A town council gave contracts to a company run by councillors without following proper procedures, according to finance experts.
Auditors found “major failings” and evidence of “unacceptable practices” in the way Porthcawl Town Council (PTC) complied with legal, financial and democratic processes during 2020/21.
Auditing Solutions Ltd carried out an internal review of the council’s finances for 2020/21. They found the council did not formally tender contracts given to Credu Charity Ltd – a now-liquidated company whose director and company secretary were two councillors for PTC and Bridgend County Borough Council, Michael and Norah Clarke.
A report by auditors states: “There is clear evidence that the council has worked outside its standing orders and financial regulations during the 2020-21 financial year.
“The council cannot be said to have operated throughout the 2020- 21 financial year, on a lawful basis.
“The lack of due diligence by members is of extreme concern and represents an unacceptably low level of financial management and scrutiny throughout the 2020-21 financial year.”
The council must hold a formal tender process for contracts above £25,000 as per its standing orders and financial regulations.
The auditors’ report states Credu Charity (now in liquidation) invoiced the council for in excess of £50,000 for 2020/21. Cllr M Clarke was the director of the charity and Cllr N Clarke was company secretary.
Documents seen by the Local Democracy Reporting Service (LDRS) show the charity invoiced the council for services including grass cutting, repairs to public benches, maintaining and refurbishing public toilets, an outdoor cinema event, and maintaining an underpass.
According to the report, the town clerk cannot find proof of a formal decision made to award contracts in excess of £25,000 to Credu Charity. Auditors also failed to find records of a formal tender process for services provided by the company during the 2020-21 or the 2019-20 financial years.
The report reads: “The council failed to undertake the tender process correctly, undertaking a quotation process instead, as the contract awarded was in excess of £25,000. There is added complexity in this situation due to the involvement of the two council members.”
It adds that Mike and Norah Clarke “had an interest which should have been declared in any agenda item pertaining to the charity” and one declaration of interest made by them has been found in minutes of the full town council meeting on October 8, 2020.
The town clerk told auditors “other declarations of interest” were made confidentially but the town council does not possess those minutes and they were not given to Auditing Solutions for the purposes of their review. The report states: “Confidential minutes are not lawful and do not form the permanent legal public record of the council’s business.”
Auditors found one payment made to Credu Charity by the council in 2020/21 was formally approved in July 2020. This was £7,700 for an ‘outdoor cinema screening’ and Cllrs N and M Clarke “properly recused themselves from the vote on this matter”. However, the final invoice for the event in the amount of £7,840.80 was not approved until retrospectively at a meeting in March 2021.
Auditing Solutions also noted “significant concerns” over “potential income” from the Porthcawl Hub, a tourist information facility, operated by Credu Charity. The council paid a Credu Charity employee to manage bookings for hub users.
The report states there was no credit card machine so “all payments must have been taken in cash or cheque” but there are no records of bookings or income declared for 2020/21.
It adds: “Due to the failure of the council to manage this facility, it is impossible to ascertain, whether any bookings took place during the financial year, and if they did, what became of the income from those bookings. This lack of management oversight in this regard, also creates significant issues in relation to the council’s insured risks.”
Credu Charity and the council are also involved in an ongoing dispute over the ownership of five media screens, which the authority bought for Credu to use in Porthcawl. So far, one of the screens has been installed at the Porthcawl Information Kiosk, while the other four are “in storage at the suppliers”.
Auditors are urging the council to “make all possible efforts to recover its property” as it paid for the screens in full and made no formal resolution to donate them to Credu Charity.
Auditing Solutions also said there was a “lack of transparency” in the council’s published minutes, which made it “impossible” for them to know exactly who was responsible for approving the authority’s financial business.
They said “regular scrutiny” of bank statements, bank reconciliations, monthly/quarterly budgetary reports and payment schedules was not consistently recorded in council minutes for 2020/21.
“No payment document, payment schedule, bank statement, bank reconciliation, or monthly account produced for the purposes of this internal audit bore any evidence whatsoever of formal scrutiny, approval by members of the council, or any consideration at all,” they added.
Another issue noted by experts was the creation of a ‘decisions team’ by the council, which led to three councillors making key decisions instead of full council. The report states this was “clear evidence of predetermination outside the democratic process permitted in the standing orders”.
The council was also found to have “made significant use of confidential minutes during the financial year which is not permitted” and it failed to appoint a responsible finance officer (RFO) for 2020/21.
All councils must have an RFO, usually the town clerk, to administer its finances. The report states the council did not appoint an RFO in 2020/21, which is “a serious failure of corporate governance”.
“It is not appropriate for any council, in particular a council of the size and complexity of Porthcawl Town Council, to fail to maintain its own financial records,” it added.
The town council is currently under investigation by South Wales Police and Audit Wales. The authority is also refusing to reveal details about the circumstances which led to Credu Charity being given a £7,000 maintenance contract.
Cllrs Michael Clarke and Norah Clarke were approached by the LDRS for comments.
Cllr M. Clarke said: “Credu had no responsibility for the running of the hub, nor agreeing any hiring, nor collecting any fees.”
Kerry Grabham, clerk for Porthcawl Town Council since February 2021, was approached for a comment by the LDRS. She said she had “no comment to make whatsoever” on the matter. The report by Auditing Solutions states Ms Grabham “is making strenuous efforts to ensure that the council is brought into line with proper working practices in compliance with statute and its own financial regulations and standing orders”.