‘Key red flags’ were missed by senior directors of a Surrey council which potentially led to a multi-million pound contract overspend and an alleged fraud investigation, a new report has revealed.

Legal firm Heminsley investigated historic failings in Guildford Borough Council’s housing service from 2021, which led to around £13.5m being overspent and work being carried out unnecessarily.

Guildford and Waverley borough councils began a collaboration in 2021, sharing services and officers. It is not thought any officer working exclusively for Waverley is involved in the fraud allegations.

Published on January 22, the independent report looks into the multi-million pound alleged fraud at the council. It sets out which senior executives knew what, when, and who did or should have taken action. None of the people named in the report are still employed at the council, so no disciplinary action will be taken.

The report concluded that issues in the way departments were managed and a failure to act on red flags, “may have given Guildford officers the opportunity to spend significant amounts of money with contractors”, apparently to fix housing compliance issues. But this was without having governance and oversight over the issues to ensure good value, or even to confirm what the money and budget were actually being spent on.

The report listed thirteen red flags missed by senior council staff, from deputy executives upwards.

Two ‘whistle blower’ reports, one in 2022 and one in 2023, highlighted concerns of overspending with a housing contractor, allegations of fraud and work being done outside of the contract.

Concerns were also raised in a draft audit in January 2023 which highlighted a number of contracts paid at 150 per cent of the original value. Auditors identified a “need for more stringent tracking and monitoring” of procurement, according to the report.

Guildford’s internal audit in February 2023 pointed to risks of management and government programmes and budgets, risk of inefficient IT systems and risk of financial fraud by a contractor.

Officers became aware of a £6.6 million overspend on an electrical safety contract (worth £2.4m) in December 2022, yet the contractors were still given a new contract in June 2023. This was not raised as an issue.

The senior executives should have seen the red flags by February 2023 “at the latest”, according to the report.

It stated the Joint Chief Executive, the Joint Strategic Director responsible for Housing and the Joint Strategic Director responsible for governance and finance “could (or should) have” identified and resolved issues with the contractor as a result of the cumulative impact of those red flags. The senior directors could or should have joined the dots to scrutinise the contract before it was given in June 2023, the report found.

Directors in charge of Guildford’s housing did not take steps to ensure officers could monitor contractor spending or monitor compliance in terms of financing or procuring contractors, according to Heminsley.

Former directors blamed the lack of budget reporting or no contract register, saying this was critical to monitor such issues. But, the report states when there was “known poor governance” and high workloads it means it was all the more important for greater scrutiny for those in a strategic job.

In ‘mitigation’, the part of the report where the exec commented on their role, the directors said their strategic roles between Guildford and Waverley Borough Council were too large and complicated. The top directors told the investigators their roles included a heavy workload which meant it was unfeasible to look at the details of every decision.

Creating a perfect storm, Guildford council was battling with inherited issues from a reorganisation programme in 2019 and merging with Waverley Borough Council in a cost-saving exercise. 

Former chief of Guildford council, Tom Horwood, said the collaboration caused a “fundamental strain on senior managers being able to access information and create a healthy and functioning governance environment”.

Joint Strategic Directors told the investigators there was a “collective failure across senior management that had roots” in the organisation’s attempts at restructuring in 2019. Another witness had said they were not surprised that something like the issues leading to the Police investigation had taken place in light of Guildford’s governance issues and “historic woes”.

Although dubbed “the last piece of the puzzle” by current Chief Executive of Guildford Council, Pedro Wrobel, there is still an ongoing police investigation into alleged fraud at the council.

Of the 8,000 transactions of work carried out by the contractor, the council does not know how many were necessary, unnecessary, completed, incomplete or not to a good enough standard. That is for the police to find out in its investigations and report back. It still leaves a huge question mark over how much of the £24.5 million budget was spent appropriately.

Material failings were not reported to Guildford councillors before the serious investigations were launched in 2023. Mr Wrobel argued there was not the infrastructure to allow members to scrutinise the decisions made by officers, which is now being corrected in the council’s improvement plan.

Pedro Wrobel said he was “confident” the three-year improvement plan has picked up everything raised in the Heminsley report in terms of governance issues. Although Guildford and Waverly councils are still driving ahead as one merged authority, Mr Wrobel stressed the importance of individual decision-making. He said: “All senior leaders have to be vigilant every day, all the time. That’s the accountability that we sign up for and we carry every day.”

The Leader of Guildford Borough Council, Councillor Julia McShane said: “We recognise the importance of this investigation to understand what went wrong in the past and make meaningful changes to ensure a stronger future. Our residents deserve a council that delivers best value for them. Our priority is to do the right thing, not the easy thing, for the benefit of our residents and businesses.”