A heavily redacted auditors’ report into £20m of loans made by the Cambridgeshire and Peterborough Combined Authority to Laragh Homes has revealed how suspicions of the risk of “irregular, unprofessional activities and working arrangements between developers and the Combined Authority” were ignored.
The long awaited report, published in part today, reveals a breakdown of governance between the Combined Authority and Laragh Homes, the company that applied for and was given a number of massive loans as part of the housing policy of the then Mayor James Palmer.
“An examination of these issues has the potential to provide lessons for the wider governance improvements being undertaken, as well as re-establish public trust that the Combined Authority is being held to account,” says the report going to the overview and scrutiny committee on March 12.
The report – by RSM auditors – says they were provided with emails showing that allegations of potential misconduct were raised with senior individuals within the authority some time ago.
RSM confirmed that initial allegations of misconduct and/or whistleblowing were made by a member of staff to the then chief executive and previous monitoring officer in April 2022.
Only part of the report has been published (pressure will mount on the Combined Authority to release it in its entirety) but what we do get is a flavour of the thinking behind those loans, how poor governance failed to secure promised profit share pledges and a clue as to why the Conservative government in 2021 withdrew £45m of the £100m promised for affordable housing.
Luke Hall, minister for regional growth and local government, told the Combined Authority: “The programme has made insufficient delivery progress and the value for money being achieved is below our expectations”.
The devolution deal of June 2016 had placed no particular restrictions on the use of the £100m housing programme. The £100m was to be used for delivering housing and growth and use of the funds for this purpose was supported by the business case agreed with Government in March 2018.
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But it went pear-shaped and under Mayor Dr Nik Johnson The Combined Authority invited RSM, a leading provider of audit services, to carry out the investigation into the loans. Their summarised findings expose a lack lustre approach to investigating allegations of potential wrong doing dating back many years.
“Given the escalation of these concerns from April 2022, RSM concluded that the Combined Authority should have investigated these concerns sooner and should have maintained supporting evidence to demonstrate the action taken in relation to the allegations,” says their report.
The record keeping by the authority and an audit trail of the decision-making process “was limited, which has impacted some of the conclusions made”.
The Combined Authority has adopted an ‘on off’ approach to probing the approach to housing under Mayor Palmer and the report is carefully worded to exclude names of officers or individuals connected with the period under scrutiny.
However, what it does do is pave the way for retiring Mayor, Dr Johnson, to address the scrutiny committee to challenge, and possibly drop into the public arena, more detail about the issues he, and at times seemingly him alone, have sought to address.
Mayor Johnson believes the frustrations he experienced in his early days can be traced back to elements within the Combined Authority who found his surprise victory not only unpalatable but were nervous about his determination to discover why the Government had lost confidence in the ability of the Combined Authority to be responsible for housing.
So, let’s see what the report says about that period.
It begins by addressing the decision of the overview and scrutiny committee to set up a working group last July to consider governance of the housing programme, which had ceased the previous year.
An earlier incarnation of the working group promised much and delivered little but a timely question from a member of the public, in this instance the Save Wilburton from Over Development group, gave Mayor Johnson the opening he desired.
Answering a question last June from the Save Wilburton from Over Development campaign who had campaign successfully against a massive housing development by Laragh Homes and the Stretham and Wilburton Community Land Trust, Mayor Johnson reassured them their voice would be heard.
“It is to your credit that even though your community is no longer facing the prospect of a large development that your campaign group remains committed to understanding the circumstances of the improperly submitted statement of community benefit but also the wider systemic question of Combined Authority governance with specific regard to their housing programme,” he said.
The ’statement of community benefit’ had been authorised by Mayor Palmer but later withdrawn after it was found to have misinterpreted the views of villagers, most of whom were opposed to the Camps Field, Wilburton, development.
It was a convoluted application for 115 homes on a 45-acre site and tentatively offered 35 houses to be owned and administered by the Stretham and Wilburton Community Land Trust.
Mayor Johnson said that when an investigation was discussed and initiated by the overview and scrutiny, the reasons for the delay in following this through remain “unclear but in preparing to answer this question I have been reassured by senior officers and the chair of the overview and scrutiny committee they are now in a position to move forward at pace”.
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In July 2024, the working group was agreed with terms of refence stating that “a number of specific issues relating to the governance of the CPCA’s housing fund have been raised in the past, including in ministerial letters, and these have not been fully scrutinised”.
CPCA felt an examination of these issues had the potential “to provide lessons for the wider governance improvements being undertaken, as well as re-establish public trust that the CPCA is being held to account”.
The working group membership was agreed to include Cllr Aiden Van de Weyer Cllr Jon Neish Cllr Caroline Shepherd.
Ironically, Cllr Van de Weyer was the Liberal Democrat candidate for the mayoral election in 2021 and reflected at the time of the news that the Government had halted housing money for the Combined Authority.
“This is disastrous news for the people of Cambridgeshire and Peterborough,” he said.
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“As a result of Palmer’s incompetence and arrogance, hundreds of desperately needed affordable houses will now not get built. The housing programme is now at an end and several schemes that had been approved – and that residents were looking forward to – will have the rug pulled from under them.”
RSM’s brief was to examine allegations that previous housing loans which had been agreed should have profit sharing arrangements in place but were omitted from the final contracts entered into by the authority.
They were also asked to consider “potential misconduct and/or unethical behaviour relating to the housing loans process”.
RSM completed a review of the available evidence, including discussions with key individuals employed by the Combined Authority as follows:
- To establish whether previous housing loan agreements were appropriately drawn up, held, and signed by both parties.
- To identify if any decisions had been made, to ensure that profit share agreements were detailed in agreements between the Combined Authority and Laragh Homes for a selection of housing loans.
- Review of the approval process for a selection of housing loans from the period November 2019 to March 2023.
- Reviewing final contracts, if available, to identify whether the profit share agreements were included within a selection of contracts.
- Review of the governance and reporting arrangements for housing loans processes, including roles and responsibilities.
Their report noted that on 26 September 2018 – during Mayor Palmer’s term of office – the Combined Authority Board approved a multi toolkit housing strategy in order to have a flexible approach in which housing delivery could be achieved and accelerated.
“The strategy included the provision of a rolling fund from within the £100m housing programme to be used for toolkit opportunities over and above just issuing traditional grant, such as a repayable loan agreement,” says their report.
“Proposals for three loans to Laragh Homes were agreed by the CPCA Board, two of which included initial conditions for profit share agreements with the Combined Authority.
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“Concerns were raised with internal audit in 2023 relating to final contracts agreed for housing loans whereby an allegation was made that profit share agreements were omitted from final contracts between developers and the Combined Authority.”
RSM say they were informed by staff commissioning this review that members were suspicious of the risk of irregular, unprofessional activities and working arrangements between the developers and the Combined Authority.
They list the schemes:
Alexander House, Forehill, Ely.
A paper was submitted to the CPCA Board to seek approval for the provision of a 21- month repayable commercial loan capped at £4.84m to Laragh to create housing units by converting an office building known as Alexander House, 38 Fore Hill, Ely, CB7 4AF.
The board paper specifically outlined the following in respect of profit share conditions: ‘In addition to the re-payment of the interest, CPCA will share 50 per cent of any profit from the scheme up to a maximum total profit sum of £500,000.
‘In the event of any profit in excess of £500,000, CPCA will receive 40 per cent of any additional profit achieved.
‘’For the Alexander House site, the board paper also stated that ‘this opportunity creates and brings into supply 25 homes in a building that currently comprises under occupied and poorly specified offices.”
The idea was to create an additional four affordable homes that would otherwise not be delivered by the market, with no requirement for grant support.
A decision was taken by the CPCA to replace these four ‘affordable units’ with four ‘£100k homes’.
The loan provided 90 per cent of the capital being required and “Laragh House Developments will be providing the 10 per cent of equity from their own resources”.
Cllr Lewis Herbert, then leader of Cambridge City Council described it thus: “The ‘affordable’ housing loan to Laragh is an abuse of CAPCA’s affordable housing monies.”
In the event the Combined Authority was repaid its loan; no mention was ever made of any profit.
Linton Road Great Abington:
A 21- month repayable loan facility capped at £5.78m to Laragh for the development of a housing scheme at 734 Linton Road, Great Abingdon, South Cambridgeshire CB21 6AA.
The board paper specifically outlined the following in respect of profit share conditions: ‘In addition to the re-payment of the interest, the Combined Authority will share profit from the scheme’.
Histon Road:
The Mews development on the former Scotsdale Laundry and Nursery Site, Histon Road, Arbury. Laragh Homes borrowed £9.647m from the Combined Authority.
RSM say there was no initial profit share agreement for this site, and it was therefore out of scope for the internal auditors.
There is no mention in the RSM report of the largest ‘revolving fund’ loan of £24.4m and made to East Cambridgeshire District Council’s trading arm, East Cambs Trading Company Ltd (ECTC) to refurbish 92 former MOD homes in Ely for use as private homes; the loan terms funded delivery of 15 affordable units.
Conclusions
RSM says: “Given the potential financial impact for CPCA, and the fact that these changes involved significant sums of taxpayer money potentially not being received by CPCA, RSM considered the adequacy of the record keeping and audit trail of this decision-making process.
“We found that profit share conditions, as previously agreed and reported through to the Combined Authority Board were indeed omitted (having initially been included) from two agreements with the relevant developer (Laragh Homes).”
RSM were provided with emails showing that allegations of potential misconduct were raised with senior individuals within the authority some time ago.
RSM confirmed that initial allegations of misconduct and/or whistleblowing were made by a member of staff to the then chief executive and previous monitoring officer in April 2022.
“It was reported that there were concerns of a discrepancy concerning the omission of a profit share arrangement (following CPCA Board approval) from the loan facility agreements with Laragh Homes,” says the audit report.
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“These allegations were revisited in February 2023 to the executive director place, and connectivity, and then again to the new CEO and interim monitoring officer in November 2023.”
The interim monitoring officer explained to the internal auditors that as part of her investigations she became aware of a Mayoral Decision Notice relating to Alexander House and that conditions were not included in the loan facility agreements in 2022 “and that following this, subsequent decisions were taken to publish all decisions notices.
“Given the escalation of these concerns from April 2022 RSM concluded that the Combined Authority should have investigated these concerns sooner and should have maintained supporting evidence to demonstrate the action taken in relation to the allegations.
“The record keeping by the authority and retained an audit trail of the decision-making process was limited, which has impacted some of the conclusions made”.
Among recommendations by the auditors are:
To ensure that potential whistleblowing allegations are investigated in a timely manner.
To maintain records of what actions were taken in respect of each matter escalated and subsequently closed and review our communications mechanisms.
To ensure that paper records of contracts are retained. CPCA will also ensure that all contracts are signed by all parties.
To ensure that a digital system will be researched and implemented for the retention of contracts.
To ensure that agreements entered into clearly include all required conditions as previously reported through to the Combined Authority Board.
If there is a deviation from previous conditions agreed by the Combined Authority board, this will be made clear to members in a transparent manner.
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Paperwork, including all application documents for loans will be retained.
Any decisions to remove potential profit share will be taken in line with the constitution and CPCA staff will ensure the right professional advice is given to those individuals and/or governance forums taking decisions.
All Mayoral Decision Notices will be completed in full and published.
Monitoring Officer CPCA will ensure that decisions taken by Mayor Decision Notices are reported through to the Combined Authority Board.
Evidence will be retained to set out the reasoning and rationale behind the removal of any profit share(s) for future agreements.
The report says talks between the working group and officers last month concluded that the Mayoral Decision taken was reasonable “however it was not taken transparently, and processes were not followed correctly.
“It was noted by the members that the audit had been significantly limited by the lack of the availability of staff who had been in post when the events had taken place.
“It was discussed that it was not unheard of for developers to amend agreements; it was considered as a revision to the arrangements rather than a financial discrepancy and it was not unreasonable for the Mayor to have taken the decision to switch to the £100k homes rather than what had been originally planned however there were no recorded audit trails of discussions that took place around this”.
They add: “Members recognized that the authority had come a long way since the events and there was now a greater confidence in the CA.
“Officers accepted the audit arrangements and recognised that the governance process had been weak; now there was a greater focus on ensuring the governance was robust.”
They concluded that “lessons had been learnt and that new processes now being embedded within the Combined Authority would ensure that in future the transparency and monitoring around such decisions would be scrutinised effectively before being taken”.
