The document, which was discussed behind closed doors at the January meeting of Northumberland County Council’s audit committee, contains a raft of recommendations said to be necessary to address ‘a number of continuing weaknesses in governance arrangements’ at the regeneration company, which is wholly owned by the local authority.
However, the firm’s boss has refuted a number of the issues raised, while noting that they have not seen the report, were not able to respond to the concerns included within it and were not allowed to attend the meeting.
Advance was meant to represent a fresh start after governance and spending concerns, including serious allegations of wrongdoing, at predecessor Arch, under the previous Labour administration.
However, it has been one of the battlefields in the ongoing row between the council’s chief executive Daljit Lally and the Conservative political leadership, which became public last summer.
The company was referenced within Mrs Lally’s email to all county councillors about ‘serious whistle-blowing concerns’ which was sent as she was suspended in early August 2020, before returning to her post in October. Last month, the council said disciplinary action against Mrs Lally ‘would be ceased with immediate effect’.
Last year, Advance’s managing director Ken Dunbar said he was ‘surprised’ to see a reference to ‘significant concerns’ about the ‘well-run’ company, but pledged to ‘thoroughly investigate if any significant allegations are brought to our attention’.
A referral was also made to Northumbria Police, but a force spokesman confirmed in October 2020 that it was ‘not investigating any matters in relation to Advance’.
‘A number of continuing weaknesses’
The confidential report to the audit committee is in Mrs Lally’s name in her role as shareholder representative for Advance and it states that in the transition from Arch, ‘the new company group appears to have had difficulty in implementing necessary improvements with sufficient pace to address the risks which had existed at the time of its creation’.
It covers governance and legal matters, financial matters, HR/OD matters and communications, suggesting a large number of changes that are needed, which are to be put before the cabinet and then the full council.
The report notes that she ‘has identified a number of continuing weaknesses in governance arrangements regarding Advance Northumberland which must be improved, to ensure that the aims and interests of the county council as shareholder are met and that all entities are operating legally and appropriately’.
It highlights ‘areas of immediate and significant concern which must be addressed’, which include the ‘poor financial performance’, the ‘adequacy of planning and performance management arrangements within the group, including concerns regarding Advance Northumberland’s proposed business plan and the operating agreement’, the ‘adequacy of the wider governance framework’, and the current roles and duties which ‘in some cases do not safeguard against a potential conflict of interest in the roles being discharged’.
Following the leak of the 18-page report, a spokesman confirmed that based on concerns dating back 18 months, ‘the council has determined that it must now take action to avoid any financial and reputational risk’.
‘Still viable and a going concern’
However, this view is not one that is shared by Mr Dunbar or members of the council’s Conservative administration.
Mr Dunbar said that the company is still viable and a going concern, with assets worth £305million against the £281million the report says that it owes the local authority, and he noted that much of this is historic debt built up under Arch.
His comment is backed up by the company’s accounts, which show that Arch owed the council £246million as at the end of the 2016-17 financial year and then £275million 12 months later.
He added: “We are performing well, especially given the climate, we have the best-performing shopping centre in the country (Manor Walks), our rental properties are still doing well, and house sales.”
Putting the ball back in the council’s court, Mr Dunbar said that a new business plan was submitted to the authority in March 2020 before being revised due to Covid-19 and sent back to the council in November, but ‘they have failed to come back with full responses’, despite it being approved by the Advance board.
On governance, he added that there were issues during the transition from Arch, but at the time, some of those in senior positions, including the director of finance, were on secondment from the council.
“When I finally got permission to appoint a chief operating officer, these matters were dealt with as best as I could within the complex system of getting permission from the council,” he said.
Mr Dunbar is also concerned about the impact the negative publicity has on the company’s ability to do business and last month saw the resignation of the three non-councillor board members – Martin Knowles, Chris Sayers and John Woodman.
“We are exposing ourselves when we are on the cusp of major investment,” he said, referring to BritishVolt’s proposed gigaplant to make electric car batteries on the Blyth estuary. “My focus is on getting the right deals to bring in jobs and investment.”
Labour opposition withdraws support
For its part, the council’s Labour opposition has withdrawn its support for Advance, with its representative on the board, Cllr Ian Swithenbank, submitting his resignation last week.
The group leader, Cllr Susan Dungworth, said: “We are deeply concerned on several levels with the position Advance Northumberland finds itself in and have little confidence in our member’s ability as a lone voice to influence any change or help it get into a position that is not an embarrassment to the council and the people of Northumberland.
“We are sorry that we find ourselves in this situation; we would never intentionally wish to see a council-owned company in this position. However we cannot continue to participate in a company that we have significant concerns about, where those in control appear to be taking little or no action.
“The entire executive team recently individually addressed the audit committee confirming the report presented was a true reflection of their professional opinions and evidence collections.
“An independent person brought in for support also qualified the report and spoke at the committee to us. They all felt the recommendations were reasonable, justified and the only way forward.
“The recommendations had cross-party support and yet have still not been actioned by the political leaders of Northumberland County Council and Advance Northumberland.
“Therefore, it appears that the lack of urgency and action will see this company continue to fall into a position that may never be resolved at the cost to the public we all represent, and we cannot be part of that.
“We were willing to continue to offer our support if the recommendations outlined by the council’s professional and external advisers had been implemented, but they have not.”
‘Making political mischief’
In response, the Tories did not specifically address the issues in the report, but accused Labour of ‘making political mischief’ given the problems with Arch under its stewardship from 2013 to 2017.
A spokesman for Northumberland Conservatives highlighted some of the previously reported concerns including the contract and house given to a Labour ‘spin doctor’, the company buying its then chief executive’s house, and the questionable level of spending on Ashington Community Football Club.
“In 2017, under a Labour-run council, Arch spent £120million buying a shopping centre in Cramlington among other ill-advised investments. It went from being a company with virtually no debt to one with nearly £300million of debt,” he continued.
“They planned to spend a further £450million on acquisitions and had even been looking at buying the Hilton in Gateshead, all of which the Conservative administration halted immediately.”
The spokesman suggested that Advance has been successful in attracting investment to the county, such as BritishVolt, while investments made under Labour ‘have fallen by millions in value’.
He added the group was disappointed that Cllr Dungworth is “making political mischief to hide from Labour’s record” and “the central part she played as a member of the last Labour cabinet”.
He added: “What is unforgivable, however, is that this has contributed to the resignation of board directors who have worked tirelessly to turn around the company’s fortunes.”
Council ‘must now take action’
A Northumberland County Council spokesman said: “The audit committee met on Wednesday, January 27, 2021, to consider a confidential report from the council’s shareholder representative outlining a number of significant concerns which had been raised in the past 18 months in relation to Advance Northumberland.
“Despite best efforts by the council, we do not have the assurances we require, and as a wholly-owned subsidiary of the authority, the council has determined that it must now take action to avoid any financial and reputational risk.
“We are absolutely committed to investing in Northumberland for the benefit of all its communities.”
As previously reported, issues around Advance sparked an argument between Mrs Lally and Cllr David Bawn, the Conservative chairman of the corporate services committee, earlier this month.
At the Friday, February 5, meeting, Mrs Lally was due to give a presentation on the operations of Advance, which was listed on the agenda to take place in private, without the press and public.
However, at the start of the public meeting, Cllr Bawn announced that the item had been withdrawn by Mrs Lally, as she had wanted councillors who were Advance board members to be excluded, ‘which I didn’t agree with’. Mrs Lally later hit back to say he was ‘misrepresenting the discussion’.