A DAMNING report by auditors has slated City of York Council over the way officials were paid thousands of pounds extra to run the authority's trading company.

The council's external auditors, Mazars, has concluded there were 'errors' and 'governance failures' in the process adopted for approving the payments to two senior employees.

Mazars did not dispute the legality of the payments to the director of customer and business support services, Ian Floyd, to act as City of York Trading (CYT's) managing director, and to the assistant director for customers and employees, Pauline Stuchfield.

However, it was concerned there may have been a lack of transparency around the process and there was increased scope for conflicts of interest to arise, it said there were lessons to be learned and applied for the future.

York Press:

Mazars has taken the unusual step of issuing a 'Report in the Public Interest,' under which the council is obliged to take a series of steps, including:

  • making the report available on its website and at its front counter reception
  • publishing a public notice in The Press
  • and responding to the report within a month

The matter will be debated at a full council meeting on Thursday, March 24.

The Press has reported previously that CYT is the council's money-making arm, which started out in 2011 providing supply teachers and agency care staff within York.

It recently saw a push to bring in more money for the council, with a turnover target of £10 million by 2018 and the aim of trading more with private sector firms and with other councils and schools around the region.

The two officials who received payments sit on the trading company's board were paid for their work with the firm, over and above their council salaries.

The Press revealed in September, following the release of Freedom of Information data, that Mr Floyd was paid £6,000 to act as managing director while Pauline Stuchfield received £3,000 for working as the operations director.

It was announced a day later that the payments would be scrapped.

A council spokesman said previously that CYT had not appointed a full time MD, but instead asked existing officers to perform the role.

He said then that additional payments were made by CYT, and were approved by the company's Shareholder Committee - which some elected councillors sat on - in private meetings in October 2014 and January 2015, when it was also agreed that payments would go up if profits increased.

Mazars says in the report that it understands discussions around remuneration began when Mr Floyd had sought alternative employment and, in discussing his reasons for this with the Chief Executive - then Kersten England - he suggested 'the growth in his responsibilities had not been matched by an increase in his remuneration.

The chief executive invited him to share his thoughts on possible ways of addressing his concern on November 28, 2013, he provided a proposal in relation to remuneration of CYT executive directors to the Chief Executive.

The proposal was for remuneration of £6,000 per annum for the managing director, 'ie himself,' and £3,000 for the operations director, with a potential growth element  based on company profits.

"If profits for the proceeding financial year exceeded £300,000, the amounts payable would be increased by 100 per cent and if profits exceeded £500,000, a further 100 per cent of the original amount would be payable," said the report.

It said Mr Floyd said he had not sought any HR or legal advice and it would be for the council itself to consider and determine.

He later told the auditors his proposal was meant to be illustrative. "He was concerned to find that it had been accepted without more scrutiny and challenge.

"In our view, he made an error of judgement in preparing an initial proposal for his own remuneration..

"He should have recognised the heightened conflict of interest risk inherent in his draft proposal."

The report said the chief executive asked the head of human resources to work with the board of the company to take the remuneration proposals forward, believing it was reasonable as he was experienced in dealing with matters relating to the employment of senior officers.

She asked for appropriate legal advice to be taken and highlighted the potential conflicts of interest and unusual circumstances of the situation.

"She would have expected the head of human resources to alert her if there were any concerns but none were raised with her.

"In our view, the head of human resources would have benefited from a greater degree of supervision and support in taking forward these issues."

The report says the decision to pay the  two executive directors was taken by the company's board on the recommendation of the shareholder committee, which did not however have the authority to take a decision on behalf of the council of provide the written consent which was required by the shareholder agreement between the company and council.

It says legal advice given on the need for council approval for the proposed remuneration was not followed, and insufficient atgention was paid to the increased conflict of interest risk created by the proposal.

It says that since last September, the council has taken action to improve the governance of its relationship with CYT.

York resident Gwen Swinburn, whose Freedom of Information request first led to the revelation of the payments to the two officials, tweeted that Ms England and former council leader James Alexander had 'left another appalling mess' for current council leader Chris Steward to sort and of the auditor's report, she tweeted: "You couldn't make it up."

She told The Press that she believed the money should be re-paid.

She said she had been concerned for some time about a 'basic democratic deficiency' in the way the council was administered but had put a very basic FoI request in last year without knowing what the response would be.

"This shows how important Freedom of Information is to help ensure residents know what their councils are doing," she said.

Tory council leader Chris Steward said this afternoon: "It is very disappointing to read this report and the errors made and governance failings of the previous administration.

"The events in the report have led to wasted money and time that could and should have been spent on other things.

"These payments and all aspects of the process relating to them are something which I as an individual and the Conservative Group had no knowledge of at all until summer 2015.

"We have been clear on the need for improvements in council processes and have made many and will continue to do so, not least as we consider the auditor’s report ahead of the March Council meeting."

But a spokesperson for Labour, which previously ran the council, said:“It comes as little surprise that the council leader reduces an important governance issue to an opportunity for a political attack on the previous administration.  

"But his former Tory councillor colleague, along with a Liberal Democrat councillor, was on a committee that approved minutes of this pay decision, and expressed no concerns at the time, so he might want to look closer to home before attacking Labour.

“It’s critically important that the council learns from this report and implements the necessary recommendations that will ensure good governance and transparency across both the council and CYT going forward."