City Council agrees on an action plan to improve governance following auditor’s report
City councillors have agreed on a comprehensive series of actions to improve governance arrangements at the council as well as for Robin Hood Energy and other council companies.
The Action Plan addresses recommendations made by the council’s external auditor in a Report in the Public Interest into the council’s governance of Robin Hood Energy Ltd, the energy firm it set up in 2015 to tackle fuel poverty.
The council held an extraordinary full council meeting on 27 August to discuss the action plan, just over two weeks after the auditor issued the report which made 13 recommendations to the council.
Nottingham City Council has accepted the findings of a new report on its governance of Robin Hood Energy, the not-for-profit company set up by the authority to tackle fuel poverty in the city.
The Report in the Public Interest is published by the External Auditor.
It outlines a number of recommendations for action by the Council including to urgently determine the future of Robin Hood Energy (RHE), with options properly evaluated and risks assessed; review the approach to how councillors are best used and supported on the boards of subsidiary companies and ensure all board members have the required knowledge and experience to challenge the management of the companies.
Nottingham City Council Notice of Public Interest Report Local Audit and Accountability Act 2014
Notice is hereby given that pursuant to Section 24 and Schedule 7 of the Local Audit and Accountability Act 2014 (“the Act”), John Gregory of Grant Thornton UK LLP, the local auditor of the accounts for Nottingham City Council has made a report in the public interest relating to the Council’s governance arrangements in respect of Robin Hood Energy Ltd.
In accordance with the requirements of the Act, commencing from Wednesday 12
August 2020 between 10am and 4pm on weekdays any person may inspect the report and make a copy of it, or any part of it, at the Council’s offices at Loxley House, Station Street, Nottingham, NG2 3NG. Due to the Coronavirus pandemic individual full copies of the report will be made available for collection from Loxley House or sent out by post on request by telephoning 0115 8764332 or by emailing firstname.lastname@example.org. Alternatively, the report is available at the website address above.
Dated on 11th day of August 2020.
Katherine Kerswell Chief Executive Officer Nottingham City Council Loxley House,
Station Street, Nottingham, NG2 3NG Ref MRT
Key questions and answers on the Report
Q1. Who is the External Auditor and what is his role?
A1. The Local Audit and Accountability Act 2014 defines the framework within which Auditors assess whether local authorities are spending tax-payers’ money and delivering their services in the most efficient and effective ways and therefore fulfilling the duty of best value which all councils must meet. The duty of best value was established under the Local Government Act 1999 and requires all councils in England to:
“secure continuous improvement in the way its functions are exercised having regard to a combination of economy, efficiency and effectiveness.”
In practice this means councils must deliver a balanced budget, deliver the statutory services prescribed and secure value for money in spending decisions.
External Auditors are under a duty to issue a report in the public interest when a significant matter comes to their attention which they believe the Council should consider or the public should know about i.e. it is in the public’s interest to know about this.
The Council’s external auditors are Grant Thornton.
Q2. What is Robin Hood Energy?
A2. Robin Hood Energy is a not for profit energy company wholly owned by Nottingham City Council. It was established in September 2015 with the goal of reducing the cost of energy to consumers and reducing fuel poverty through competition with the ‘big six’ suppliers.
Q3. What is the Report about?
A3. The report addresses the governance arrangements Nottingham City Council had put in place since Robin Hood Energy was set up in 2015 and the failure of that governance. Those failures covered not managing risk effectively, not paying due regard to officer advice, and failing to ensure the Council received accurate and timely information from Robin Hood Energy in order to make reasonable decisions on the financial support the Company asked for. The report notes that over the last year and with new Council leadership, improvements to this governance have been put in place. The report makes 13 recommendations which the Council must consider and respond to within one month.
Q4. What does the Report say?
A4. The report has been made available for the public to see (http://www.nottinghamcity.gov.uk/publicinterestreport), and it is proper that at this stage the report should speak for itself. The City Council will be responding in full and in public to the report including the actions we will take with regard to each of the 13 recommendations made.
Q5. Do you accept the Report’s findings?
A5. We fully accept the findings of this Report which reveal failures by the Council in its governance of the Company over the several years following the formation of Robin Hood Energy.
We very much regret the past failings in the Council’s governance of the Company. The change in leadership at both Nottingham City Council and Robin Hood Energy over the last year has seen changes in governance, risk management and financial reporting. We need to continue to make improvements including those recommended by the External Auditor. We fully accept there is much more to do over the coming months to fully address the findings of this Report.
Q6. What are you doing to address the criticisms?
A6. The Report recognises and highlights the improvements in governance which have been embedded over the last year with a critical moment arising in October 2019 when RHE unexpectedly requested support for the payment of the Company’s ROCS obligation of £9.5 million. In the period following this request and in response to examples of inadequate financial reporting from the Company, Councillor Mellen, who became Leader of the Council in May 2019, and Councillor Neghat Khan the Chair of RHE took important decisive action resulting in:
- Establishment of a fortnightly Robin Hood Energy Steering Group
- The replacement of the Council’s Shareholder Representative
- Alongside the new Chair of the Robin Hood Energy Board, the strengthening of the Board with a councillor who is a qualified accountant and more legal and administrative support and expertise
- The suspension of senior staff at Robin Hood Energy
- The appointment of industry experts and a new management team to lead the company
to bring a fresh approach to governance
- The establishment of a Companies Governance Executive Sub-Committee to strengthen the Council’s approach to governance across the authority
- The commencement of a wide-ranging Strategic Review to consider all options for the future of the company
The change in leadership at both Nottingham City Council and Robin Hood Energy over the last year has seen an improvement in governance and financial rigour. We now need to look forward and continue to make the necessary continued improvements including those recommended by the External Auditor. The Council is also working hard to try to protect as much of the investment in the Company as possible.
Q7. Why wasn’t this sorted out earlier?
A7. Nottingham City Council recognises and accepts the external auditor’s view that there was insufficient understanding within the Council of RHE’s financial position when it was making decisions on further financial support. Since October 2019, we have taken a number of steps to begin to improve our governance to ensure we are never in this situation again.
We are working hard to develop a comprehensive response which will address all contributory factors identified by the external auditor, such as effective risk management, paying due regard to officer advice, effective scrutiny and a culture where challenge of political priorities and how they are being implemented is seen as a positive part of ensuring effective delivery.
Q8. What is the position with the Council’s investment?
A8. The City Council has made loans totalling £33.199m to Robin Hood Energy of which £1.468m has been repaid along with a further £3.058m of interest payments. The Council has also acted as guarantor for £16.500m of parent company guarantees and has a £7.500m equity stake in the company. The City Council is exploring all available options to safeguard this investment.
Q9. What does this mean for Council Tax payers?
A9. This will not impact on Council Tax rates payable in this financial year and the investment for the company is covered from reserves. Rises in Council Tax are capped by Central Government, any proposal to raise Council Tax above the set level is subject to a local referendum.
Q.11 What does this mean for the rest of the Council’s companies?
A11. The report focuses on the governance arrangements for Robin Hood Energy. However, the City Council recognises the need to ensure the lessons learned from this report are reflected in improvements to the governance arrangements for all council companies. The recommendations in the report speak to the Robin Hood Company in particular but also require the council to think about its arrangements with all its companies and its governance as a council in general. Any changes will be made as part of the overall action plan which will be developed as a response to the report and its recommendations. We will of course work closely with our other companies on this and seek their views and ideas on how to improve things.
Q12. Why does the Council have companies?
A12. It is not unusual from Local Authorities to own companies in a variety of legal forms. There are over 700 local authority trading companies and more than half of Local Authorities own at least one business. The reasons for this varies however it is a requirement for Local Authorities to establish a company where it seeks to operate for commercial purposes.
Robin Hood Energy was established specifically to tackle fuel poverty through direct competition with the ‘big six’.
Nottingham City Council owns a number of other companies some going back over many years and some of whom were originally part of the council such as Nottingham City Transport and Nottingham City Homes. Others have been created for a specific purpose and others for commercial income generation. While the report acknowledges the successes of some of our well-run companies, the City Council recognises the need to ensure the lessons learned from this report are reflected in improvements to the governance arrangements for all council companies. The recommendations in the report speak to the Robin Hood Company in particular but also require the council to think about its arrangements with all its companies and its governance as a council in general.
Any changes will be made as part of the overall action plan which will be developed as a response to the report and its recommendations. We will of course work closely with all our other companies on this and seek their views and ideas on how to improve things.
Q13. What does this mean for RHE and its customers?
A13. Robin Hood Energy continues to trade in its current form and continue to provide the same service to all its customers. The future direction of the company will be determined following the outcome of a strategic review.
Q14. What guarantee is there that this won’t happen again?
A14. Nottingham City Council will be producing an action plan to address each and every finding and recommendation of this report. We will do so in an open and transparent way and seek a range of views and perspectives to ensure that the failures and shortcomings identified in this report are addressed. We are still reviewing the final details on how this will take place but it is likely that the action plan will be publically reported to the Executive Board, be scrutinised in public by the Overview and Scrutiny Committee on a regular basis and the Audit Committee will provide assurance to the Full Council that the action required is being implemented and lessons learned.
Q15. What is the Strategic Review of RHE?
A15. A decision was taken at the end of 2019 to bring in a new management team to stabilise Robin Hood Energy’s finances and to undertake a comprehensive strategic review of the Business to consider all options for the future of the Company. This review will be completed shortly.
Q16. Will RHE make more losses?
A16. The City Council is working hard to protect as much of its investment in the company as possible and avoid any further exposure to losses.
Q17. What is the relationship between NCC and RHE?
A17. RHE is a limited company wholly owned by Nottingham City Council.
Q18. Have you been fully transparent about your dealings with RHE?
A18. The Report in the Public Interest has been produced by the External Auditor and is a very full and detailed report. He has powers in law to request any information from the council that he so requires and we have provided him everything he needed. The report will be discussed at a fully public Council meeting dedicated to that one item. The Council’s response to the report will also be presented and discussed in that public meeting. Our work on the action plan will be reported in public over the coming months. Improvements to our overall governance which is one of the recommendations will also improve the general transparency of the council and its work.
Q19. What happens next?
A19. The City Council will carefully consider the findings and recommendations of this report and produce a clear plan of action to tackle the issues the report identifies. This will be made public and approved by the City Council at the same meeting which discusses the report. This must take place within one month. We are still reviewing the final details on how this will take place but it is likely that the action plan will be publically reported to the Executive Board, be scrutinised in public by the Overview and Scrutiny Committee on a regular basis and the Audit Committee will provide assurance to the Full Council that the action required is being implemented and lessons learned.
We are also very keen to listen to our staff and our partners on what we can do better and also learn from other parts of local government, the Local Government Association, central government and bodies such as the Centre for Public Scrutiny to ensure we access the best practice and the best ideas.