A Section 114 report by the authority’s director of finance revealed ‘unlawful expenditure’ had been identified, totalling hundreds of thousands of pounds.
The money related to the council’s participation in the Northumbria International Alliance, and the other relating to an allowance paid to the chief executive.
NIA is a healthcare consultancy business which has been running since 2017 in partnership with Northumbria Healthcare NHS Foundation Trust. However, the report states that NIA was an “unincorporated partnership” established for a commercial purpose, breaching Section 4(2) of the Localism Act 2011.
In addition, a special “international allowance” of £40,000 a year paid to chief executive Daljit Lally – on top of her £190,000 annual salary – was allegedly made without the “proper authorisation” and contravening the council’s pay policy statements.
The report, written by the council’s section 151 officer and interim executive director of finance Jan Willis, does note that the council does “not appear to have suffered any financial loss” and may in fact have been a “net beneficiary of international consultancy activities.”
What happens next?
Councillors are due to discuss the report at a meeting on Wednesday, June 8. Under the Local Government Finance Act 1988, councillors must meet within 21 days of the report being issued to discuss the report and agree to its recommendations.
The report states that a number of actions should be agreed so that “lessons are learned, controls strengthened so that the council does not find itself in a similar situation in future.”
With regard to the unlawful international business, the cabinet is expected to request the audit committee commission a full, independent investigation into the circumstances that allowed the unlawful trading to take place.
The chief finance officer will also consult with the council’s monitoring officer, Suki Binjal, to undertake a review of the council’s other commercial activities to ensure they are taking place on a “lawful basis.”
The finance officer is also set to consider whether any disclosures should be made to HMRC in relation to corporation tax or other liabilities.
In regards to the payments of the international allowance to the CEO, the allowance has now been stopped as a result of legislation, and the report states it will remain suspended until “further legal advice with regard to the potential recovery of unlawful payments” is considered.
The report also warns that further section 114 reports may need to be made, with further investigation needed to establish whether more unlawful payments have been made to other officers and former officers. This includes the payment of severance payments.
All exit packages with a value of £100,000 or more made over the last two years will be investigated by the internal audit team.