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Monday 5 December 2016

The District Council and not bothering about its S106 cash

With regard to the Knowle relocation project, District Council officers don't seem that bothered about getting the developer to cough up some S106/CIL payments:
Futures Forum: Knowle relocation project: planning application to be considered by District Council: Tuesday 6th December >>> planning officers dismiss the need for affordable housing, their own Local Plan, and similar PegasusLife applications which have been refused

And District Councillors don't seem to be bothered about overspending at Knowle and Exmouth:
Is a cost over-run of £1.1 million or £10 million more serious than a Section 106 loss of £250,000? | East Devon Watch
Exmouth Regeneration Board has not discussed council overspend | East Devon Watch

Meanwhile, the District Council is facing a squeeze, like all other local authorities:
Futures Forum: The District Council is trying to "achieve savings/ efficiencies and to continue to protect front line services" - which will probably mean "huge increases in Council Tax whilst rampant developments start to cover our beautiful countryside and Exeter grows exponentially in order to meet the huge Local Plan targets for new homes."

As part of any budgeting process, one needs to know what one is owed - and the District Council doesn't seem to know even that. It doesn't seem to care, either:
Futures Forum: The District Council and the lack of accountability around developers' S106 payments...

Although of course, the District Council insists they do know:

We know exactly how much community cash is owed - EDDC

28 November 2016 Stephen Sumner

District chiefs have failed to identify when they are owed ‘significant amounts’ of community cash from developers, auditors have concluded.

KPMG investigated after claims East Devon District Council (EDDC) could not demonstrate it was offering value for money as it cannot account for the ‘true amounts’ due from section 106 agreements.

The cash is meant to mitigate the impact of developments by funding improvements within communities such as ‘affordable’ housing or new sports facilities – but the authority has ‘weaknesses’ in monitoring when payments are due.

KPMG looked into the issue after an elector submitted a Freedom of Information request to learn how much section 106 is owed from each of the last 10 years, which EDDC could not provide.

The auditors found no evidence this has led to financial loss and EDDC has now accepted that improvements are required to track progress of the payments.

In a report to EDDC, the auditors said: “While we have recognised some appropriate controls, we have concluded that there are weaknesses in the council’s arrangements for monitoring developer contributions due to the council through section 106 agreements.

“Although we have found no evidence that these weaknesses have led to any financial loss, they have led to the council failing to identify, on a timely basis, significant amounts which have become payable from developers – particularly Cranbrook – and consequently to the understatement of these amounts in the council’s financial statements.”


The net understatement amounted to £227,000 last year.

There was a particular ‘gap in information’ in Cranbrook, where developers are 
supposed to update EDDC 
quarterly on the number of homes completed, sold and occupied. Only the number of completions has been provided - and only on an ‘ad hoc’ basis.

An EDDC spokesman said: “We know exactly how much section 106 money is owed. However, we only hold that information by development and do not hold a total of all monies outstanding across all developments. This is currently being addressed.

“The onus is on developers to meet the obligations that they have signed up to in the S106 agreement. However, we do also chase up and collect payments 
where they are not made in good time. Where payment is made late then the developer is required to pay interest on top of the initial contribution.”

KPMG said as the recipient of the section 106 cash, councils have a self-interest to ensure this is appropriately monitored.

The EDDC spokeswoman told the Herald that in the last 12 months, more than £500,000 has been collected from developments in Sidmouth. All £1.5million has now been collected from the Sanditon apartments – in place of the Fortfield Hotel – and some is being spent on ‘affordable’ housing in the town.

The council currently holds £5.6million in section 106 payments that have yet to be spent.



We know exactly how much community cash is owed - EDDC - News - Sidmouth Herald

One needs to look at what the auditors actually say, however.

Here is comment from the past week on the East Devon Watch site:

CAN EDDC DO BASIC ARITHMETIC?

28 NOV 2016

COMMENT:


Paul F says: 30 NOV 2016

Actually, despite what the EDDC spokesman says, the auditors said otherwise:

“In a report to EDDC, the auditors said: “While we have recognised some appropriate controls, we have concluded that there are weaknesses in the council’s arrangements for monitoring developer contributions due to the council through Section 106 agreements. Although we have found no evidence that these weaknesses have led to any financial loss, they have led to the council failing to identify, on a timely basis, significant amounts which have become payable from developers – particularly Cranbrook – and consequently to the understatement of these amounts in the council’s financial statements. The net understatement amounted to £227,000 last year.”

In other words, EDDC understated the amounts i.e. they cannot add up.


Can EDDC do basic arithmetic? | East Devon Watch

And from earlier:

SECTION 106 SCANDAL: NEW CONTROLS AND A SURPRISING REVELATION FROM CEO MARK WILLIAMS

25 NOV 2016

COMMENT

Paul F says: 
29 Nov 2016

The Sidmouth Herald also printed a news item on this meeting last week: http://www.eastdevonalliance.org.uk/news/20161125/sidmouth-herald-eddc-says-know-exactly-much-s106-owed/

The FoI request mentioned above can be found here: https://www.whatdotheyknow.com/request/s106_agreement_monitoring_and_co

Both the blog entry above and the Sidmouth Herald item, miss a few key points:

1. The issue is actually two separate issues: a. Whether EDDC collects the money properly; and b. what EDDC does with it once it has been collected.

2. It is well understood in business that timely collection of debts is important, because the longer a debt is overdue, the greater the risk of the debtor going out of business and the debt becoming unrecoverable. So Mark Williams is displaying both ignorance and naivety when he says it is a good thing to let the debt lie because it accumulates interest.

Additionally, if the developer goes out of business before the S106 payments have been made, the people who bought the homes subject to the agreement may find that they are unexpectedly lumbered with the debt instead, having already effectively paid for the S106 agreement through the purchase price of their property. It beggars belief that Mark Williams implies that this is an acceptable consequence of EDDC taking a lax approach because interest accumulates.

3. In the Sidmouth Herald, EDDC claims to know exactly how much they are owed, but the auditors statements seem to say otherwise. “In a report to EDDC, the auditors said: “While we have recognised some appropriate controls, we have concluded that there are weaknesses in the council’s arrangements for monitoring developer contributions due to the council through Section 106 agreements. Although we have found no evidence that these weaknesses have led to any financial loss, they have led to the council failing to identify, on a timely basis, significant amounts which have become payable from developers – particularly Cranbrook – and consequently to the understatement of these amounts in the council’s financial statements. The net understatement amounted to £227,000 last year.”

Simularly, “EDDC Monitoring Officer Henry Gordon Lennox, referring to the £730,000 he had previously disclosed (through a Freedom of Information query) was owed in 2014/15 and 2015/16 for s 106 payments, interjected that the £730,000 owing had included a mistaken overstatement of £409,000.”

These clearly suggest that EDDC don’t know how much they are owed.

4. Whilst the complaint to the auditors had to be limited to the financial year ending March 2016, it would appear that this may have been an issue for several years or possibly more than a decade. The auditor’s remit was only to look at the last financial year, so we have no idea whether money has been lost in previous years – though since the longer a debt is uncollected, the less likely it is that it will ever be collected, it therefore follows that there is a greater likelihood of lost revenue in these prior years.

5. EDDC apparently have over £5m of S106 money in the bank. Questions need to be asked about whether EDDC were open with Town and Parish councils about how much of the £5m belonged to them, and why this money has not been distributed to Town & Parish councils or spent by EDDC for the benefit of the community.

6. Regardless of the issues of collection and spending of S106 money, we also need to be reassured that the two amounts balance, and that S106 money that has been collected has not been diverted to other expenditure or worse still gone missing.

In summary the FoI and Auditors report have only turned over the first stone to see what is crawling underneath. There are still several stones still unturned, and who knows whether something much more serious is lurking underneath.


Section 106 scandal: New controls and a surprising revelation from CEO Mark Williams | East Devon Watch
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