Bridging the accountability gap - Audit Commission

Governing partnerships | Appendix 2 73
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While the [government regional office’s] consultants considered the project to be
deliverable – a judgement on which the council placed great reliance – it was high-risk.
The principal financial risk, of grant clawback, lay with the council. The council did not
properly evaluate its own risks at the outset. Moreover, the outputs that the council
had established for the project, and as accountable body was responsible for
delivering, were very ambitious and ill-defined. The council argues that the output
figures were accepted by [the government regional office].
The council failed, at the outset, to establish the likely demand for the high-tech
facilities proposed by the project. The bid document, which the council prepared with
the aid of consultants, was unclear about the target market and how the project would
be delivered. These were key weaknesses, given that the company had to find a
market in a sector where the failure rate of new firms was high.
The council did not make its own assessment of the company’s business plan – by
obtaining its own independent expert advice, for instance – to ensure that the project’s
risks were mitigated by robust arrangements. The council placed significant reliance
on the expertise of the council’s partners. A number of business plans were produced,
involving input from the council’s officers. Successive plans contained major changes
in business assumptions and increasingly ambitious income projections. None of the
plans set out how the outputs required for ERDF funding would be delivered – a key
concern of the council as accountable body. The council did not properly assess its
risks and consequently did not provide adequate information to members to enable
the project’s viability to be judged.
The council failed to establish a monitoring and governance framework for the project.
For instance, the council did not draw up procedures recognising the different roles of
the partnership and [project] boards and their relationship to the council’s
responsibilities for the project. The council also failed to agree a protocol with [the
company] to enable key financial and business information to be reported to the
council’s members, to overcome problems of commercial confidentiality. …national
guidance on protocols in this area was lacking at the time. However, as a result, the
council’s members did not always get a sufficiently full or timely picture of the
company’s problems and activities. Moreover, the outputs that were relevant to the
ERDF grant were not effectively monitored.
[The project] failed for a number of reasons. The company was unable to balance its
commercial ethos with its public service objectives. In consequence it generated
neither adequate sales nor the agreed outputs. Consultants concluded that the