In just five years Woking Council’s long running debt increased dramatically from £400m to £1.8bn, largely from the council investing heavily in modernising its infrastructure as well as updating Woking Football Club’s stadium, and building thousands of houses and flats. There was no work completed on Woking Football Club's stadium however.

An independent review of Woking Borough Council finances by Grant Thornton has identified waves of overspending on contractors authorised by senior council staff and evidence of it being ‘in breach of its Best Value Duty’ as a local authority.

The report by Grant Thornton investigates what Woking Council were doing with their finances from 2008, analysing the financial impact of financial decisions. The council was under Conservative leadership over the period up until May 2022 when the Liberal Democrats were voted in.

Will Forster, newly elected Liberal Democrat MP for Woking said on X (formerly Twitter): ‘This damning report chronicles a catalogue of chaos at Woking Council where accounting practices were poor, governance was inadequate and risks were ignored. Under the Conservatives, the Council failed to deliver value for money.’

These loans were taken out over a 50-year period, with the intention of paying them back in full within this time. However, ‘a significant balance will be outstanding at the end of 50 years’ which would have been known to the senior team when using borrowed money to make high-risk investments, the report stated.

Grant Thornton said: ‘The Council did not take a strategic approach to borrowing and investments. As a result, investments were made on an ad hoc, opportunistic basis.’

There were 24 companies set up between 1999-2021, by the Council, ranging from small companies to large firms which were incorporated with the purpose of completing the regeneration work in the borough, while others were bought through acquisition.

This ‘placed significant burdens on the council’s members and officer leadership and management capacity and capability, as well as giving rise to conflicts of interest which were not adequately recognised and managed,’ said Grant Thornton.

Some of these companies were not profitable at all, using borrowed money to keep them running and investments now being worth significantly less than they were purchased for.

During this time the senior leadership team of the council, who were described as ‘close knit’ with long stints in their roles by council staff when they were interviewed by Grant Thornton, with no senior management changes and ‘none had any significant experience outside the Council’.

According to Grant Thornton, the leadership team would not welcome new ideas, focused on borrowing and investing as the main source of income and did not follow the practice of ‘most councils’ to modernise council operations.

Investments made by the Council were also larger than investments made by major city councils, which Grant Thornton said, ‘was a notable discrepancy between the council’s small size and its capacity to manage these activities adequately’.

Additionally, it was noted that decisions were made on ‘incomplete information’ and there was inadequate risk management, programme management and record keeping procedures, as well as ‘a lack of legal knowledge’ within the Council.

This led to ‘significant mistakes’ in the council’s finances. When interviewing staff, and former members of staff about why the large amounts of debt and mistakes were not a cause for concern they said they ‘assumed that if the Public Works Loan Board Lending Facility (PWLB LF) was willing to lend to the Council, that the Council had provided sufficient evidence to the PWLB LF for them to judge that the Council’s borrowing was affordable’.

However, this was not the case as the final decision on whether a council can afford the debt lies with the elected council, the financial director and s151 officer, a post held by Leigh Clarke from 2014 to 2023. Leigh had been with the Council since 2005 in various finance roles and acted as director of some of the Council’s companies, including Woking Football Club.

In Clarke’s final year, Woking Borough Council had a general fund deficit of £1.2bn. The interim finance officer that took over the role from her, filed the s114 notice just months after Leigh left her position.

Prior to Clarke becoming financial officer at the council in 2014, Ray Morgan held this position until he was promoted to CEO, a role he remained in until 2021.

Morgan attempted to remain as the s151 officer as well as the CEO, although this was blocked by the Overview and Scrutiny Committee in 2006, an external body which is responsible for oversight council officials.

As a result, another member of the Council team, Steve Bosnor was appointed s151 officer in 2007 and remained in this position until 2014. At this point, Clarke took over the position.

Exceptional Financial Support from the government was applied for after filing the s114 notice, with £235.1m being given to the Council in 2023/24, reducing to £95.6m in 2024/25.

When Grant Thornton began its investigation on 5 July 2023 it asked for a brief of the Council’s investment decisions running up to the s114 notice being filed, such as timelines, governance arrangements, the approach to investment strategy, and forecasts of investments.

Through this process Grant Thornton found that ‘over time, and increasingly between 2012 and 2022’ the Council was borrowing money to fund third party organisations with no functions related to Council work.

Additionally, there was ‘no overarching investment strategy’ which defined the long-term outcomes of investments, as well as no corporate plan for the future.

Grant Thornton said: ‘The Council’s investments were made on a piecemeal and opportunistic basis, for example, through the £3m Opportunities Fund, delegated to the former CEO, Ray Morgan with decisions being made, for the most part, by him, in consultation with other senior officers, with the broad support of the administration at the time.’

It was established that the assets, which were funded through the loans issued by the PWLB LF, are ‘now worth significantly less’ than what has been spent on them, such as the regeneration of the town centre and the Sheerwater estate. Both projects are being completed by companies owned by the council.

Interviews with stakeholders conducted by Grant Thornton found that the CEO and former s151 officer were the ‘driving force’ when it came to investment decisions, but there was a ‘lack of challenge’ from senior staff who in fact remained ‘committed advocates of the former CEO’s approach’.

The audit firm also found that Morgan was not a fan of people challenging his approach, with interviewees stating that ‘dissenting officers and members were either persuaded to go along with his decisions or were marginalised’. Morgan was also backed up by senior staff who were ‘highly supportive’ of Morgan’s methods.

Standard management practices at local councils should prevent a single person being in control of high-risk investments and Grant Thronton found evidence of the leadership team working to ‘undermine the effectiveness’ of these controls.

As well as the senior leadership team being ‘compliant’ with Morgan’s approach, there was a lack of financial and accounting experience throughout the council.

For the scale of the money being spent, the finance team was too small, with practices being out of date because of lack of investment in the team, and the systems. In addition, the skills and knowledge in the team lacked the required levels necessary to carry out the work, along with failing to hire experienced accounting managers.

Grant Thornton said: ‘In our opinion the Council placed too much reliance on its ability to achieve its goals and to generate income through its companies, borrowing and loans, and insufficient efforts were made over the last 20 years to achieve necessary savings through service redesign and transformation.

‘In our opinion, insufficient attention was paid to the impact of investment decisions on the delivery of the Council’s statutory responsibilities, including to maintain the Council’s housing stock. There was no evidence of an embedded Best Value Culture in the Council.’

The auditor also found that senior members of the Council were directors of the 24 companies owned by the council, and the former council staff ‘failed to appreciate the risks that arose from conflicts of interest between their Council and director roles’.

Evidence found that senior members of council staff believed it was sufficient to declare there was a conflict of interest, counteracting the risks when they arose.

‘By declaring conflicts of interest and then not acting on those declarations by removing themselves from decision-making processes, officers were providing false assurance that they had understood and mitigated the risks arising from those conflicts of interest, when they had not meaningfully done so,’ said Grant Thronton.

Peter Bryant, former monitoring officer of the Council, was also director of Kingston Community Sports Centre Limited, which ran Woking Football Club. The company was given a revolving loan of £250m to fund the construction of a housing estate in Woking owned by the company. The housing developer which took the contract on had capital of just £100 when granted the contract for this project.

Bryant refused to believe this was a conflict of interest, however, Grant Thornton disagreed with this point of view.

Morgan, former CEO of the council, was director of 14 of the 24 companies owned by the council, however not all at the same time.

Victoria Square Woking, a company which Morgan resigned from as a director in 2021, is still in debt to Woking Borough Council by more than £700m. The investment properties paid for with this money now have a market value of £142m.

Before leaving the Council, Morgan was also hired by Victoria Square as a consultant, being paid £750 a day, this was terminated nine months later when a new project manager was brought on board.

Grant Thornton also found that enough due diligence was done so that the loans to the third-party companies could be paid sufficiently, and that ‘no reasonable council could have failed to consider the risks’, which based on these facts the auditor stated that what the Council was doing was ‘potentially unlawful’.

For the enormous level of debt, it was found the Council had been ‘setting aside insufficient monies’ to be able to pay the loans back. This led to the Council paying out an additional £95m in 2023/24, and then costing the Council approximately £75m every year after this.

The overall deficit for 2023/24 stands at £1.2bn and is split between a negative general fund budget of £350m and an in-year deficit of more than £800m. Grant Thornton described this as being ‘the highest ratio compared to the resource base of any major council in recent years’.

The Council has now been informed by the recently renamed Ministry of Housing, Communities and Local Government (MHCLG, formerly the Department for Levelling Up, Housing and Communities) that the only way to manage this level of debt is to save £11m a year. However, the level of debt is 107 times the amount recovered in council tax each year.

Grant Thornton believes the ‘resource base in the Council is insufficient to accommodate meeting the overall deficit even if capitalised over a very long period of time’.

Current leader of Woking Borough Council, Ann-Marie Barker said: ‘Since my administration gained control of Woking Borough Council in May 2022, we have been focused on tackling the severe financial challenges inherited from the previous administration.

‘I welcome publication of Grant Thornton’s Value for Money review into governance arrangements relating to historic investment decisions. It represents a pivotal moment in understanding the decisions and actions of the past that have significantly contributed to the financial challenges we face today.

‘It is important that my administration, commissioners and senior officers are given time to carefully consider the findings, recommendations and implications of the report before formally responding.

‘In accordance with statutory requirements, an Extraordinary Council Meeting will be held on Wednesday 20 November to allow councillors to consider the report’s findings and recommendations before outlining a clear path forward.’

Grant Thornton has suggested various options for the Council going forward, with the notification to an external auditor being made a requirement when making financial decisions going forward.

Woking Council declined to comment further until after the public meeting on 20 November.

Grant Thornton Public Interest Report, Woking Borough Council

Woking council goes bankrupt with £1.9bn debt | 7 Jun 2023

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