Investigation

INTERNAL AUDIT REPORT

ALLEGATIONS OF IRREGULARITIES
RELATING TO A HOUSING GRANT &
TOWN IMPROVEMENT GRANT
REPORT 2

June 2009

DRAFT
 CONTENTS

SECTION PAG
E
1 Introduction 1

2 Findings 3

3 Additional Findings 9

4 Conclusion 10

5 Action Plan 13

Appendices A to H

ASSIGNMENT CONTROL:
Draft report 09 June 2009 Auditors:
issued:

Responses
received:
Final report
issued:
Client Section 151 Officer –
sponsor: Corporate Director - Finance
Distributio Section 151 Officer –
n: Corporate Director -
Finance;
Head of Service (Planning);
Head of Service (Housing);
 Audit Committee Chair
Copy to applicant
Printed: 10 June, 2009 File: Blank Assurance Framework Interim Rep Draft

4. INTRODUCTION

1.1 This report relates to an application in 2005 for grant monies to

improve business premises and also to convert the upstairs
section into 2 flats for future letting at a property in Holyhead.
The applicant has raised a number of issues concerning the
administration of the grant with the Council.

1.2 A previous report on this grant was issued in March 2009 since
which time a number of additional issues have been raised by
the applicant. A meeting was held on 21st April 2009 at which
the applicant set out his understanding of the current financial
position of both the Town Improvement and Housing Renovation
Grants (Appendix A) and detailed areas of concern still
outstanding. Internal Audit agreed to re visit a number of issues
relating to the finances of the grant and communicated these in
the form of a summary of the meeting to the applicant.
(Appendix B)

This report details the additional work carried out as a result of

this meeting.

Scope of the Investigation

1.3 As was the case with the previous report this review does not
include comment on the standards of the actual work carried out,
but merely on the allegations of financial irregularity in respect
of the contract. The investigation work carried out aimed to
determine if there is any evidence of irregularity over the role of
Council staff in the grants process and if the Council has paid any
monies other than amounts relating to bone fide grant eligible
works at the property.

The scope of the investigation also included a review of

compliance with the Housing Grants, Construction and
Regeneration Act 1996 requirements by all parties.

5. FINDINGS

1.4 Corrections to original report

 Four specific issues were raised concerning the accuracy of the
initial report on this grant. These issues were agreed as follows:
6. The Town Improvement Grant (External Works) (WAG
Grant) figure shown as £59,223 ex VAT should be shown as
including VAT. (Page 1 – para 1.1);
7. The erroneous invoice section at page 5 was not helpful in
as much as it is not possible for Internal Audit to determine
which invoices are ‘originals’ and which are not;
8. the sentence referring to erroneous invoices stating that -
These are alleged by the grant applicant to be erroneous
invoices issued by the Builder – is incorrect and should
refer to these invoices being those not accounted for by
the builder in terms of payments made; and.
9. For clarification the estimated Final Account figures at
page 6 were not those calculated by Internal Audit but
were those provided to Internal Audit by the applicant’s
second appointed agent / Housing department and by the
builder.
None of the issues raised significantly alter the findings or
conclusion of the original report.

1.5 Final Account Figures

The Housing Department has produced calculations in an
attempt to determine the Final Account figure for the grant
works. These calculations are disputed by the applicant.
However, this is the responsibility of the applicant’s agent and
therefore the applicant was asked to provide a final account
figure based on the work being completed.

At the time of this meeting and of this report (June 2009) works
were still outstanding at the property.

1.6 Revised Renovation Grant Construction Cost

The applicant and his accountant have set out what they believe
to have been the initial contract values for the Town
Improvement Grant and the Local Housing Grant and the
subsequent payments that their records show have been made.
These calculations appear to show that the applicant has made
payment over and above that required for the Local Housing
Grant but has outstanding payments of £17 544.25 on the Town
Improvement Grant. (see Appendix A)

Internal Audit as requested by the applicant reviewed the

documents on file in order to recalculate the contract values
from the supporting documents held in the relevant Council files.
Having done so Internal Audit found that the supporting
documentation contained in the files do not support the figures
provided by the applicant.

The main area where the calculations differ concerns the initial
contract figure prior to the omission and addition of eligible
works to the original tender price accepted by the applicant’s
first appointed agent when they were acting on behalf of the
applicant in 2005.

Housing Department Calculations

The supporting documents in the Council’s files show that the
original tender price accepted by the applicant’s first appointed
agent to be £67 038 ex VAT and that from this figure was
deducted the sum of applicable omissions and additions for
ineligible works for grant purposes amounting to £13 889
bringing the figure for eligible works to £53 149 ex VAT. There is
an undated letter on file showing the current builders acceptance
of this figure at the start of works. (Appendix C)

The applicant was sent a grant approval letter dated 29-04-05

care of the applicant’s first appointed agent setting out the total
of approved eligible works as £64 251.07 which included an
agency fee of £1800.99. Thus the eligible works excluding the
agency fee and including VAT at 17.5% is shown as £62 450.08
as at 29-04-05. (Appendix D)

File records show that following this approval letter additions and
omissions under the applicant’s second appointed agent contract
instructions 1-3 amounting to an additional £2 206.94 including
VAT were added to the approved eligible works figure bring it to
£64 657.02 including VAT.

Applicant’s Calculations
The applicant’s figures show the initial Housing Renovation
Construction Cost (Net VAT) at £53 149 and omissions and
additions amounting to a reduction of £12 010.75 from this figure
to leave a revised approved renovation grant figure including
VAT of £48 337.45 as opposed to the file supported figure of £64
657.02 at this stage of the process a difference of £16 320.

We have requested supporting documents (email 05-05-09) in

support of the figures used in this calculation from the applicant
but have not received any at the time of this report (June 2009).

Conclusion on Revised Renovation Grant Construction

Cost
At the time of this report we have not received any evidence that
suggests that the figures calculated and reported in the approval
letter to the applicant from the Housing Service and supported
by the documentation held in the Council’s files is incorrect. The
calculations made by Internal Audit do not suggest that an
overpayment has been made by the applicant on the Local
Housing Grant.

A copy of the calculations made by Internal Audit based on the

supporting documents in the Council’s files was emailed to the
applicant and his accountant on 28-04-09.

1.7 Payment of £8 450.07 by the Council to the Builder

In a written response to an email from the applicant which was
fed back at the meeting the reasons behind the second payment
by the Council of invoice 70939 for £8 450.07 were set out as
understood by Internal Audit. These reasons revolved around the
outcome of a meeting held on 25-10-07 at which we have been
informed that it was agreed that this outstanding payment would
be made in order to get the builder back on site to complete the
contracted works. However, the applicant’s recollection of the
meeting does not include such an agreement and Internal Audit
was asked to verify with the applicant’s independent surveyor
who attended the meeting held on 25-10-07 to clarify the matter.

Internal Audit contacted the applicant’s independent surveyor

who stated that he was under the impression that the agreement
reached was that:

‘as soon as the Council was satisfied with the works they
would release the outstanding monies directly to the
contractor.’

Internal Audit cannot comment further on this issue as we can

only report what those who were present at the meeting can
recollect and tell us as to what was agreed.

1.8 Use of Copies of Inspection Records by Planning

The applicant’s accountant was concerned over the inspection
forms completed for the TIG. These are copies with the last few
figures only amended and with what appears to be the same
signature. Internal Audit has asked the officer concerned with
completing these forms previously for an explanation but it was
agreed that this issue would be reviewed.
 At the beginning of the grant process the top part of the
inspection forms have to be completed. We were informed that
usually the forms are signed when completed up to item 9 on the
form. The later items can then be completed at a later date and
can be in a different order. The originals of the forms are sent off
to the WAG and copies kept to complete the bottom portion of
the forms as and when the various elements of the process are
completed. The Senior Planning Officer informed audit that a
copy of the form was filed in the back of the file to copy and
complete further detail as required. We were informed that this
is why the forms on file are copies with hand written dates of the
latest inspection activity.

If the copy in the back of the file cannot be found then another
version is filled in and will have a different signature and writing
of dates. In the case of this grant the first inspection is dated 30-
03-07 and a second different copy records the date of inspection
of the third inspection on 12-12-07. The second inspection on 04-
07-07 is recorded on a copy of the original copy used for the first
inspection.

1.9 Evidence of Specific Wrongdoing or Irregularity by

Council staff
Internal Audit asked if there was any evidence of wrong doing or
irregularity by Council staff as no direct allegations of this sort
had come out of the meeting. Internal Audit was informed that
there was some additional information which was in the
possession of a barrister and which the applicant did not want to
share with Internal Audit at the time of the meeting.

In an email received from the applicant on 27-05-09 the

applicant again stated that he had all the evidence of wrong
doing by Council staff that he needed and that he ‘can prove
that the Grant Department are corrupt.’

Internal Audit has had a number of meetings with both the

applicant and his accountant including one of two and half hours
on 21-04-09 with both the applicant and his accountant and a
two hour meeting with the applicant’s accountant on 26-05-09 in
addition to receiving numerous emails from both the applicant
and the applicant’s accountant. Considerable Internal Audit time
has been spent on following up on all allegations relating to the
scope of our investigation and yet to date we have found no
evidence of wrong doing or irregularity by Council staff.

If the applicant has evidence of wrong doing or irregularity by

 Council staff he has had ample chance to produce it. This being
the case I cannot justify a continuation of the use of scarce
Internal Audit resources on this investigation.

Internal Audit will of course assist fully in the investigations of

any other official agency such as the External Auditor and the
Police if requested to do so.

1.10 Time Bar on Grant Eligible Works

The Housing Grants, Construction and Regeneration Act 1996
section 37 states that
(1) It is a condition of payment of every grant that the eligible
works are carried out within twelve months from—
(a) the date of approval of the application concerned, or
(b) where section 36 applies (delayed payment of
mandatory grant), the date specified in the
notification of the authority’s decision,
or, in either case, such further period as the local housing
authority may allow.
(2) The authority may, in particular, allow further time where
they are satisfied that the eligible works cannot be, or
could not have been, carried out without carrying out other
works which could not have been reasonably foreseen at
the time the application was made.
At the meeting held with the applicant and his accountant on 21-
04-09 Internal Audit referred to the time limit on the completion
of grant works which had now expired and that in this respect
they would expect that all applicants should be treated fairly and
consistently in relation to the requirements of the grant
conditions. The applicant referred to a letter he had previously
received which he stated allowed an extension of the completion
period which he believed was held at his bank.

Internal Audit could not find a record of a formal extension of

time for the completion of the works on the Council’s file or a
formal request for such an extension.

1.11 Payment of Outstanding Grant Payments

The applicant asked Internal Audit to refer to Section 37 of the
Housing Grants, Construction and Regeneration Act 1996 to as
he believed that the section allowed the applicant to be paid
grant monies directly. Internal Audit reviewed the relevant
sections of the 1996 Act and found that:
 10.Section 37 states, including other conditions that, the
‘payment of a grant, or of a part of a grant, is conditional
upon:
‘The eligible works or the corresponding part of the works
being executed to the satisfaction of the authority ….
11.Section 109 states that a party to a construction contract:
‘is entitled to payment by instalments, stage payments or
other periodic payments for any works unless work is less
than 45 days….
12.Section 39 states that:
‘the local housing authority may pay a grant or part of a
grant –
13.by payment direct to the contractor, or;
14.by delivering the applicant an instrument of payment
in a form made a payable to the contractor.
 However, section 39 (2) states that:
‘where an amount of grant is payable, but the works in
question have not been executed to the satisfaction of the
applicant, the local housing authority may, at the
applicant’s request and if they consider it appropriate to do
so withhold payment form the contractor. If they do so,
they may make the payment to the applicant instead.’

1.12 Referral of Alleged Issues with other Local Housing

Grants
Internal Audit asked if there was any evidence to support the
claim that other grant applicants were also unhappy with the
method of handling of their grant claims. The applicant referred
us to one other case which Internal Audit agreed to follow up.

Internal Audit obtained the relevant file and reviewed it. The
documents on file appear to show that there is a dispute
between the applicant and their agent/builder concerning the
management of the contract and the quality of work. The
applicant lodged a complaint with the Ombudsman in March
2009. We understand that the Ombudsman’s opinion was that
the complaint would not be pursued.

1.13 Progress in Completion of Outstanding Eligible Works

Internal Audit asked if there was any way that the works could be
completed in order that a Final Account and grant payment could
be made. Internal Audit offered to contact the Housing Service to
see if they could liaise with the builder to get the outstanding
works completed. Internal Audit also asked if it would be possible
to use another builder to complete the works if the builder was
unwilling to complete the works.

The applicant stated that he had asked some local builders but
that they had not shown interest in completing and that the
Housing Department had advised at the time that they should
not use another builder. Internal Audit agreed to follow this up
and report back to the applicant.

At a meeting with the Principal Technical Officer (Housing) on 05-

05-09 the issue of completion of the works was discussed. The
Principal Technical Officer (Housing) stated that the work could
be completed by a different builder appointed by the applicant
with an invoice being produced by the present builder for the
work to date on the LHG and a separate invoice being raised by
the new builder for completion. The amount to be paid by the
Council on satisfactory completion however would remain at £18
750.01. The original advice concerning not using another builder
was made in October 2007 as at that time the applicant’s
builder’s services had been dispensed with but due to the part
completed nature of the works it would have been better at that
time not to have introduced another builder.
 15.ADDITIONAL FINDINGS

1.14 TIG – WAG Grant Payments

The original TIG eligible work value was £59 223 of which an 80%
grant was approved amounting to £47 378.40 to be paid by the
WAG. Subsequently omissions and additions resulted in an
estimated final account figure of £49 004. Thus the applicant’s
contribution in practice is estimated to be £1 626 rather than the
original 20% of £59 223 which would have been £11 844.60.

We have confirmed with the WAG that a total of £47 378 was
paid to the applicant by them in relation to the TIG. The applicant
has confirmed that he has made one payment on the TIG
amounting to £29 375.

1.15 LHG Applicant’s Contribution

In a letter dated 29-04-05 to the applicant care of the applicant’s
first appointed agent it was clearly stated that the applicant’s
contribution to the LHG was £26 751.07. The letter sets out that
the applicant should be made aware by the agent that he would
be required to pay his contribution either to the agent as fee
payment or to the contractor as part of the first interim payment
prior to any grant monies being released.

Subsequently the Council received a letter from the applicant’s

second appointed agent dated 02-07-07 confirming that the
applicant had paid their fee in full (£1 800.99) and the builder
the sum of £24 950.08. (Appendix E)

The Council made the first grant payment of £10 299.92 to the
builder on 06-07-07.

However, in a letter dated 15-09-08 from the applicant’s

accountant it is stated that:

‘on further examination of the bank statement it is also evident

that no payment had been made in respect of the first interim
payment in the sum of £24 950’. (Appendix F)

It would appear therefore that the applicant has failed to abide

by the terms and conditions of the grant which required the £24
950 to be paid prior to the release for grant monies from the
Council.

To date the applicant has informed us that he has made two

 payments in respect of the LHG. The first payment according to
the applicant’s accountant was made on 09-05-07 to the amount
of £17 625 inclusive of VAT. The second payment, again
according to the applicant’s accountant, was made on 05-07-07
to the amount of £10 299.00 inclusive of VAT. A total of £27 924.

However, it is not clear whether the second payment should be

assigned to the LHG or to the TIG. Internal Audit has asked for
evidence in the form of a receipt for this payment showing which
invoice and which works the payment was for. The applicant’s
accountant was unable to provide any supporting documents in
evidence but did inform Internal Audit that the payment was
against invoice number 070612. The original invoice 070612 was
found to be held in the Council’s LHG file (subsequently passed
onto the applicant at his request) and to have been part paid in
the sum of £10 299.92 inclusive of VAT by the Council on 06-07-
07.

There is no supporting documentary evidence to confirm that

this was a LHG payment and not a TIG payment. The applicant, it
should be noted, has at the present time outstanding TIG
payments amounting to £19 629.55.

1.16 Applicant’s Payments Against Contribution

The applicant’s overall contribution towards the total works as
approved at the start of works at the property amounted to £36
795 inclusive of VAT (TIG £11845 and LHG £24 950). To date the
applicant has made payments to the builder amounting to £57
299. WAG grant payments to the value of £47 378 inclusive of
VAT have been paid to the applicant leaving his contribution to
date as being £9 921 inclusive of VAT.

The applicant has requested that the Council’s remaining grant

payment amounting to £18 750.01 should be paid direct to him.

1.17 Amendments to Original Agreed Works

Town Improvement Grant - The original tender price was £63
700.28. Omissions and additions amounted to a reduction of £10
777 which brought the cost to £52 923 plus agents fees of £6
300 which brought the total eligible cost to £59 223 inclusive of
VAT. The Town Improvement Grant was approved on 09-11-06 on
the basis of 80% of the eligible works figure a total grant figure
of £47 378.92 inclusive of VAT. (Appendix G)

Subsequently we understand that reductions to the project were

made which reduced the total costs of the works to £49 004.55 a
 reduction of £10 218.45. (Appendix H)

Local Housing Grant – The original tender price was £78

769.65 inclusive of VAT. The Council’s Housing Services made
omissions and additions amounting to £16 319.58 as ineligible
works (we understand mainly carpets and pain ting) bringing the
figure to £62 450.08. The approved Local Housing Grant was
based on this eligible works figure and amounted to £37 500.
Further omissions and additions of £2206.94 increased this
figure to £64 657.02.

Therefore the total tendered amount of both TIG and LHG was
originally £142 469.93 inclusive of VAT (£63 700.28 TIG and £78
769.65 LHG) and the latest revised works totals available show a
total of £113 661.57 (TIG £49 004.55 and LHG £64 657.02). An
overall omissions total of £28 808.36 on the TIG and LHG works.

This amounts to approximately 20% of the total original works

making up the specifications on which grant aid was calculated.
This would inevitably impact on the final outcome of the project.
However, there appears to have been no deduction in the
amount of TIG grant claimed to date.

16.CONCLUSIONS

1.18 Corrections to original report

We acknowledged the errors pointed out in the original report
and recorded them at paragraph 2.1 above. None of the issues
raised significantly alter the findings or conclusion of the original
report.

1.19 Renovation Grant Construction Cost

The Local Housing Grant construction cost figure used by the
Council for the processing of the grant claim is supported by the
documents held on the Council’s files. Internal Audit was able to
match supporting documents to the construction costs from the
original accepted tender price accepted by the applicant’s first
appointed agent in 2005 to the amended construction costs
agreed by the applicant’s second appointed agent in 2007.

Some of the supporting documents are not dated and this

increases the difficulties in determining an adequate audit trail.
However, it has still been possible to show an adequate audit
trail for the construction costs of the Local Housing Grant.

1.20 Use of Copies of Inspection Records by Planning

 The explanation for the use of copies for the recording of
inspections for the Town Improvement Grant by the Senior
Planning Officer is consistent with the file evidence.

1.21 Time Bar on Grant Eligible Works

The time limit set by the Housing Grants, Construction and
Regeneration Act 1996 for the completion of the works has now
past and a decision needs to be made on whether the Council is
to grant an extension in line with section 37 of the Act.

If such extension is not granted then the Council may seek to

reclaim the grants monies already paid.

1.22 Payment of Outstanding Grant Payments

A final account figure cannot be calculated until such time as the
works on the property are completed. At this time the applicant
or his agent under Section 37 of the Housing Grants,
Construction and Regeneration Act 1996 is required to produce:

‘an acceptable invoice, demand or receipt for payment for the

works and any preliminary or ancillary services or charges in
respect of which the grant or part of the grant is to be paid’

The works are also required under the section to be: ‘executed
to the satisfaction of the authority.’
.
Section 37 of the Housing Grants, Construction and Regeneration
Act 1996 also requires that grant monies be paid direct to the
contractor, or by delivering the applicant an instrument of
payment in a form made a payable to the contractor. This is
unless the works in question have not been executed to the
satisfaction of the applicant in which case the local housing
authority may, at the applicant’s request, and if they consider it
appropriate to do so, withhold payment from the contractor. If
they do so, they may make the payment to the applicant instead.
However, no payment is due to be paid until the works have
been completed.

On completion of the works the Council needs to determine

whether or not it wishes to take up the option provided under
section 39 (2) of the Act to make payment to the applicant
directly or to abide by section 39 to pay the contractor directly or
by delivering the applicant an instrument of payment in a form
made payable to the contractor.
1.23 Referral of Alleged Issues with other Local Housing
Grants
Internal Audit is to undertake a separate review of the
Renovation Grants system as operated by the Council and will
include a review of a sample of grant claims to determine if
similar problems have occurred.
1.24 Progress in Completion of Outstanding Eligible Works
Since a meeting on site on 25th October 2007 there does not
appear to have been any subsequent agreement between the
applicant and the builder to complete the works. Internal Audit
has been informed that there is 2 to 3 days work left to
complete. This information has been passed to the applicant but
no progress on completion has been made at the time of this
report (June 2009).
A list of outstanding works needs to be produced and an agreed
date to complete the works arranged between the applicant and
a builder. A deadline for completion should now be set and
failure to comply with this deadline would then invoke the time
bar detailed at 2.7 and 4.4 above.

1.25 LHG Applicant’s Contribution

There is evidence to suggest that the Council was misled as to a
required initial payment of £24 950.08 being paid by the
applicant prior to the release of grant monies by the Council. The
Council must decide on the implications of this apparent breach
of the terms and conditions of the grant.

1.26 Applicant’s Payments Against Contribution

It would seem that the applicant has contributed to date £9 921
inclusive of VAT of the total contributions at the start of the
works which amounted to £36 795 inclusive of VAT. This appears
to be due to reductions in the costs of the TIG works which were
not reflected in a reduction of the grant monies received from
the WAG (see 3.4 above)
Internal Audit will liaise with the WAG to determine if there are
any implications arising from the reductions made to the TIG
works undertaken.

4 ACTION PLAN
The priority of the findings and recommendations are as follows:
Fundamental - action is imperative to ensure thatSignificant - requires action to avoid exposure to significant
action advised to enhance
the objectives for the area under review are met. risks in achieving the objectiv
control or improve operational efficiency.

Para Recommendation Categoris Accept Management comment

ation ed
Y/N
2.6 A final response to the applicant should be Significant
made detailing the main findings of our
internal investigations. The applicant should
 then be informed that no more Internal
Audit resources are to be allocated to this
investigation unless clear evidence of wrong
doing or irregularity by Council staff is
produced.

4.4 A decision needs to be made on whether Significant

the Council is to grant an extension of time
to complete in line with section 37 of the
Housing Grants, Construction and
Regeneration Act 1996.
If such extension is not granted then the
Council may seek to reclaim the grants
monies already paid.

4.7 A list of outstanding works should be Significant

produced and an agreed date to complete
the works arranged between the applicant
and a builder. .
A deadline for completion should now be set
and failure to comply with this deadline
would then invoke the time bar set out in
section 37 of the Housing Grants,
Construction and Regeneration Act 1996.

4.8 The Housing Services should investigate the Significant

implications of the apparent breach of the
terms and conditions of the grant resulting
from a misleading statement as to
applicant’s contribution made prior to the
release of grant monies by the Council.

4.9 The WAG should be provided with a copy of Significant

this report in order for them to determine if
there are any issues raised which may have
implications in relation to the amount of
grant paid.