External auditors flag "significant weakness" at London borough, including golden triangle turnover

Auditors EY also found significant weakness in the council's ability to carry out internal investigations, its procurement arrangements, risk management and its audit committee's effectiveness, among other things.

The report, considered by the Audit Committee last week (3 December), comes as the findings of a separate review by the LGA's Corporate Peer Review Programme showed progress at the council on 17 of 18 improvement recommendations made in 2023.

However, the LGA review said concerns remain over the representation of women in the local authority, as well as its "tendency towards optimism bias".

Commenting on the council's golden triangle arrangements, EY said there had been "significant turnover" among the three senior positions since the 2022 mayoral election.

It added: "Most recently, a permanent Monitoring Officer has been appointed, coinciding with the unexpected departure of the Section 151 Officer. This development resets the dynamic within the 'Golden Triangle' and introduces further uncertainty, particularly as the council seeks a permanent replacement for the Section 151 Officer.

"The role is currently being fulfilled on a temporary internal basis, which, in our view, leaves the council exposed due to the absence of a more experienced individual in a highly complex role within an equally complex organisation."

The auditors' report also described the council's response to the section 151 officer's departure as "slow".

EY recommended the council secure stability and expertise within the current statutory leadership to "ensure it is sufficient to address the significant and complex challenges currently facing the council".

"This should include identifying any gaps and taking appropriate steps to strengthen arrangements where needed, to ensure they are fit for purpose and do not leave the council exposed," it said.

It also called on the London borough to take "urgent steps" to resolve the interim arrangements for the Section 151 Officer, ensuring that a suitably qualified and experienced individual is appointed on a permanent basis.

Elsewhere, EY said there is a "heightened risk of fraud at the council" due to its approach to internal investigations.

It raised concerns over two investigations, which concerned an overpayment and alleged fraud committed against the council.  

According to the report, an external specialist called in to investigate the overpayment was unable to progress further due to the non-receipt of requested documentation.

Officers subsequently advised that they believe no wrongdoing by staff was identified in the case, but "no supporting documentation or clear rationale" was provided to substantiate how this conclusion was reached, the report said.

The auditors meanwhile questioned the "adequacy and extent of the procedures undertaken" in relation to the second investigation on alleged fraud committed against the council.

EY said it is "significantly concerned about the pace and urgency" with which the two matters are being investigated and progressed toward resolution.

It ultimately found that the council applies a high bar of proof for investigation, instead of applying a balance of probabilities approach.

Investigations therefore focus on substantiating the allegations, "rather than considering the wider factors and implications of the case", including those impacting the internal control environment, the report added.

It also said that accountability and responsibility for investigations is not clear.

EY said it plans to make a Statutory Recommendation under Section 24 Schedule 7(2) of the Local Audit and Accountability Act 2014 in regard to investigations.

On procurement, the report recommended that the council improve its controls and processes in relation to the management and control of the procurement waiver process.

This recommendation came in light of weaknesses identified in the process, which included the lack of a central database of approved procurement waivers, as well as an overall lack of monitoring and reporting of waivers to the cabinet.

A spokesperson for Tower Hamlets Council said the report covers a period from 20 months to 8 months ago, "and therefore does not reflect the council's current position as significant improvements have been made since that time".

It added: "The report relates to issues dating back eight years, such as accounts from 2017 which had to be signed off last year. The council has been working tirelessly to address these longstanding, historic issues and where problems have been identified, we have been transparent in reporting them.

"The council has also already made significant improvements in relation to governance and the running of committees since the period covered by this report, and this progress has been recognised by the Government Envoys who are working with us on our Continuous Improvement Plan.

"A more recent measure of our improvement is our Local Government Association Peer Review revisit last month which has published its findings, concluding that the council is delivering 'high quality services', has 'strong financial management', and is delivering on 17 out of the 18 recommendations."

These improvements included work to address the council's outstanding accounts dating back to 2018/19, the publication of the Annual Governance Statement 2023/24, and the creation of a Medium-Term Financial Strategy.

However, the review team also found that, while the London borough now has one woman on the cabinet and has established the Women's Commission, "political representation falls short of expectations for gender balance and inclusivity".

"Continued focus is needed to ensure the voices of women and those from different backgrounds are directly influencing policy through their lived experience," it added.

Adam Carey