorously and expeditiously his investigation.

Response to the District Auditor's Decision and Statement of Reasons

The timing and content of the decision and Statement of Reasons and in particular, the attendant publicity were causes of immediate concern to the Council. The concerns arose from the lack of advance warning from the District Auditor of the publication of the report and issue of the press release and secondly and more importantly, that the contents of the press release were considered to be factually inaccurate and misleading. The press release was amended although not in a way which was entirely to the satisfaction of the Council. Officers of the Council were particularly concerned that although the final decision fell short of a finding of wilful misconduct against named officers, there was, nevertheless, express and implied criticism of their conduct of the matter.

We have reviewed the decision and the statement of reasons and we have a number of concerns about the contents of the statement. Firstly, the District Auditor fails to demonstrate at two points in the report that he has fully considered arguments put on behalf of the Council regarding both the definition of unlawfulness and the application of that definition to the question of whether the item of account is contrary to law. Secondly, the references to the conduct of Council officers in their handling of the matter is gratuitous and should form no part of the formal consideration or decision. Thirdly, no opportunity was given to Council officers to comment in detail on the issues relating to their conduct and insufficient weight was given by the District Auditor to the representations made in the response to the provisional view.

However, it is abundantly clear that the finding of unlawfulness and all the consequences that flow from that relates to a small proportion of the area the subject of the disposal. Equally, it is important to appreciate that the District Auditor proposes, notwithstanding his finding of unlawfulness in relation to a small part of the land disposed of, to take no further action either by way of applications to the Court or against individual named officers.

The Council therefore needs to determine whether it wishes to look for ways of contesting the decision giving rise to the continuing possibility of a high profile to the matter and an adverse outcome or whether it would simply wish to record its concerns and move on.

The Legal Position

The Council is subject to external audit, under the Audit Commission Act 1998, by an auditor appointed by the Audit Commission. Since 1996 this appointment has been held by the District Auditor. The Auditor's responsibilities include a general duty to check that the accounts, comply with the requirements of the statutory provisions applicable to the Accounts, and that proper practices have been observed.

There is a statutory right for any Local Government Elector living in the Council's area to make objections to the Accounts on the basis that they are either contrary to law or amount to a loss or a deficiency caused by wilful misconduct or a failure to bring a sum into account. If a valid objection is made, the Auditor must make whatever enquiries are necessary and he has the following powers if he upholds the objections:-

· Issuing a Public Interest Report;

· Applying to the Court for a Declaration that an item of account is unlawful;

· Recovery of amounts in relation to losses due to wilful misconduct and/or failure to bring sums into account;

· Making a written recommendation to the Council in a report or a management letter and requiring it to be considered and responded to publicly by the Council as if it were a Public Interest Report;

unless any expenditure is sanctioned by the Secretary of State.

The Objector has a right to appeal against the decision of the District Auditor not to apply to the Court and he must do so within six weeks of notification of this decision. The Objector therefore has until 5 December 2002 to appeal against the decision. If he appeals, the Court can deal with the matter in the same way as if the District Auditor had applied to the Court for a declaration that the item of account was contrary to law. If the Court does agree with the District Auditor's decision and make a declaration, then it may also at its discretion order any person responsible for incurring or authorising the expenditure declared contrary to law to repay it in whole or in part.

The Council itself does not have a formal right of appeal under the Act but it does have a right to challenge the District Auditor's decision by applying to the High Court for judicial review where there are sufficient grounds. If the Council decides to apply for judicial review it must apply for leave and bring proceedings promptly and in any event within 3 months. In the event that the Objector does appeal, there would be no benefit for the Council in pursuing an application for judicial review since as part of the appeal the High Court would be examining whether the inclusion of open space without advertisement was contrary to law.

Production of documentation by the Council

Although the District Auditor made no finding of wilful misconduct and decided to make no application to the court as a result of his findings, he was nevertheless critical of the Council in respect of its conduct of the matter in a number of respects. First of all he took the view that the Council did not approach the question of the powers under which the land to be disposed of was held with the attention that might be required. In his view, this was a matter which should probably have been attended to before the sale in order that the Council could determine in the light of the purpose for which the land was held whether or not legal requirements with regard to advertisements were to be complied with. This led in his view to avoidable delay caused by the Council in the sense that if the Council had given proper attention to the investigation of the documents of title before the transfer, then the task of providing information for his investigation would have been simplified and expedited.

He took the view that he had made it clear to the Council at a very early stage of the investigation that the central question which the Council needed to address was the powers under which any open space land was held immediately before the transfer. In light of the Council making it clear that it was not able to provide the necessary information, the District Auditor decided to undertake his own enquiries and arrange for his legal advisors to review the relevant deeds which were said by the Council to be at the offices of the purchaser's solicitors.

We have reviewed the files and correspondence in relation to this particular issue and prepared a chronology of the sequence of events and reference to the exchanges of correspondence. It appears to us that there was some reluctance on the part of the Council to provide the deeds and documents as there was a belief within the Council that they would not provide the definitive answers the District Auditor was seeking which could be provided from other records. Notwithstanding that position, we do not think the Council acted unreasonably in its compliance then with the requirement to provide the deeds and documents. We therefore take the view that there is little force in the District Auditor's criticism particularly given that the Council was careful to seek legal advice to every stage of the transaction. It is important to record this point in the context of the overall approach and response to the matter but it is not in our view something which might affect the Council's actions by way of response.

Of more relevance, in illustrating the Council's response to the investigation is the decision of the Council to initiate new measures to manage subsequent disposal of land included in the transfer. The land used as open space was the subject of a report to Committee at an early stage of the investigation and it was recommended that, whenever an application was made by Somer for the disposal of such land, that the Council go through a process of advertisements to enable representation to be received and considered before agreeing to disposal. Such an approach, if applied to all the land in the transfer, goes beyond the legal obligation as that obligation relates only to the land other than that held for housing purposes.

The Way Forward

In our view, there are both errors of law and fact in the District Auditor's decision and Statement of Reasons. However, in the event that the Council challenges the District Auditor by judicial review, notwithstanding the conflicting arguments about the lawfulness of the conduct of the Council there is a distinct risk that any Court might come to a similar conclusion albeit perhaps for different reasons. That risk together with the not insubstantial costs involved in litigation would need to be weighed in the balance when deciding whether or not to challenge the decision. In considering whether or not to challenge the decision, an important fact to take into account is the fact that, although the District Auditor has decided that the actions of the Council were contrary to the law, it is clearly not regarded as a particularly serious breach because he has decided not to apply to the Court for declaration. The District Auditor does not believe the objection raises a principle of general importance, nor does he believe there is any danger of recurrence. The District Auditor believes any application by the Court would only involve the Council incurring expenditure by way of legal costs without any compensating financial benefit to local tax payers.

Having weighed all the above factors, we believe that the best course of action would be not to challenge the District Auditor's decision by judicial review but to accept that there has been a limited finding of unlawfulness on the part of the Council. We take the view that the interests of the Council and tax payers may not be best served by incurring further legal costs to challenge the District Auditor's findings in this case particularly as the Auditor is not taking any action nor did he make a finding of misconduct against individual officers.

However, we would recommend that the Council writes to the District Auditor setting out the areas of disagreement, as briefly outlined above and reserving the right to raise similar objections and challenges if appropriate to any of the other objections under consideration.

As noted above the objector had until 5 November to lodge an appeal against the District Auditor's decision. No appeal has been lodged.

Responding to the Provisional View and the Press Release

Concern has been expressed within the Council at the lack of opportunity to comment on the District Auditor's findings regarding the wilful misconduct of employees. We believe that the District Auditor has given proper opportunity in accordance with the legislative requirements to comment on the facts of the matter and the issue of whether or not expenditure was contrary to law. However, the District Auditor reserved his position with regard to any consideration of allegations of wilful misconduct. Although no opportunity was given to comment on the issues around wilful misconduct, it is clear that no adverse consequence arises from this since there is a clear finding that there has been no misconduct on the part of the officers concerned.

Denis Cooper

Senior Associate

22 November 2002