Council was not told the true financial situation at Marketing Gloucester
By Andrew Merrell, James Young, Mark Owen | 9th March 2020
As insolvency experts wind up Marketing Gloucester and tackle its estimated £1 million debt, the city council has admitted it was not told the true extent of the company's failings.
The council said since it set the arms-length company up back in 2008 to promote the city it has regularly scrutinised its finances and performance, but added it has now become clear it was not told the full picture.
While not suggesting any impropriety, neither does the council say whether it feels it was intentionally misled in what has become an embarrassing situation for all concerned.
Tomorrow evening (March 10) the local authority's Overview and Scrutiny Committee is due to stage a special meeting to discuss the Marketing Gloucester situation.
Ahead of that Punchline decided to go back through publicly available council documents to see what they revealed about the saga (see below).
"Until the insolvency practitioner has got to the bottom of the extent of the company's financial position, and how it arrived there, it is premature to speculate about where responsibility may have lain," a spokesperson for Gloucester City Council told Punchline.
"While MGL was an arms-length company this does not mean that we didn't scrutinise their work and position.
"We have regularly used the overview and scrutiny process, reviewed budgets, accounts and corresponded with their auditors.
"MGL's auditors' opinion was that the company could continue to trade as our loan wouldn't be called in immediately.
"However, it was only following the recent investigations, commissioned at the request of the council into the company's finances, that it became clear that the position was much worse than was communicated to the council previously.
"This resulted in the board taking the difficult decision to declare insolvency."
The council would not say who it liaised with when it came to scrutinising the company.
Punchline has been looking at publicly available council reports from tcouncil meetings in which issues and concerns about the company and how it should be held to account were raised.
• June 2013 the council's Overview and Scrutiny Committee considered a report also aimed at the MGL board. It was decided Cllr Paul James, should continue in the joint role of council leader and chairman of MGL only "until an alternative chair can be found... to avoid any conflict of interest". Cllr James stepped down in May 2019. In September, still also leader of the city council, he told the council he said he had stepped down "due to a potential conflict of interest, with his role as Conservative leader of the council and cabinet member for regeneration".
• 2014 Two whistle-blowers raised concerns about MGL's financial accountability and governance using the council's own whistle-blowing procedure. The council has refused to comment on the report, directing Punchline to MGL and stating no senior members of the council - officers or councillors - were involved in the report. MGL concluded there was no case to answer. Punchline has seen the official summary of the accusations.
• 2015/16 Internal Audit work-plan report into MGL "concluded that the control environment provided an unsatisfactory assurance level that the risks considered to be material to the achievement of the objectives for this arrangement were being adequately managed and controlled". It said: "The council should ensure that all council spend with MGL (grant funding and service expenditure) is supported by an up to date and complete legally binding agreement".
• September 2016 Due to initial review findings identifying weaknesses within the council's governance arrangements in place with the company, a full VFM (value for money) review and opinion could not be completed. Councillor Stephens expressed disappointment with the unsatisfactory assurance level due to a significant breakdown in governance and controls in place within MGL and stressed the importance of having SMART targets and performance management. The head of audit, risk and assurance took members through the internal audit progress report of 2016/17 and reported "there were no major issues to be brought to the committee's attention".
• November 2016 The Audit and Governance Committee. Jonathan Lund, corporate director and monitoring officer, asked for the committee to reconsider its request to receive copies of the notes arising from the MGL Performance Meetings. He told the committee the minutes were not drafted in the expectation they would be widely circulated and were "effective because of their wide-ranging conversation about performance" and this was reflected in the notes. "It was agreed that the notes of the MGL performance management meetings would be circulated to members of the committee as an exception and it was acknowledged that these were confidential".
• November 2016 the Overview and Scrutiny Committee stated MGL "continues to be strongly managed and financially stable. Marketing Gloucester has been successful in drawing external funding, sponsorship and commercial income on an ad hoc basis to enable events to progress and become extremely popular". It said "MGL is required to account for its costs and shares the burden of finding budget savings. As part of the development of the budget for 2017/18 MGL is examining ways to generate additional revenues or reduce operating costs to reduce its reliance upon the annual city council grant". The events budget remained at £160,000 a year, with the overhead contribution coming in an £235,000 and £69,000 for seconded staff. All from the city council's public purse.
• February 2017 Councillor Stephens, seconded by Councillor Pullen proposed the following amendment: "This council resolves to end the management agreement with Marketing Gloucester and bring the service in house making an additional saving of £59k and to adjust the money plan accordingly."
Councillor Stephens stated that an audit of Marketing Gloucester Limited (MGL) had resulted in the lowest assurance level that could be provided and had been unable to evidence value for money. He reported that a further follow-up audit of MGL was scheduled for March 2017 and queried how a decision of the funding on MGL could be determined without the results of the follow up audit being available.
Councillor Watkins said during his time as chair of the Audit and Governance Committee he had requested an audit of MGL due to concerns regarding governance arrangements. He explained that he was unwilling to support such an amendment until the results of the follow up audit had been considered. The amendment was put to a vote and lost.
• March 2017 Audit and Governance Committee meeting. Cllr Stephens "expressed concern that members of the public were being excluded from discussions relating to MGL" and "expressed disappointment" at the lack of progress made with implementing the recommendations as set out in the original MGL audit. He questioned the purpose of a £97,000 loan to MGL and whether it was appropriate for the council to subsidise a private company.
• June 2017 at the Audit and Governance Committee. Cllr Stephens was told the memorandum of articles and association and contract for services with MGL had been signed and that the performance framework would be ready to share with members later that month. Cllr Stephens said the loan to MGL should be called in for repayment. The aforementioned audit report of 2015/16 said it should be ensured that "all council spend with MGL (grant funding and service expenditure) is supported by an up to date and complete legally binding agreement that is in line with council policies".
The report called for a "performance review against the funding and management agreement" to be "formally allocated to a responsible officer and group to ensure compliance is achieved and that areas of non-complaints are identified and remediation action taken where necessary".
The report concluded "the council/company performance review group should "support the strengthening of financial controls at MGL - eg, documentation and delivery of core financial procedures and controls, receipt and retention of quotes and full implementation of external audit control observations. The group should receive and review the company audited accounts".
• An Internal Audit Activity Progress Report by the ARA (the council's Audit Risk Assurance team) for the city council for 2017-2018 concluded there had been a "positive direction of travel" since the last report as a result of "strengthening the base of governance arrangements in place and agreement of funding for the medium term". However, it noted that "at the point of the VFM review the council had not fully embedded the performance monitoring arrangements required by March 9 2017 agreement and a limited audit trail was available to confirm the overall VFM position".
• In December last year the Grant Thornton report commissioned by the council into the workings of Marketing Gloucester found little by the way of meaningful paperwork with little meaningful record keeping or minute taking and concluded the company was insolvent.
Read more: Marketing Gloucester saga makes Private Eye
Copyright 2020 Moose Partnership Ltd. All rights reserved. Reproduction of any content is strictly forbidden without prior permission.