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Our reference Your reference Date 23 March 2005 Members of the Council Portsmouth City Council Civic Offices Guildhall Square Portsmouth Hampshire PO1 2EA Dear Councillor Interim Annual Audit Letter 2004/05 – Recommendations requiring a response under s11 Audit Commission Act 1998 - Severance Payments Introduction This letter is issued to members in advance of the conclusion of the 2004/05 audit of accounts. It summarises concerns that have arisen which I wish to bring to members attention in advance of the conclusion of the audit and which require a public response under s11 Audit Commission Act 1998. Summary conclusion I have concluded that weaknesses in processes, systems and governance within the council resulted in a redundancy payment to the former City Planning Officer that was contrary to law. Similarly, I have concluded that the award of compensatory added years to the former City Planning Officer and four other former chief officers were also contrary to law as members failed to take relevant considerations into account, namely the exercise of discretion and the long term financial cost. I have set out my findings in this letter and the council is invited to respond to my recommendations. Once I have received the council’s response, I will consider whether I wish to take formal action to apply to the courts that the items are unlawful under Section 17 Audit Commission Act 1998. Background The City Council has recently completed the ...
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Members of the Council Portsmouth City Council Civic Offices Guildhall Square Portsmouth Hampshire PO1 2EA
Dear Councillor
Our reference Your reference Date
23 March 2005
Interim Annual Audit Letter 2004/05 – Recommendations requiring a response under s11 Audit Commission Act 1998 - Severance Payments
Introduction
This letter is issued to members in advance of the conclusion of the 2004/05 audit of accounts. It summarises concerns that have arisen which I wish to bring to members attention in advance of the conclusion of the audit and which require a public response under s11 Audit Commission Act 1998.
Summary conclusion
I have concluded that weaknesses in processes, systems and governance within the council resulted in a redundancy payment to the former City Planning Officer that was contrary to law. Similarly, I have concluded that the award of compensatory added years to the former City Planning Officer and four other former chief officers were also contrary to law as members failed to take relevant considerations into account, namely the exercise of discretion and the long term financial cost.
I have set out my findings in this letter and the council is invited to respond to my recommendations. Once I have received the council’s response, I will consider whether I wish to take formal action to apply to the courts that the items are unlawful under Section 17 Audit Commission Act 1998. Background The City Council has recently completed the first stage of its management review and restructuring within the ‘Moving towards Excellence’ project. A key outcome of this has been the appointment of five Strategic Directors to lead five new Directorates. A number of existing management team members were eligible to apply for the new posts and following interviews in July this year, three permanent appointments were made and one interim arrangement agreed. Six officers were offered redundancy terms by the council and my report within this letter concerns the lawfulness of some aspects of these decisions.
North Wing, Southern House, Sparrowgrove, Otterbourne, Winchester, Hants SO21 2RU T01962 704600F 01962 704601www.audit-commission.gov.uk
I have reported on issues as follows:
i) The redundancy of the City Planning Officer,
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ii) The redundancies of the City Environmental Health and Trading Standards Officer, Director of Social Services, City Leisure Officer and Head of Housing.
The redundancy of the City Planning Officer
The City Planning Officer, Paul Newbold was unsuccessful in his application for the new post of Strategic Director of Environment and Transport and was offered an alternative new, post in the new structure with a working title of Head of Planning, Transport Policy and Building Control. This post incorporated much of his existing duties as City Planning Officer and whilst the new post would report to the Strategic Director rather than directly to the Chief Executive, the salary was also commensurate with the previous role. The Appointments Sub Committee on 20 July 2004 agreed that this was suitable alternative employment for Mr Newbold and therefore a redundancy situation was not relevant.
Mr Newbold wrote to the Head of Human Resources on 22 July to state that he did not wish to take up the alternative offer and acknowledged that his existing post was redundant. In refusing to take up the additional offer, Mr Newbold effectively terminated his own contract. A series of meetings and correspondence then took place between Mr Newbold, the Chief Executive, the Head of HR and Councillor Hancock as the portfolio holder for planning, which concluded that an early departure from the City Council would be the most appropriate course of action. The recommendation proposed by the Head of HR was that Mr Newbold be retired in the interests of efficiency of the service with no redundancy payment. This was on the basis that he as an individual was not redundant, given the alternative offer, although his post was.
Mr Newbold had been advised that his post would be redundant if unsuccessful in an E Mail from the Head of Human Resources dated 23 June 2004. However, this E mail was ambiguous in that it did not inform Mr Newbold that, whilst his old post was redundant, he as an individual was not provided suitable alternative employment was available. The Head of Human Resources later clarified this point in a letter dated 30 July and in a letter dated 27 July, the Chief Executive also conceded (with reference to that E mail) that ‘the advice initially offered to you by HR was not fully clear’.
Mr Newbold initially submitted an appeal against the decision not to grant redundancy for the Appeal Panel on 4 August 2004 but ultimately he concluded that ‘I am prepared to not proceed with my appeal’. The Appeals Panel was still required to meet in order to agree the severance on the grounds of ‘interests of efficiency’. However, it was clear that, going into the appeal, Mr Newbold had decided to accept the recommendation of the Head of HR. This was on the basis that full added years be granted. Mr Newbold argued strongly that he should be given the same terms as the other chief officers. He did not accept that a redundancy case was not valid but did not wish to pursue an appeal at this stage.
The Appeals Panel comprised three members who were appraised of the background and were also informed by the Council’s Temporary Legal Adviser that the appeal had effectively been withdrawn. However, on the basis of Mr Newbold’s written submission and statement at the appeal hearing, the panel invited Mr Newbold to present his appeal on the grounds of
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redundancy, against the recommendation of officers. The outcome of the appeal was a recommendation that redundancy was appropriate with maximum compensatory added years on the basis that ‘The Planning, Transport and Building Control post is not a suitable alternative’. The redundancy payment was £34,593 and the cost of early payment of pension was £207,095, although it is acknowledged that this latter cost would have also applied to severance in the interests of efficiency.
I do not agree with this conclusion which was taken against officer’s advice and a robust case prepared by the Head of Human Resources and supported by the Chief Executive. In addition, I have seen no evidence in the notes of the panel deliberations taken by the Democratic Services officer or discussions with the Panel to support a conclusion of redundancy. The rationale from interviews with members was that they felt that the post was not suitable due to the change in status and the lack of a formal, written job description. I do not feel that these are relevant factors as enough detail was known about the new post and this was articulated by the Head of Human Resources at the appeal. Furthermore, as stated earlier it had already been agreed by the Appointments Sub Committee. The Council’s Temporary Legal Adviser at the appeal described the decision as ‘poor’.
Compensatory added years
The Council has discretion to enhance a severance package through the award ofadded years under Part IV of the Local Government (Early Termination of Employment) (Discretionary Compensation) Regulations 2000. It is important that this discretion is exercised by members and whilst the council has a policy framework setting out the correct parameters for added year’s award, it is rightly stated that each case should be treated on a case by case basis. In exercising their discretion, members must act reasonably and take into account relevant factors and ignore irrelevant factors. Relevant factors will include:
•What loss is the employee likely to suffer on termination of employment?
•How likely is it that he/she will secure future employment, and at what level?
•What are the financial implications for the council in the short term and long term?
There is no evidence from the meeting or discussions that any of these discretions were considered or that members were aware of them. Furthermore, it was necessary to prepare the management case quickly and the only costings and advice presented to members were on the basis of the maximum entitlement possible. In a letter to the Appeals Panel dated 30 July 2004, Mr Newbold stated that he would not proceed with his appeal if ‘full added years’ were added. Given that added years are a discretionary consideration for members based on compensation, I contend that it is inappropriate for such a request to be made by an officer as a bargaining point. The Panel agreed that Mr Newbold would be awarded added years to the maximum value of 9 years and 200 days at an annual cost to the council of £7999. Alongside concerns relating to the legality of this award, reasonableness is also a consideration for members and I question whether such a high level of added years was reasonable in the circumstances.
Financial Implications
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The papers presented to members included the cost calculations in a separate paper. This set out the annual costs and the longer term cost of the strain on the pension fund from early payment of pension but these are complex calculations and did not include a commentary which would enable members to evaluate the full financial implications of the decision being taken.
Decisions in relation to other officers
I have reviewed the cases in relation to other senior officers and am satisfied that there was a case for redundancy in each case due to reconfiguration of posts.
However, as with the case of Mr Newbold, I am concerned that members were not invited, nor did they exercise discretion properly in relation to added year’s compensation. At the Appointments Panel on 20 July 2004, Members considered severance packages in relation to other chief officers. Members were advised by the Head of HR that the award of added years was discretionary and that any award from nil to the maximum was possible. However, there is no evidence to suggest that the deliberations were anything other than limited or that the relevant factors set out above were taken into account. In four cases, added years were awarded and in each case the award was simply the maximum permissible. As with the case of Mr Newbold, I question whether award of the maximum in every case was reasonable in the circumstances. The maximum cost was the only figure presented to members and the cash figure gave no indication of the attributable years award. There were also weaknesses in the financial information available to members in that no commentary was included to explain the ongoing annual impact on the Revenue Account of the decisions taken although some figures were available. The minutes of the meeting indicate the rationale of the awards to be ‘on the basis of their significant number of years of excellent service to the authority’. I do not consider this to be a relevant factor in accordance with the Regulations. I am aware that these awards at the maximum set a precedent for the case of Mr Newbold above.
The annual costs to the council and added years agreed were as follows:
Post
Director of Social Services
Env Health and Trading Standards Officer
Head of Housing
Head of Leisure Total Cost
Added yearsAnnual costAdded years (£) lumpsum (£) 6 years 159 days6907 20722 3 years 35 days2699 8098
9 years 2 days7773 3 years 123 days2910 20289
0 8729 37549
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NB: In each case the Added Years award represents the maximum permissible given age and length of service.
Member awareness
Members on the Appeals Panel had no prior awareness or specific knowledge of local government severance or employment law. This has since been addressed in part by member training but I am of the view that the lack of awareness and limited guidance left members exposed to the possibility of a wrong decision, particularly when this was contrary to an earlier member decision and the recommendation from officers.
Involvement of statutory officers In my 2003/04 Audit and Inspection letter, I drew attention to the fact that the Monitoring Officer was suspended by the Council during this period. Whilst the council had put interim measures in to cover Monitoring Officer duties, the Acting Monitoring Officer was not involved in the above decisions and only limited advice was available to the Appeals Panel. In addition, I feel that formal legal advice should have been obtained in relation to the redundancy of the City Planning Officer given that the panel decision was contrary to officer advice and the earlier member decision. Conclusion I have concluded that the redundancy payment of £34,593 made to Mr Newbold was contrary to law as no redundancy situation existed for the employee. I am also concerned that members of the Appeals Panel were involved in changing the nature of Mr Newbold’s appeal and then hearing it in his favour. I have also concluded that the added year’s award to Mr Newbold and four other officers were also unlawful as the decisions failed to take into account relevant considerations namely the exercise of discretion and the full long term financial cost. The annual cost to the General Fund of these awards currently totals £28,288 for each year that pension is paid.
Once I have received the council’s response to the recommendations below, I will consider whether I wish to apply to the courts for a declaration that the items of expenditure were unlawful under Section 17 Audit Commission Act 1998.
Recommendations requiring a public response
I am recommending that the council needs to:
1.Consider recovery of the unlawful redundancy payment awarded to Mr Newbold,
2.Consider recovery of added years lump sums and payments made to date in respect of five officers
3.Consider cessation of future added years pension payments
4.Raise the awareness of members regarding key issues for future severance decisions including legitimacy and the statutory framework
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5.Ensure formal exercise of discretions within the policy framework and in accordance with Part IV of the Discretionary Payments Regulations. This should focus on relevant considerations only with due regard to members duty to act in accordance with principles of reasonableness.
6.Make members explicitly aware of all options available when severance decisions are to be made alongside a clear explanation of the full cost implications of the decision.
7.Consider amending the constitution to ensure that the Monitoring Officer and Section 151 Officer are involved in all future severance decisions, except where personally involved.
In making these recommendations, I acknowledge that positive action has since been taken by the council and severance decisions taken in December were made on the basis of full information being made available. In each case the award was once again at the maximum possible level and whilst I am not formally challenging the legality of the decisions to make these awards, I would urge the council to ensure that future awards can be justified on the basis of reasonableness given the circumstances.
The council is required to consider the recommendations at a public meeting and provide me with a response within one month from the date of this letter.
Yours sincerely
Stephen Taylor District Auditor
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