Section 106 scandal: New controls and a surprising revelation from CEO Mark Williams

S106 Funds and EDDC Audit & Governance Committee – report from an attendee:

On Thursday November 17th the Audit & Governance Committee of EDDC voted to make several changes to the Council’s finance systems which will now ensure that s106 payments will go to the local community amenities for which they are intended.

S106 payments are agreements under the Town and Country Planning Act 1990, often referred to as ‘developer contributions’ whereby developers agree to make financial contribution to the community infrastructure when they build property. These contributions are usually used to provide amenities such as playground equipment or other local projects, and usually decided with local councillors in the town or parish councils.

The recommendations to make changes in the way EDDC manages and monitors the s106 monies comes from auditors KPMG who received an objection from a local elector. KPMG mounted a financial investigation into the elector’s complaint and concluded that the council’s control systems had the following weaknesses:

1. An absence of summarised financial information to facilitate the monitoring of s106 contributions

2. Lack of challenge or enforcement of the developers’ legal obligation to provide information

3. Lack of understanding of financial and accounting implications of triggers being met and the communication between Planning and Finance over this.

EDDC Chief Executive Officer Mark Williams, at one point in the discussion, disclosed that he watches some s106 debts grow (because interest at 4%+ base rate is applied) rather than collect them when due so that the council can gain more money.

No one challenged or questioned the ethics of this as a strategy for dealing with the funds that could have gone sooner to the communities for which it is intended (or whether developers could be benefitting by delaying payments). Neither was it established whether that interest earned is applied to the s106 amenities for the community or left in the council’s general reserves.

EDDC Monitoring Officer Henry Gordon Lennox, referring to the £730,000 he had previously disclosed (through a Freedom of Information query) was owed in 2014/15 and 2015/16 for s 106 payments, interjected that the £730,000 owing had included a mistaken overstatement of £409,000. The current status of the other £321,000 was not established during the committee discussion however.

The auditors, in upholding the objection to the accounts, made Priority One recommendations to address each area of weakness because these are fundamental and material to EDDC’s systems of financial controls. The committee resolved that these should be implemented by set dates and KPMG will follow up in their next audit.

Councillors of various political parties during the discussion on this item thanked the elector for having raised the lid on this issue. Now that the previously weak system has had “a light shone on it” and addressed, the Audit & Governance Committee will be able to require regular reports on s106 monies owed and collected. They will be able to ensure that the funds are being directed to and spent on the amenities in towns and parish council communities projects for which they are intended.

2 thoughts on “Section 106 scandal: New controls and a surprising revelation from CEO Mark Williams

  1. The Sidmouth Herald also printed a news item on this meeting last week: http://www.eastdevonalliance.org.uk/news/20161125/sidmouth-herald-eddc-says-know-exactly-much-s106-owed/

    The FoI request mentioned above can be found here: https://www.whatdotheyknow.com/request/s106_agreement_monitoring_and_co

    Both the blog entry above and the Sidmouth Herald item, miss a few key points:

    1. The issue is actually two separate issues: a. Whether EDDC collects the money properly; and b. what EDDC does with it once it has been collected.

    2. It is well understood in business that timely collection of debts is important, because the longer a debt is overdue, the greater the risk of the debtor going out of business and the debt becoming unrecoverable. So Mark Williams is displaying both ignorance and naivety when he says it is a good thing to let the debt lie because it accumulates interest.

    Additionally, if the developer goes out of business before the S106 payments have been made, the people who bought the homes subject to the agreement may find that they are unexpectedly lumbered with the debt instead, having already effectively paid for the S106 agreement through the purchase price of their property. It beggars belief that Mark Williams implies that this is an acceptable consequence of EDDC taking a lax approach because interest accumulates.

    3. In the Sidmouth Herald, EDDC claims to know exactly how much they are owed, but the auditors statements seem to say otherwise. “In a report to EDDC, the auditors said: “While we have recognised some appropriate controls, we have concluded that there are weaknesses in the council’s arrangements for monitoring developer contributions due to the council through Section 106 agreements. Although we have found no evidence that these weaknesses have led to any financial loss, they have led to the council failing to identify, on a timely basis, significant amounts which have become payable from developers – particularly Cranbrook – and consequently to the understatement of these amounts in the council’s financial statements. The net understatement amounted to £227,000 last year.”

    Simularly, “EDDC Monitoring Officer Henry Gordon Lennox, referring to the £730,000 he had previously disclosed (through a Freedom of Information query) was owed in 2014/15 and 2015/16 for s 106 payments, interjected that the £730,000 owing had included a mistaken overstatement of £409,000.”

    These clearly suggest that EDDC don’t know how much they are owed.

    4. Whilst the complaint to the auditors had to be limited to the financial year ending March 2016, it would appear that this may have been an issue for several years or possibly more than a decade. The auditor’s remit was only to look at the last financial year, so we have no idea whether money has been lost in previous years – though since the longer a debt is uncollected, the less likely it is that it will ever be collected, it therefore follows that there is a greater likelihood of lost revenue in these prior years.

    5. EDDC apparently have over £5m of S106 money in the bank. Questions need to be asked about whether EDDC were open with Town and Parish councils about how much of the £5m belonged to them, and why this money has not been distributed to Town & Parish councils or spent by EDDC for the benefit of the community.

    6. Regardless of the issues of collection and spending of S106 money, we also need to be reassured that the two amounts balance, and that S106 money that has been collected has not been diverted to other expenditure or worse still gone missing.

    In summary the FoI and Auditors report have only turned over the first stone to see what is crawling underneath. There are still several stones still unturned, and who knows whether something much more serious is lurking underneath.

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  2. I expect some thanks from Tory councillors were through gritted teeth as in the past they have held very negative attitudes towards FOI’S and those who make them. And of course this is not the first time that it has taken a member of the public to prove EDDC has got it wrong.

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