Mazars recently issued a public interest report on payments made by the City of York Council on the termination of employment of its former chief executive, raising concerns about governance, conflicts of interest, record keeping and a failure to follow due process. York held a public meeting on 4 May 2021 to discuss the findings of the report and to agree actions to implement its recommendations.

The Local Audit and Accountability Act 2014 requires external auditors in England to issue a formal public interest report when they identify significant matters during the course of an audit that they believe should be brought to the attention of the public body concerned and to the public. Public interest reports are submitted to the Secretary of State for Housing, Communities and Local Government as well as published, with local authorities required to hold a public meeting within one month to decide what action to take.

Mazars’ report is the fourth public interest report issued by auditors for larger local authorities in the past year, in contrast with the three years from 2016 to 2019 when no reports were issued. ICAEW reported on research by Grant Thornton, which highlighted the governance and financial management weaknesses that led to the three other public interest reports issued this past year.

Mazars’ report primarily related to the circumstances in which York’s previous chief executive left their employment and how this was dealt with by the council. Their findings included:

• In Mazars’ view, the business case used to justify the £377k exit package did not provide the information needed to make an informed decision. 
• Ambiguity in the nature of the severance was accompanied by a lack of transparency and objectivity in approving the discretionary elements of the agreement, and Mazars were not satisfied that the Nolan principles of objectivity, accountability and openness had been fully demonstrated.
• A failure to manage a conflict in interest by the leader of the council when chairing the committee that approved the settlement meant that discretion in approving the severance was not properly exercised.
• Mazars had not seen evidence that the Council considered the arrangement and the ex-gratia payment to be in the interests of taxpayers.

Mazars added, “a local authority should not enter a settlement agreement simply to avoid embarrassment to the authority or individual elected members, or the cost of defending proceedings”. 

Concern about the strength of local authority governance structures was a major theme in the Redmond Review into the oversight of local audit, which reported that local authority audit committees tend to reflect the partisan balance of councils concerned and are often chaired by members of the ruling party. Sir Tony Redmond recommended that audit committees include at least one independent member, a recommendation ICAEW supports and which has recently been enacted in legislation in Wales.

Recommendations made by Mazars include improving information supporting decisions by adopting appropriate standards for business case preparation in relation to exit and pension discretions; keeping decision notes that document the factors justing the use of public funds where payments exceed contractual entitlements; updating the Council’s constitution and scheme of delegation to incorporated redesigned governance policies and procedures to manage conflicts of interest (including self-interest threats); ensuring that all councillors fully understand the requirements of the code of conduct in relation to declaration of interests; and reviewing policies and procedures to reflect government guidance in the use of non-disclosure agreements.

Oliver Simms, Manager, Public Sector Audit and Assurance for ICAEW, commented:

“Mazars’ public interest report on York Council’s non-contractual termination payments to a former chief executive is of significant interest to the taxpayers and residents of the City of York. Mazars highlights how weaknesses in governance and processes, including how conflict of interests are managed and business cases are prepared, led to payments being made that in their view were arguably unlawful.

This episode demonstrates the value of the responsibility of independent external auditors under the Local Audit and Accountability Act 2014 to bring matters to the attention of the public through public interest reports. York Council has committed to implement the recommendations made by their auditor, while they will also help other local authorities around the country address gaps in their own governance processes that need to be addressed.”