Pickles moves to take control in Tower Hamlets following "shameful" inspection findings

Local government secretary Eric Pickles is set to send a team of commissioners to intervene in Tower Hamlets following the "shameful" findings of an independent best value review.

The report by PricewaterhouseCoopers, which was commissioned by Pickles in April to investigate "allegations about governance failures, poor financial management and possible fraud", said the council is failing to comply with its best value duty in its handling of grants, spending on publicity and the transfer of properties to third parties.

After examining grants worth £20.6m across 25 different streams, found a lack of transparency around decisions to award funds, with some applications overridden "without any clear rationale" while in other cases there was no open application process at all, resulting in money being "targeted at member discretion".

Grants were awarded to organisations that had been ruled ineligible or did not meet required evaluation scores. PwC also said there had been no independent review of the grant process, despite the council's Overview & Scrutiny Committee recommending the district auditor conduct such an investigation in 2012.

In addition, it found irregularities in practices for the transfer of properties to third parties, with winning bidders submitting late bids after other sealed bids had been opened and the authority not always accepting the highest offer. Some bidders were allowed to submit additional information in "side letters" that others were not asked for and to make changes to signed contracts.

Elsewhere, PwC found a lack of proper control over publicity activities and monitoring of the "demarcation" between publicity for the benefit of the authority and that of a political nature.

It noted that external media advisers used to respond to an episode of the BBC's Panorama, which made many of the original allegations of financial mismanagement and possible fraud, were given guidelines on clear demarcation and there is no reason to doubt they were followed.

However, the council's communications with advisers and others relating to Panorama "tended to pronounce allegations to be baseless and/or politically motivated without having conducted what we would consider to be an adequate investigation into the issues raised".

The report concluded the council's core governance arrangements are not strong enough as three key positions - head of paid services, chief financial officer and monitoring officer - are all currently filled by interim appointments.

It noted there are a number of ongoing criminal investigations into alleged fraud, reported by the authority, and an Electoral Petition that is seeking to invalidate the 2014 mayoral election result on the grounds of electoral fraud, which will be heard at the High Court later this year. PwC's report does not cover these issues.

Separately, it criticised the council for publicly supporting the inspection while creating significant delays in the provision of documents and information, including basic accounting data.

In a statement to the Commons, Pickles said PwC had highlighted a "fundamental breakdown of governance" in Tower Hamlets and that the executive power of mayor Lutfur Rahman is "unchecked and has been misused".

He has given the council 24 hours to provide written assurances that it will not make any new grants, enter into agreements to pay grants or amend any existing agreements without prior written permission from Pickles. The council must also undertake not to appoint or designate any statutory officers without the secretary of state's written approval. If these guarantees are not received, Pickles said he would use statutory powers to impose these conditions.

He also proposed that the commissioners, who would be accountable to him, oversee the recruitment of a permanent head of paid services, chief financial officer and monitoring officer, as well as the appointment of a elections returning officer and monitoring officer "as a matter of urgency". Any dismissals, suspensions or subsequent appointments would have to be approved by the commissioners.

Council decisions on grants would have to approved by the commission, as would a "fully costed" plan the council will be required to produce on its publicity function. Furthermore, the borough will have to develop a plan with the commissioners to address weaknesses in contracting and seek written approval before entering into any agreement contrary to recommendations from statutory officers.

Pickles said he envisions that, if appointed, the commissioners will be in place until 31 March 2017. There will be six-month reviews and this date could change. The commissioners' expenses and a "reasonable fee" would be paid by the council.

Tower Hamlets has 14 days to respond to Pickles on the PwC report and the proposed intervention package.

"Abuse of taxpayers' money and the culture of cronyism reflects partisan community politics that seeks to trade favours and spread divisions on the rates. Such behaviour is to the detriment of integration and community cohesion in Tower Hamlets and in our capital city," Pickles told the House.

"If I was the mayor of Tower Hamlets, I would be holding my head in shame because what he has allowed to occur is shameful."

Responding to PwC's findings, Mayor Rahman said: "The report highlights flaws in processes; these are regrettable. We will learn from this report and strengthen our procedures accordingly.

"I was always confident that wild claims about fraud would not be substantiated."

A council spokesman added: "While the PwC report identifies some process and governance issues that need to be improved, the council notes that no evidence of criminality or fraud has been identified by the Government-appointed forensic auditors.

"In our view, there is no evidence that these flaws of process are 'regular or endemic', meaning that there is no failure to comply with our best value duty."

Related:

Police: No evidence of fraud at Tower Hamlets