The chancellor Rachel Reeves is set to appoint a corruption commissioner to recover £2.6bn lost to fraudsters during the Covid-19 pandemic. There will be millions to retrieve from local authorities—but the commissioner’s remit should be broader than that.
During the pandemic, authorities were responsible for administering the Small Business Grant Fund and the Retail, Hospitality and Leisure Grant Fund. Only last month, Stoke-on-Trent City Council identified five employers that received £50,000 but were not seemingly eligible for the funding. The authority is now seeking to recover the monies. In 2023-24, it identified 142 cases of fraud with a total value of £3.6m, ranging from Covid-related indiscrepancies to council tax and housing fraud. Also last month, an internal audit at Bristol City Council identified £1.8m in ‘petty cash’ transactions where the authority has no immediate understanding of how the money was spent.
The scandal engulfing Essex County Council is a case in point. Earlier this year, it was reported that around £1.5m—largely distributed during the pandemic—did not go through any proper procurement exercise or represent value for money. Kirsty O’Callaghan, the authority’s head of strengthening communities until 2022, appears to have made verbal contracts with, it turns out, individuals she had personal relationships with, as Facebook posts and dozens of pages of council documents seen by the Covert Councillor show. These included a university friend, someone she referred to as “aunty” and a former Olympic rowing gold medallist she dined with in Claridge’s. O’Callaghan’s alleged behaviour was improper because she did not declare a conflict of interest, the contracts should have been in writing and in some cases the authority does not have evidence that what O’Callaghan commissioned was delivered.
What’s more, while at the authority O’Callaghan established a private business offering services akin to what she was doing in her day job. Suffolk County Council duly commissioned her, for work worth over £100k, according to spending records published by the council. She then left Essex and joined Mid and South Essex NHS Foundation Trust, while still receiving payment from Suffolk via her business. Concerns were raised about O’Callaghan’s engagement in prima facie “misconduct” at Essex County Council and Essex Police started investigating, according to emails from a whistleblower to the police seen by the Covert Councillor, but it is not clear whether any criminal charges have or will be brought against O’Callaghan, who is now no longer employed by the authority or the NHS trust.
One of the most recent high-profile, but as yet unresolved, probes into council malpractice was at Liverpool City Council, where from 2019 13 arrests were made as part of Operation Aloft, a Merseyside Police probe into allegations of unlawful behaviour, including suspected fraud and misconduct in a public office. So far no charges have been brought, but the investigation is still ongoing. Merseyside Police confirmed to the Covert Councillor that the investigation is in the hands of the Crown Prosecution Service. The former mayor, Joe Anderson, was among those arrested. He denies the allegations but he has still not been charged and has criticised the length of the investigation. In 2021, the government appointed external commissioners to monitor the situation. They concluded that elected councillors ignored the Code of Conduct.
Under Operation Sheridan, four men at Lancashire County Council were charged with “misconduct in Public Office” in relation to a £5m fleet maintenance contract awarded to One Connect Ltd. William Rossetti, a member of staff at Surrey County Council responsible for managing the Surrey Crisis Fund, got the authority to pay him £94,000 over 316 transactions between 2014 and 2017. Rossetti was jailed for two years in 2019. Similar scandals took place in Newham, Derbyshire and Birmingham.
It is impossible to tell whether misconduct has become more common in local government than in previous decades, but the number of cases certainly looks like a trend, and one which has long roots. In the 1980s, Dame Shirley Porter’s “homes for votes” scandal was a historic, high-profile case. Auditors found the leader of Westminster City Council guilty of “wilful misconduct” and “disgraceful and improper gerrymandering” after selling council-owned properties for electoral advantage. Porter was liable to re-pay £36m—and subsequently settled on a payment of £12m. In 1994, before Porter was brought to justice, former Westminster councillor Michael Dutt was found dead from a gunshot wound and with papers relating to the scandal by his side.
In the spring of 2020, a government review criticised the lack of a central log of cases of “fraud and corruption” in local government, which is making it harder to take action. And there is no evidence that Whitehall has taken the issue seriously since.
Misconduct in local government may be no more common than it is in central government, but it is clear that poor governance and insufficient checks and balances are increasingly common. Poor oversight is a contributing factor. Councils are meant to undergo annual audits, but there are hundreds of council accounts that have not been signed off because of the collapse of the auditing regime, meaning that in many cases auditors have not inspected the accounts of authorities. The pandemic is partly to blame for that, as is the growing complexity of council accounts and the lack of private auditors, who are put off by the low fees they are able to charge councils.
There is also evidence that these vulnerabilities are being seen as an opportunity for foreign agents. In 2022, MI5 reported that Chinese authorities were building “early stage relationships with potential future politicians, including at local government level” by “gradually building a debt of obligation”.
A further complication is that where there are suspected cases of wrongdoing, it is difficult to hold individuals to account. A former council official at Thurrock Council is under investigation by the Financial Reporting Council, but councillors have little jurisdiction to act beyond calling for criminal proceedings or public enquiries. Croydon Council has also reportedly abandoned its plans to recover £437,207 from former chief executive Jo “Negreedy” Negrini after she secured a “golden handshake” when she left the authority, which issued a Section 114 bankruptcy notice in 2021.
Given the number of instances of improper behaviour or scandal, Labour’s new corruption commissioner should look not just at how local authorities administered funds they received during the pandemic, but also at how poor governance in authorities is putting them at risk of being exploited by the public, staff, councillors and foreign agents. The Conservative austerity programme undermined the capability of authorities nationwide over many years. The risk to taxpayers, of profligacy and deceit, is arguably greater now than ever.
Read previous editions of The Covert Councillor, Prospect's column on the crisis in local communities
