audit services manager memo - whatdotheyknow

John Benbow Principal Auditor Business Services

telephone 01782 236058 fax 01782 232312 email [email protected]

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for the attention of John van de Laarschot, Chief Executive cc Hardial Bhogal, Director City Renewal Peter Bates, Assistant Director Financial Services (Section 151 Officer)

our ref AS\CON\DRC 070\112446

from Sue Woodall, Audit Services Manager

date 16/08/11

Business Services Swann House Boothen Road Stoke-on-Trent ST4 4UJ Steve Sankey Acting Director

Audit Services Sue Woodall Audit Services Manager

memo

PRIVATE AND CONFIDENTIAL

Funding of the Demolition of Boothen Methodist Church

1. Summary of Findings

Boothen Methodist Church

1.1. Boothen Methodist Church, Portland Street, Hanley (the Church) was acquired by Great

Places Housing Association (Great Places) in 2007. Structural reports commissioned by

Great Places, issued in February 2008 and October 2009 documented problems with the

fabric of the building. However as no such report was undertaken at the time of acquisition

the remedial works were not covered by Great Places’s insurance. (7.1, 7.3, 7.4, 8.6)

1.2. In June 2010 Great Places made a request of the Authority to fund the demolition of the

chapel section of the Church, making reference to the Voluntary Acquisition Funding

Agreement they had with the Authority as the leading Registered Social Landlord for the

area. (9.2)

1.3. Justification to demolish the chapel section of the Church was put forward by Great Places

and was accepted by the Authority without recourse to third party verification e.g.

commissioned structural reports. (9.3)

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1.4. From the documents seen it is concluded that the Programme Manager (PB) agreed to the

Authority funding the demolition of the chapel section of the Church by Great Places, at an

estimated cost of £37,569 (including VAT), using funds allocated to the Voluntary

Acquisition Funding Agreement for the City Centre North West Area of Major Intervention.

This programme formed part of the Housing Market Renewal Pathfinder. (9.7, 9.9)

1.5. The basis for the decision to fund the demolition of the chapel section of the Church appears to have been the overriding presumption within RENEW that the City Centre North West Area of Major Intervention was to be declared a clearance area and therefore subject to future demolition. (9.10)

1.6. The Assistant Director City Regeneration commented that the decision to fund the

demolition in advance of the anticipated declaration of the area was an act of “goodwill” on

the part of the Authority.

1.7. The opinion was expressed by the Authority’s Principal Solicitor that this informal decision,

whilst committing the Authority to fund the demolition, was not within the scope of the

Voluntary Acquisition Funding Agreement. He has advised that it is possible to formalise

the arrangement retrospectively. (9.11)

1.8. Consultation with residents of the area in respect of the demolition of the chapel seemed to

be fragmented. (10.5)

1.9. It is understood that whilst the chapel section of the Church has been demolished, it

appears that the Authority has yet to receive complete documentation to verify the actual

expenditure incurred to do this. (10.6)

1.10. The above decision/agreement was neither formally recorded nor approved by the Authority.

1.11. The North Staffordshire Housing Market Renewal Pathfinder Market Restructuring

(Implementation) Agreement, dated 2004 stated eligible expenditure to include that “…in

relation to land, its acquisition, reclamation, improvement, or refurbishment for the purpose

of redevelopment for residential or mixed use” (11.1)

1.12. In June 2010 the Housing Market Renewal Budget 2010/2011 was un-ring fenced. (11.4).

Voluntary Acquisition Funding Agreement (City Centre North West Area of Major

Intervention)

1.13. Officers from RENEW explained that the rationale for this agreement was the expectation that the area would be declared a clearance area, following completion of a Neighbourhood Renewal Assessment. The pre-emptive voluntary acquisition of properties was undertaken to reduce the opportunity of speculators acquiring these properties and making a financial gain, at a cost to the Authority, when compulsory purchase orders were enacted to clear the area. (11.8)

1.14. On the 24th December 2009 the Authority signed an agreement to provide Great Places with

funding of up to £4,000,000, to acquire up to 400 properties as agent of the Authority within

the above area. (11.9, 11.10)

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1.15. Under the Voluntary Acquisition Funding Agreement the Authority has paid to date a total of

£2,536,000 to fund the acquisition and management costs of 35 properties by Great Places,

and also the abortive costs in relation to a number of other potential acquisitions from which

either the Authority or the owner withdrew their agreement. The Assistant Director City

Renewal (JT) commented that had Great Places completed all the acquisitions the Authority

had given agreement to proceed with by August 2010, the total spend would by now have

exceeded £3 million. However, the voluntary acquisition programme was suddenly ended

following a change in Central Government in 2010 and the termination of the Housing

Market Renewal Pathfinder. (11.20, 11.22)

1.16. The existing procedures within RENEW seemed unclear as to which officers were

responsible for authorising funding payments. This ambiguity was compounded by

procedures which had been primarily set up to process payments in arrears and not

advances as in the case of this Voluntary Acquisition Funding Agreement. At the time of

this review it is understood that these issues are being reviewed and addressed. (11.23 –

11.26, 11.29)

1.17. The Authority has yet to receive full and robust evidence to support the actual expenditure

incurred by Great Places. To date, following requests made by the Monitoring and

Performance Assistant (HM), documentary evidence has been received to the value of

£1,049,815 in support of defrayment. The Authority has received recent correspondence

from Great Places saying documentation to the value of a further £775,742 is to be

submitted for verification. The Authority continues to pursue outstanding documentation to

support actual expenditure. (11.28)

1.18. A Progress Report received from Great Places on the 10th August 2011 analysed the

amount incurred and committed to acquire properties and forecast a total spend including

management costs in the region of £2.3 million. At the time of this review, officers within

RENEW expressed the opinion that they expected, once the programme was concluded,

approximately £100,000 would be repaid to the Authority, by Great Places. (11.30, 11.31)

1.19. The latest forecast expenditure referred to above includes a figure of £28,311 in respect of

the Church. The figure was described “Agreed that demolition costs would come out of this

budget”. (12.1)

1.20. The Authority has submitted a bid for Transitional Funding of approximately £8,000,000,

which is to be match funded, to fund proposals which include both refurbishment and

demolition of properties in the Portland Street area. (13.2)

2. Conclusions

2.1. The management of the Voluntary Acquisition Funding Agreement was undertaken without

expected rigour and recourse to adequate documentary evidence to support the expenditure

incurred, to date, prior to the continued advancement of funding for the voluntary

acquisitions. The agreement to fund the demolition of the chapel section of the Church

reflected the informality applied to this Funding Agreement.

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2.2. The following questions (a – d) have been raised by a member of the Portland and Century

Residents’ Association (PACRA). From the review, the following has been concluded:

a. On what basis were public funds paid to fund the demolition?

2.3. Great Places, as the lead registered social landlord in respect of this locality, entered a

Voluntary Acquisition Funding Agreement with the Authority in 2009, as part of the Housing

Market Renewal Pathfinder. With reference to this Agreement, Great Places requested

funding to demolish the chapel section of the Church.

2.4. The Authority agreed to fund this demolition in anticipation that the area was to be declared for clearance, following the conclusion of a Neighbourhood Renewal Assessment. However, with the demise of the Housing Market Renewal Pathfinder following a change in Central Government in 2010, funding to continue the Voluntary Acquisition Funding Agreement provided by Central Government ceased.

2.5. No formal report setting out the request or decision was drawn up. Following a thorough investigation into this matter recommendations and actions have been agreed and implemented to improve the Authority’s procedures in respect of this.

b. What was the amount of funding provided by the Authority?

2.6. The Authority agreed to fund forecast costs of £37,569 (including VAT) using grant money

received under the Housing Market Renewal Pathfinder. The Authority is in the process of

confirming the actual cost of the demolition.

c. What was the reason for the Authority to fund the demolition?

2.7. See Question a. above (2.3 – 2.5)

d. Was the funding provided from the Portland Street Area Acquisition Fund?

2.8. The demolition is to be funded by money originally allocated to the Voluntary Acquisition

Funding Agreement, which was part of the Housing Market Renewal Pathfinder.

3. Risks of Note

3.1. From the work undertaken it is the opinion of Audit Services that the following risks to the

Authority, in respect of the findings of this review, are to be noted:

3.2. As it is understood that the management costs charged by Great Places for the properties

acquired are time dependent and the date when this voluntary acquisition programme is to

be finalised has yet to be determined, the Authority does not yet know the total final cost of

this programme. However this risk is reduced by the Authority having received invoices for

expenditure incurred totalling £1,049,815, and notice that additional invoices are to be

submitted to the value of a further £775,742. The Authority has also received in August

2011 a forecast of expected total costs of £2.3 million although this forecast has not been

verified by the Authority. Additionally, the spread-sheet upon which it is based is not

arithmetically correct and therefore cannot be relied upon.

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3.3. With respect to the costs of the demolition of the chapel the current financial risk is limited to

£37,569 (including VAT), which is the total value agreed to be funded.

4. Recommendations

4.1. (R1) It is recommended that clear procedures are agreed and followed in respect of

assessing, agreeing and providing grant funding to outside bodies. All relevant staff to be

notified of these procedures and are to implement them accordingly.

4.2. It is suggested that the lead officer to action this recommendation be the Assistant Director

City Renewal (JT). The aim is to ensure relevant decisions are taken by the duly authorised

officers of the Authority, and therefore the Authority has appropriate control over the

liabilities to which it is committed. These controls to be enacted by the end of August 2011.

4.3. (R2) Given that the funding of the demolition of the chapel section of the Church has been

agreed, it is recommended that a formal retrospective agreement is drawn up in respect of

this, ensuring appropriate recognition of the Authority’s interest in this transaction and the

Church.

4.4. It is suggested that the lead officers to action this recommendation be the Programme

Manager (PB) and Principal Solicitor (GC). The aim is to have an appropriate formal

agreement in place as soon as possible, (no later than September 2011), regarding the

funds provided to demolish the Church.

4.5. It is also suggested that the Programme Manager (PB) seeks clarification from the

Authority’s Monitoring Officer as to whether the decision to fund the demolition of the

Church requires any further formal retrospective approval/confirmation.

4.6. (R3) It is recommended that the Authority receives full and robust evidence of the costs

incurred by Great Places to demolish the Church, which was funded by the Authority.

4.7. It is suggested that the lead officer to pursue Great Places to provide clear documentary

evidence of the cost to demolish the Church be the Programme Manager (PB). This

documentation may then be verified by the Monitoring and Performance Assistant (HM).

This is to be done immediately with the aim for the Authority to have the requisite

documentation by the end of August 2011.

4.8. (R4) It is recommended that the Authority requests, receives and reviews up to date monthly

reports on the latest forecasts for the completion of the voluntary acquisition programme,

including forecast management and maintenance costs.

4.9. Since the commencement of this review it is understood that the Programme Manager (PB)

has requested Great Places to provide an up to date progress report of forecasted costs to

completion. On 10th August 2011 Great Places provided an up to date forecast, which

included a number of estimated costs. It is suggested that the Programmer Manager (PB)

actively pursues the regular (monthly) submission of progress reports from Great Places

until the final cost of the voluntary acquisition programme is agreed.

4.10. If Great Places do not provide regular progress reports it is recommended that the

Programme Manager (PB) escalate this action to the Assistant Director City Renewal (JT).

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4.11. (R5) It is recommended that a timetable is agreed for the winding up of this voluntary

acquisition programme, including planned timescales for the completion of acquisitions, the

drawing up of final accounts, and the agreement of costs and the verification of expenditure.

4.12. It is suggested that the lead officers to action this recommendation be the Assistant Director

City Renewal (JT) and the Programme Manager (PB). The aim is to have in place a clear

agreed timetable to wind up this voluntary acquisition programme by the end of August

2011.

4.13. (R6) It is recommended that all outstanding acquisitions under this voluntary acquisition

programme are completed at the earliest opportunity. Whilst it is recognised that this is not

in the direct control of the Authority, officers where appropriate are to take all requisite

action to successfully effect the prompt completion of outstanding acquisitions. It is

understood that the current expected time for completion is September 2011.

4.14. It is suggested that this recommendation is incorporated in the timetable referred to in 4.12

above.

4.15. (R7) It is recommended that the Authority receives full and robust evidence for all

expenditure incurred by Great Places in respect of this voluntary acquisition programme.

4.16. It is suggested that the lead officer to pursue Great Places to provide clear documentary

evidence in support of their expenditure regarding this voluntary acquisition programme be

the Programme Manager (PB). This documentation may then be verified by the Monitoring

and Performance Assistant (HM). At the time of writing it is expected, in the absence of an

agreed timetable for completion (4.12), that the Authority will have received all requisite

supporting documentation by the end of October 2011.

4.17. (R8) It is recommended that the Authority reconciles the advances made to Great Places

with the actual expenditure incurred, ensuring all outstanding balances are agreed and

where necessary repaid.

4.18. It is suggested that the lead officers to action this recommendation be the Programme Manager (PB) and the Monitoring and Performance Assistant (HM). The aim is to ensure that all funds expended by the Authority on this voluntary acquisition programme are accounted for and have been effectively utilised.

4.19. It is recommended that the lead officers to resolve queries in respect of the eligibility of expenditure be the Programme Manager (PB) and Assistant Director City Renewal (JT). It is noted that if the Authority cannot agree “reasonable” costs for the transfer of properties to the Authority, these lead officers may recommend that the Authority consider the decision for Great Places to retain the properties in their ownership for longer than they would wish to do so. Housing Market Renewal Grant 2010/2011 Audit Report

4.20. In addition to the above recommendations, reference is also to be made to the two

recommendations (both medium risk) made in the audit report of the Housing Market

Renewal Grant 2010/2011, issued on the 30th June 2011. These recommendations were:

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4.21. Recommendation 1: It is recommended that RENEW ensure all programmes and projects

undertaken under the auspices of the Housing Market Renewal Programme have been

carried out in accordance with the funding agreements and that appropriate evidence is

provided to verify that the requisite progress has been made in order to authorise the

release of payments.

4.22. The recommendation is agreed. The system for the management and monitoring of the

Housing Market Renewal Programme in respect of 2011/2012 is currently under review.

The Team Manager City Regeneration and Enterprise (AB) gave assurance that once the

revised procedures have been agreed and instigated this recommendation (report) is to be

passed onto the relevant officers responsible for the monitoring and management of

projects. At the time of the report it was anticipated this would be completed by the end of

August 2011.

4.23. Recommendation 2: It is recommended that grant claims are signed and submitted by the

relevant officers responsible for the respective projects, who are independent of the

Monitoring and Performance Team.

4.24. The recommendation is agreed. The system for the management and monitoring of the Housing Market Renewal Programme in respect of 2011/2012 is currently under review. The Team Manager City Regeneration and Enterprise (AB) gave assurance that once the revised procedures have been agreed and instigated this recommendation (report) is to be passed onto the relevant officers responsible for the monitoring and management of projects. At the time of the report it was anticipated this would be completed by the end of August 2011.

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5. Introduction

5.1. In May 2011 Internal Audit received correspondence from PACRA regarding the demolition

of the Church. A number of concerns were expressed about the actions of the Authority in

respect of this demolition, which are summarised as follows:

a. On what basis were public funds paid to fund the demolition?

b. What was the amount of funding provided by the Authority?

c. What was the reason for the Authority to fund the demolition?

d. Was the funding provided from the Portland Street Area Acquisition Fund?

5.2. Additionally Freedom of Information requests had also been received in relation to this

matter. Since the commencement of this review it is understood that the Authority has

received further Freedom of Information requests regarding this, which are currently being

assessed and processed.

5.3. In response to the above concerns members of Audit Services met with two representatives

from PACRA. Audit Services have subsequently carried out a review and examination of

the Authority’s actions and the extent of its funding of the demolition of the chapel section of

the Church.

6. Work Done

6.1 Internal Audit conducted discussions with the following relevant officers in the Authority:

• City Renewal:

• Jo Tyzzer; Assistant Director City Renewal (JT)

• Phil Brundrett, Programme Manager (PB)

• Helen Millington, Monitoring and Performance Assistant (HM)

• Alison Bennett, Team Manager City Regeneration and Enterprise (AB)

• Housing Services:

• Carmen Muir, Strategic Manager – Housing Standards (CM)

• Neil Macleod, Policy and Strategy Officer (NM)

• Legal Services:

• Gerry Clarke, Principal Solicitor (GC)

6.2 Examinations were conducted of correspondence between members of staff at Great

Places and officers of the Authority, as well as internal correspondence within Great Places

and the Authority.

6.3 Relevant files and other documentation and records in respect of the Portland Street Area of

Major Intervention (AMI) were also analysed.

6.4 During the course of the review although various documents were requested, not all such

documents were provided/seen.

6.5 From work undertaken to examine the concerns raised by PACRA, further queries arose in

respect of the Voluntary Acquisition Funding Agreement (City Centre North West Area of

Major Intervention) between Great Places and the Authority. Consequently the scope of the

review increased to incorporate examination of certain aspects of this Agreement.

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6.6 A summary time line of events is appended to this report.

6.7 During the course of this review an audit of the Housing Market Renewal Grant 2010/2011

was undertaken to provide the s.151 Officer with assurance that HMR funding for 2010/2011

had been properly expended; prior to the completion and submission of the requisite Grant

Determination Letter.

6.8 The audit report in respect of the above review was issued on the 30th June 2011 and

expressed a satisfactory audit opinion although 2 medium risk recommendations were made

regarding the management of projects and the authorisation of funding payments.

7. Background

7.1. It is understood that Great Places acquired the Church in September 2007, using its own

funds. The Church was made up of 2 separate sections; a chapel and a church hall.

The Chapel

7.2. It is understood that the chapel had been closed to the public for a number of years, prior to

the acquisition by Great Places.

7.3. From records seen of internal communications within Great Places, reference was made

that in February 2008 a structural report of the Church, commissioned by Great Places, was

completed. It is understood that the report identified internal tension cracking in the chapel

ceiling although the external structure was deemed reasonably sound. Auditors have

requested but not received this document.

7.4. From the same records a further structural report commissioned by Great Places was

completed in October 2009. This highlighted more recent movements in the chapel and the

need to reinforce the external structure.

7.5. There is no record that the structural reports referred to above (February 2008 and October

2009) were provided to the Authority at the time it received the request from Great Places to

fund the demolition of the chapel. However, during the course of this review Great Places

provided the Authority with a copy of the second structural report referred to above.

7.6. It is understood that a committee member of PACRA had requested copies of these reports

but had not received them.

The Church Hall

7.7. In the latter part of 2008/early 2009 the church hall was refurbished to create the Portland

Area Resource Centre (P@RC). It is understood that this was done with funding of £30,000

from a unilateral agreement (deed of undertaking) pursuant to a planning application for the

proposed development of a casino, and hotel with ancillary food and drink and drinking

establishments, on land at Waterloo Road.

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7.8. The deed of undertaking, which was originally signed on the 27th February 2003 and

subsequently renewed on the 22nd February 2007, was between Lear Management Limited

and Bromley Investments Ltd. It provided that:

7.9. “’…the Contribution’ means the sum of Thirty thousand pounds (£30,000) or such other

amount as is required which amount shall be applied to fund the purchase and

refurbishment of the property known as No 1 and No 3 Lowther Street or such alternative

property as shall be approved by the Association (acting reasonably) which (in either case)

is to be used for the establishment of a community project house for use by the Hanley

Project Team…”

7.10. It is understood that due to the passing of time, the Hanley Project Team ceased to exist

and the properties at No 1 and No 3 Lowther Street were no longer available to be used.

Consequently it was agreed with Lear Management Limited to use the £30,000 from the

above deed of undertaking to fund the conversion of the church hall, which had been

recently acquired by Great Places, into a community facility. This was done.

8. Decision to Demolish the Chapel

8.1. From a review of the structural report commissioned by Great Places and prepared by ABA

Consulting, dated October 2009:

8.2. “ABA Consulting was appointed to carry out a visual appraisal of the Boothen Methodist

Chapel…” Their report stated:

8.3. “There are significant cracks above and below the main window, and a gap by the side of

the window frame where horizontal movements have occurred. If such horizontal tensions

continue they have the potential to destabilise the two arches in the pulpit area…”

8.4. “…in order to ensure long term stability the arches need to be protected from the effects of

differential settlement and horizontal strains…The extent of measure will depend on the

extent of further investigation…and some superstructure repairs may be required in the

short term, even if the building life is limited.”

8.5. It is not known if Great Places commissioned any further investigation into the extent of

cracks and strains. The auditors undertaking this review do not have the technical expertise

to assess the implications of the findings of this structural report, which provides no

recommendation as to a preferred course of action regarding the future of the building.

8.6. From an internal communication at Great Places dated 7th May 2010, following the second

structural report referred to above, it was said that Great Places had established the

necessary work required to make the chapel structurally sound and this work was not

covered by insurance as no structural report had been carried out at the time of purchase

(September 2007). Therefore the liability for the repair/making good the structure of the

Church rested with Great Places.

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8.7. Around the time of the second structural report; the end of 2009, Great Places obtained

quotes for remedial work on the chapel, which was stated to be £8,600 plus VAT. Great

Places also sought quotes for the demolition of the chapel only, the lowest of which was

£12,600 plus VAT. Great Places noted that whilst the estimated cost of the remedial work

was less than that of demolition, no account had been taken of the on-going maintenance

costs of the chapel if it was to be made structurally sound.

8.8. Whilst auditors have not spoken to any members of staff at Great Places to verify the

rationale behind their decision to seek to demolish the chapel section of the Church, on the

10th June 2010 the Authority’s Programme Manager (PB) in respect of the Portland Street

AMI received an e-mail from Great Places, which said:

8.9. “As you will be aware we are currently experiencing quite serious structural problems [at the

Church] and have no choice but to demolish the main church area.”

9. Decision to Fund the Demolition

9.1. The above e-mail (10th June 2010) went on to say:

9.2. “We currently have no funds to do this as our original idea for the church was conversion

into flats. Could you confirm if it would be possible to fund the demolition out of the Portland

Street acquisition pot as I presume in time the church would be subject to demolition as part

of the wider regeneration of the area [It is assumed this refers to the Voluntary Acquisition

Funding Agreement]

Could you let me know asap as the church is becoming quite dangerous?”

9.3. The Programme Manager (PB) responded on the 14th June 2010 “Do you have a cost

before we agree?”

9.4. Following this Great Places commissioned Wilkinson Cowan Partnership (Chartered

Quantity Surveyors) to produce a “Report on the Tender for Demolition Works at Boothen

Church, Cobridge, Stoke-on-Trent for Great Places Housing Association”.

9.5. This report was dated October 2010 and noted:

• Quotations for demolition were obtained from 2 local established contractors (from

discussion with the Programme Manager (PB) it was understood that Great Places

had invited quotes from 3 contractors). It was commented by the Programme

Manager (PB) that as a lead registered social landlord their internal procedures had

previously been assessed and viewed to be adequate. (No documentation regarding

the internal procedures of Great Places was viewed during the course of this

review).

• The prices quoted were £12,500 and £20,876.

• The report stated that a meeting was held with the contractor of the lowest quote to

confirm their proposal ensured appropriate health and safety during the demolition.

Following this the quote was revised to £14,375. At the same meeting the following

additional works were also identified (arising from the location of the Church)

increasing the revised quote to £21,380; an increase of 49%.

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• Work to maintain the community hall (£1,630).

• Security Fencing (£1,775).

• Car park to furnish community hall during demolition (£3,600).

• The above excluded work to be undertaken by other organisations e.g. the required

closure of highways by the Authority, as well as provisional and contingency

amounts. The latter items were not quantified by the report.

• The report finally recommended:

“We are of the opinion the quotations by Dawsons Builders for the proposed

demolition works referred at Boothen Church, Cobridge, to represent a reasonable

cost for the project and good value for money and recommend it should be

considered for acceptance in the sum of £21,380.00 on the basis of an 8 weeks

contract period plus additional lead-in time to be agreed.”

9.6. This report was sent to the Programme Manager (PB) on the 25th October 2010.

9.7. Following further correspondence, Great Places presented the Programme Manager (PB)

on the 9th November 2010 with the following schedule of costs totalling £37,569, including

VAT:

• Cost of Demolition £25,656 (revised quote)

• Consultant £1,800 (additional items)

• Contingency £6,000 (additional items)

• CDM £1,763 (additional items)

• Provisional Sum £2,350 (additional items)

• Total £37,569

9.8. Great Places asked “Please can you confirm asap if you are happy so we can proceed.”

9.9. On the 10th November 2010 the Programme Manager (PB) replied to this schedule “Cost

ok.”

9.10. It appears that the expectation by both Great Places and the Programme Manager (PB) was

for the Portland Street area to be declared a clearance area, based on the outcome of a

Neighbourhood Renewal Assessment (11.8). This expectation seemed to be the basis for

both the request for funds to demolish the chapel and the subsequent decision that the

Authority would fund the demolition through the Voluntary Acquisition Funding Agreement

given that if the area was declared for clearance the prospect was that the Church would

then be acquired by the Authority and demolished.

9.11. From discussion with the Authority’s Principal Solicitor (GC), he expressed the opinion that

the above (9.9) constituted an agreement for the Authority to fund the demolition. He

explained the Programme Manager (PB), as the main contact for Great Places at the

Council, had ostensible authority to make such an agreement. However, in his opinion the

demolition of properties was not within the scope of the Voluntary Acquisition Funding

Agreement.

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10. Consultation

General

10.1. Following Audit Services discussion with the Programme Manager (PB), the opinion was

expressed that RENEW had “extensive” consultation with residents regarding what was

happening in the community, using the P@RC community centre for a lot of this. He

commented that weekly drop-in sessions were held at the P@RC. The Authority also

funded community roles such as:

• A Residents Friend, who operated through the Citizens Advice Bureau

• A Community Development Worker

Demolition

10.2. It is understood that a leaflet dated the 14th January 2011 was sent out by Great Places to

the residents of the area, informing them of the demolition of the church, which was to

commence on the 18th January 2011. From discussion with committee members of PACRA,

this leaflet was not received by residents until the 17th January 2011. The leaflet noted:

10.3. “The chapel and community building at the rear have been in our ownership for nearly three

years now and over this time we have noticed some structural movement within the main

chapel building. Due to this issue it has now become apparent that the building will need to

be demolished. Initial stripping out work has started and demolition work will commence

from the 18th January once the scaffold has been erected.”

10.4. “It is our intention to retain the rear of the building for community use although the whole

building will have to be closed for a number of weeks to allow safe deconstruction of the

chapel and to make good the walls of the retained building. It is estimated that the

demolition and building works will be completed in approximately six weeks and that the

community hall will reopen in early March.”

10.5. From other documentation provided by Great Places to the Programme Manager (PB),

which was not dated, they noted that the demolition of the Church had been raised at the

P@RC steering group meeting held in November 2010. However, they also acknowledged

that letters issued to residents “could have been sent earlier…”

10.6. It is understood that the chapel section of the Church has now been demolished. Whilst the

Authority has received, on the 15th August 2010, some documentary evidence to support

and confirm this expenditure; an interim valuation of £24,570 (including VAT), this is not

expected to be the final cost funded by the Authority to demolish the Church given the quote

obtained for this work (9.5, 9.7).

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11. Source of Funding

Housing Market Renewal Pathfinder

11.1 The funding utilised was sourced from the North Staffordshire Housing Market Renewal

Pathfinder, with reference to the Market Restructuring (Implementation) Agreement, dated

2004. This specified eligible expenditure to include:

• “…in relation to land, its acquisition, reclamation, improvement, or refurbishment for

the purpose of redevelopment for residential or mixed use”;

• “…in relation to buildings intended for predominantly residential use…their

acquisition, demolition, conversion or improvement”

• “…in relation to land or buildings intended for predominantly residential use,

environmental improvements”

11.2. The Assistant Director Renewal Services (JT) explained that under the terms of the above

Agreement, the demolition costs of the Church was eligible expenditure for funding, given

that it was expected to be replaced by residential buildings.

11.3. In respect of 2010/2011 the Homes and Communities Agency informed the Authority, noted

in a letter dated the 5th August 2010, that:

11.4. “In its Local Government Funding announcement on the 10th June, the Government

included the removal of the ring fencing from the 2010/2011 HMR budget.”

11.5. The implications of this amendment to the original Implementation Agreement were further

clarified and were understood to necessitate only that the capital element of the HMR

budget be used to fund capital expenditure and for the accountable body to confirm this by

the submission of an appropriate statement at the end. The Authority has since prepared

and issued such a statement (6.7).

Housing Market Renewal Programme (City Centre North West Area of Major

Intervention)

11.5. As part of the above Programme, on the 26th August 2009, following a report of the Director

of Regeneration to Cabinet regarding ‘A stabilisation Policy through Voluntary Acquisitions

within the Housing Market Renewal Programme’:

11.6. The minutes record “…to agree that the Registered Social Landlord (RSL) partner be

supported to implement a stabilisation programme to acquire properties voluntarily in this

area [Portland Street area] ahead of the outcome of the assessment [neighbourhood

renewal assessment] and that owners be compensated as if the area has been supported

for clearance through the Housing Market Renewal Programme.”

11.7. The Registered Social Landlord (RSL) partner referred to above was Great Places.

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Neighbourhood Renewal Assessment

11.8. From discussion with the Strategic Manager – Housing Standards (CM), the neighbourhood

renewal assessment of the Portland Street area commenced in September 2009 and was

completed in September 2010. From discussion with the Programme Manager (PB) it

appeared that the expected result of this assessment was to be the declaration of a

clearance area. However during the time the assessment was carried out the funding

agreement (11.9) allowed the Authority to provide a housing market for those people in the

area who wished to sell. It also provided the Authority with options to secure properties

prior to the expected declaration for clearance thus negating the opportunity for speculators

to acquire properties in the area for which the Authority would then have to buy at a later

date.

Voluntary Acquisition Funding Agreement

11.9. On the 24th December 2009 Great Places and the Authority signed a funding agreement

“relating to the acquisition [of] properties at City Centre North West AMI”. The terms of the

agreement included:

• (“(2)”) The City Council…agrees to make funding available to the Housing

Association in the total sum not exceeding the “Maximum Sum” [£4,000,000] for the

purpose of financially assisting the “Acquisition” on the following terms and

conditions…”

• (1.1) “Acquisition” means the acquisition by the Housing Association of all estates

and interests of the Properties.

• “(3.1.2) The City Council may in its absolute discretion and on such terms as it may

specify agree to pay funding to the Housing Association before the conditions [as

defined in the contract] have been met, but if the City Council does so, this will not

prejudice its rights to refuse to pay any further funding until these conditions are

met.”

• The City Council shall not be obliged to pay any funding unless:

• (3.2.2) It has received a valuation confirming the purchase price payable.

• Funding shall be paid as follows:

• (3.3.2) Each claim for funding shall include to the satisfaction of the City

Council evidence that the expenditure to which the claim relates has been

reasonably and properly incurred or spent and that payment has been made

by the Housing Association;”

• (Schedule 2) It is understood that the properties acquired by Great Places using the

above funding are to be subject to an option agreement, which the Authority may

exercise for the price of £1 per property.

The Supporting Acquisition and Management Strategy to this agreement noted:

11.10. “Great Places have been requested to propose an acquisition strategy for up to 400

properties within the Portland Street area…”

11.11. “Great Places will be responsible for acting as the Council/Renew’s agent in all aspects of

acquiring the properties…”

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11.12. Acquisitions are to be given the following priority:

• Empty properties

• Owner occupiers

• Empty RSL properties

• Private landlords

11.13. “It is envisaged that £500,000 grant funding will be drawn down to begin front funding the

acquisition programme. When £100,000 remains, a further tranche of £500,000 shall be

requested…”

11.14. “The following costs are to be recouped from the City Council/Renew upon confirmation of

expenditure;

• Valuation fees

• Legal fees

• Homeloss payments…”

11.15. “Upon acquisition of a property, Great Places will arrange for the following works to be

undertaken …”

•••• Drain down of heating system

•••• Empty the property if required

•••• Etc.

11.16. “All costs will be recoverable from the City Council/Renew upon confirmation that

expenditure has been defrayed.”

11.17. “Great Places will keep records and details of all properties acquired and will present to the

Council/Renew a progress report on a monthly basis detailing properties acquired,

properties in negotiation etc.”

Funding Payments Made

11.18 It was explained that due to their provision of home improvement assistance, Great Places

was covered by the requirements of Financial Services Act. This required Great Places to

hold funds to cover any offers it made to acquire properties, hence the need for advance

payments.

11.19 The Assistant Director City Renewal (JT) explained that the Authority had previously

undertaken a similar arrangement in 2004 with English Partnership whereby advance funds

were provided to acquire properties.

11.20 At the time of this review; (June 2011), the Authority had paid Great Places £2,536,000 in

respect of the Voluntary Acquisition Funding Agreement, representing 4 instalments of

£500,000 and 1 instalment of £536,000.

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11.21 It was understood that payments had been made to Great Places on the basis of their

progress to acquire properties. Great Places were said to provide periodic progress reports,

which detailed their forecast costs in respect of the proposed acquisitions it was pursuing. It

is unclear how often these progress reports were supplied; auditors have requested of the

Programme Manager (PB) copies of the progress reports received over the last 6 months.

Apart from the two referred to below (11.30) no other progress reports were provided or

seen during this review.

11.22 The Assistant Director City Renewal (JT) explained that a change in Central Government

during 2010 promptly terminated the Housing Market Renewal Pathfinder programme.

Following this, payments to Great Places were suspended pending the controlled winding

up of this voluntary acquisition programme.

Authorisation of Funding Payments

11.23 The Financial Regulations of the Authority stated that when an officer certifies a payment

they acknowledge amongst other things that:

“The goods, works, services, or other proper purpose, for which the invoice and payment

refers have been received or completed, conform to the specification set out in the order

and are ‘fit for purpose’.”

11.24 From the checklists and creditor requisition forms seen, the funding payments made to

Great Places (11.20) were authorised and certified by members of the Monitoring and

Performance Team.

11.25 From discussion the above practice was a long standing procedure, which had been

introduced when RENEW was first established to enable the Monitoring and Performance

Team to closely monitor payments made by the then new body. It was further explained

that at that time funding payments were made in arrears and the procedure ensured that all

expenditure had been verified by the Monitoring and Performance Team prior to releasing

payments.

11.26 The nature of the advances required to fund the above voluntary acquisition programme

meant that evidence in support of the amount claimed by Great Places was not readily

supplied. Consequently [from verbal explanations received and the review of e-mails] the

Monitoring and Performance Assistant (HM) contacted the Assistant Director City Renewal

(JT) and the Programme Manager (PB) to seek confirmation that the advances were to be

paid given the absence of evidence to support defrayment of the amount being claimed.

11.27 From verbal assurances received, the advances were only made when one or other of the

above officers confirmed a claim was to be paid. However this authorisation may have been

verbal or informal, there being no formal record of this.

11.28 Following discussion with the Monitoring and Performance Assistant (HM), in the meantime

she issued correspondence to Great Places requesting them to provide supporting

documentation of defrayment. The outcome of this to date is that the Authority has received

documentation from Great Places to support expenditure to the value of £1,049,815 and has

recently been notified (9th August 2011) that additional invoices are to be submitted, for

verification, to the value of £775,742. These invoices were received on the 15th August

2011.

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11.29 The Team Manager City Regeneration and Enterprise (AB) commented that there had been

ambiguity over the roles and responsibilities between members of the Programme Team

and members of the Monitoring and Performance Team. She further explained that the

structures and procedures within and between these Teams were currently being reviewed

and clarified, which has been noted in the audit of the Housing Market Renewal Grant

2010/2011, issued on the 30th June 2011 (6.7, 6.8)

Progress Reports on Expenditure to Complete

11.30 Progress reports seen during this review were dated 17th February 2011 and 10th August

2011, the latter was received following requests made by the Programme Manager (PB).

The progress report dated 10th August 2011 disclosed total forecast expenditure for this

voluntary acquisition programme of £2,298,169. This forecast included estimated fee costs

and elements of expenditure which the Assistant Director City Renewal (JT) said were still to

be agreed with Great Places.

11.31 With the cessation of the Housing Market Renewal Programme the above programme is to

come to an end. It is anticipated that Great Places will have acquired 35 properties as agent

of the Authority by the conclusion of this programme; it currently has one acquisition

outstanding which is expected to be completed by September 2011. The Programme

Manager (PB) expressed the expectation that at the conclusion of the programme all

outstanding documentation regarding expenditure will be provided to the Authority and

Great Places may be required to repay approximately £100,000.

Applicability of the Voluntary Acquisition Funding Agreement

11.32 Notwithstanding the above, the Authority’s Principal Solicitor when asked expressed the

opinion that the agreement for the Authority to fund the demolition of the Church (9.11), did

not fall within the scope of the above Voluntary Acquisition Funding Agreement.

11.33 He advised that the agreement to fund the demolition may be formalised retrospectively

either with a variation to the above Voluntary Acquisition Funding Agreement or by the

creation of a separate agreement. At the time of discussion he favoured the latter.

11.34 The funds to which the Voluntary Acquisition Funding Agreement referred i.e. Housing

Market Renewal Pathfinder were still eligible to be used to fund the demolition.

12. Payment of the Demolition of the Chapel

12.1. On the 15th August 2011 the Authority received an interim valuation of £24,570 (including

VAT) in respect of the demolition of the chapel section of the Church. This however is not

expected to be the final cost of the demolition funded by the Authority and documentary

evidence in support of further costs e.g. security, highway closures, etc. are expected to be

submitted for verification in due course. Moreover, a review of the progress report received

by the Authority on the 10th August 2011, from Great Places, included within its total forecast

costs of £2,298,169 a figure of £28,311 in respect of “Boothen Church” with the narrative

“Agreed that demolition costs would come out of this budget”.

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12.2. From discussion, the above arrangement was described as a variation to the Voluntary

Acquisition Funding Agreement, which had been enacted and authorised without the back-

up of the requisite formal approval procedure and supporting documentation.

13. The Future for Portland Street Area

13.1. The Neighbourhood Renewal Assessment for the Portland Street area has been completed.

It is understood that the initial conclusion of its findings was for the area to be declared a

clearance area however the cessation of the Housing Market Renewal Pathfinder withdrew

the funding required to clear the area.

13.2. The report on the Neighbourhood Renewal Assessment is currently in draft pending the

assessment of the funding options available to the Authority in respect of the area. In

particular it is understood that the Authority has submitted a bid for Transitional Funding of

approximately £8,000,000, which is to be match funded, to fund proposals which include

both refurbishment and demolition of properties in the Portland Street area.

13.3. Subject to the above, this review has not examined how the Authority is to manage the

properties acquired under this voluntary acquisition programme following its conclusion.

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Appendix: Summary Time-Line

Date Officer Date Offcier

24/12/2009

Voluntary Acquisition Funding

Agreement signed on behalf of

the Authority by Gerry Clarke

and Paul Hackney: Upper limit

of funding agreement.

4,000,000

08/01/2010

HMR/RENEW Grant Claim

Form received from Great

Places

500,000Not located

by review

Not located

by review

Not located

by review

Not located

by review

08/04/2010HMR/RENEW Grant Claim

Form signed by Great Places536,000 17/05/2010 R. Hill

Not located

by review

Not located

by review

10/06/2010

Request from Great Places

asking if the demolition of

Boothen Methodist Church

could be funded from the

"Portland Street Acquisition

Pot"


Form signed by Great Places500,000 17/06/2010 R. Hill 17/06/2010

K. Round

& R. Hill

14/06/2010Authority responds "Do you

have a cost before we agree?"

28/07/2010

HMR/RENEW Grant Claim

Form signed by Great Places.

Claim accompanied by a batch

of invoices in support of

expenditure.

500,000 16/08/2010 R. Hill 08/09/2010K. Round

& R. Hill

Claim accompanied by a batch

of invoices in support of

expenditure.


Form signed by Great Places500,000 25/10/2010 R. Hill 25/10/2010

K. Round

& A.

Bennett

25/10/2010

Authority receives from Great

Places "Report on Tender for

Demolition Works at Boothen

Church…"

09/11/2010

Amended proposed costs for

demolition received by the

Authority.

37,569

10/11/2010Authority responds to amended

proposed costs "Cost ok"

14/01/2011

Letter from Great Places to

residents explaining that the

demolition of Boothen

Methodist Church was to

commence.

18/01/2011

Demolition of Boothen

Methodist Church

commenced, per letter issued

by Great Places.

17/02/2011

Portland Street Spread-sheet

received from Great Places:

forecast total cost of

Programme (expected

acquisition of 35 properties)

2,312,487


Form signed by Great Places

Outputs and

previous

defrayment

only.

17/03/2011 R. Hill

11/03/2011

Batch of invoices received

from Great Places re Voluntary

Acquisition Agreement

expenditure actually incurred

1,049,815

2,536,000

Key:

Officers: G. Clarke Principal Solicitor

P. Hackney

R. Hill Accountant

K. Round Accountant

A. Bennett

Demolition of Boothen

Methodist Church

Voluntary Acquisition

Funding AgreementDate

Relates to Boothen Methodist Church

Team Manager – City Regeneration and Enterprise

Head of Legal Services (Monitoring Officer)

Value (£) Authorised

Funding

paid to

Great Places

Agreed

Sums

RENEW Checklist Creditor Requisition

audit services manager memo - whatdotheyknow

Documents