Damning report on spending at Arch

A report on a number of matters of concern in relation to the troubled company, which is the subject of an ongoing investigation, was tabled at Wednesday’s meeting of Northumberland County Council’s audit committee.

One of the main concerns relates to a number of trips by Arch Group delegates to MIPIM (the international market for real estate professionals) in both London and Cannes, France.

The report states that ‘significant expenditure’ (approximately £73,000 in total) has been spent by Arch on seven events ‘with no evidence of an evaluation of the benefits’.

A significant proportion of this went on hospitality, including high-cost meals and alcohol up to £200 per head, first-class travel and accommodation. One trip’s travel and hotel costs were more than £13,000.

There is even evidence that a local taxi driver was flown out to Nice and was provided a vehicle and accommodation paid for by Arch in order to drive delegates around.

Of the £73,000 expenditure, detailed evidence of what it was spent on, such as itemised receipts, is not available and, in some cases, it is not even clear who was there as a receipt for a meal doesn’t match the number of people on the guest list.

However, the meeting did hear that among those to go on these trips were elected officials, such as the then chairman of Arch, Coun Dave Ledger.

Over and above the MIPIM expenditure, auditors are concerned more generally about the level of spending and the declaration of gifts and hospitality, with examples in the report including around £3,500 spent on a trip to Wembley for six – the former chief executive, three board members, one employee and two guests.

The report says that the limited evidence of any declarations by Arch representatives ‘suggests a culture of entitlement to expensive trips and acceptance of hospitality being the norm’.

Other items of concern include the funding of driving lessons and tests for a member of staff who did not require a driving licence for the role and relocation expenses paid to someone moving within the same area of Northumberland.

Coun Richard Wearmouth, now the chairman of Arch under the Conservative administration which took power last summer, said: “You will be aware of stories that did the rounds before the election; the frightening thing is that those stories all have at least a grain of truth in them.”

He later added: “There are good people and good projects in Arch and they have been sorely let down by the leadership, politically and professionally.”

But it was made clear that this report does not cover the full range of issues at Arch, simply a number of matters brought to the attention of the board at its meeting on Friday.

Coun Nick Oliver, the county council’s cabinet member for corporate resources, said: “I think it’s true to say that this is the tip of the iceberg.”

On the committee, Coun Gordon Castle said that the report made ‘grim reading’ and that he was ‘extremely disappointed to read even this’, while Coun David Towns said: “I’m disgusted, I’m incandescent because I’m a councillor but also a taxpayer in Northumberland.”

The question of why these issues hadn’t been picked up by auditors previously was asked on more than one occasion. The council’s chief internal auditor, Allison Mitchell, explained that she has unfettered access within the council, which wasn’t the case with Arch.

Coun Oliver added: “Audit requirements of a company are different to those of a public body. The governance procedures weren’t great, but they were there. When people wilfully choose not to follow them and those people are in top positions, then you have – I’m not saying it’s deliberatate – but there’s a system which stops these things being identified more widely and being dealt with.”

After the meeting, Labour group leader, Coun Grant Davey said:  “As a former member of Arch along with Coun Peter Jackson (Conservative leader) and Coun Jeff Reid (Lib Dem leader), who sat on the audit panel for ARCH, it’s come as a surprise to see this emergency item spun in such a damaging way.

“It’s surprising that these latest revelations have come after none of the council’s internal audit function in partnership with North Tyneside Council, the company secretary or either of the two nationally-renowned external audit companies brought these matters as a reputational risk to the door of the company’s audit committee.

“Residents should also consider this report against the backdrop of the Conservative actions to undermine a company worth over £390million whose prime role was to grow the economy of Northumberland in a highly-competitive environment by attracting inward investment and is tasked by its shareholder to do just that, which is now being dismantled and degraded as part of a hugely-costly, publicly-funded vendetta which is damaging to the county and regional economy.

“It’s clear that there is an appetite for a transparent investigation into actions since May 4 and it could start by releasing the costs – which we believe to be over £300,000 – to identify issues which were seemingly missed by the auditors earlier.”

A Northumberland County Council spokesman said:  “As an open and transparent organisation, it was only right these matters were discussed publicly.

“An independent and strategic review of Arch highlighted a number of serious failings in terms of governance and financial impropriety.

“During this review, we were made aware of several further matters of concern, which we felt compelled to investigate further. This looked at activity from April 1 in 2016 to June 30, 2017.

“This work has highlighted a significant number of financial irregularities in terms of attendance at overseas events, corporate hospitality and gifts, sponsorship, as well as lack of HR and management processes and procedures.

“We are appalled at this inappropriate use of public funds.  Any identified impropriety will be handled in accordance with standard policies and procedures.

“Interim governance and financial procedures have been in operation since July 2017, with robust management arrangements to ensure probity and transparency moving forward.

“A new development company is being created, which will have a greater focus on regeneration, place shaping and delivering for the communities of Northumberland. 

“New leadership will be put in place to deliver an ambitious programme of activity that supports business growth, creates new communities and job opportunities for local people, and secures economic prosperity that everyone can benefit from.”

Ben O'Connell, Local Democracy Reporting Service.