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Tower Hamlets, the east London council, sold off public buildings to associates of the Mayor and handed out grants to ineligible bodies, a damning Government report has found.
The winning bidder to buy Poplar Town Hall offered a lower price than other bidders and “had an association” with the controversial Mayor Lutfur Rahman, according to an audit by PricewaterhouseCoopers (PwC).
The Mayor personally intervened in the awarding of council contracts, which lacked signed paperwork or audit trails, the report found.
Hundreds of thousands of pounds in public money were awarded to local bodies that were not eligible for the money after the intervention of elected councillors, the report found.
The audit was commissioned by Eric Pickles, the Communities Secretary, following allegations of cronyism and waste at Mr Rahman’s council.
Mr Rahman, who has courted the support of the borough’s Bangladeshi community, was re-elected in May. That victory is being challenged in the High Court by rivals who alleged the vote was riddled with fraud.
Mr Pickles will update the Commons later.
Ministers have “long been concerned about a worrying pattern of divisive community politics and alleged mismanagement of public money by the mayoral administration in Tower Hamlets”, he said in a written statement.
The PwC report, published today, found the council failed to protect public money when awarding grants and selling off assets.
In total, some £407,000 of grants were awarded to bodies that had not met the minimum criteria for receiving a council award.
There was a “lack of transparency generally over the rationale as to grant awards”, the audit found.
When external bodies had applied through standard processes, these were “to a significant extent over-ridden” by the council “without any clear rationale.”
Grants were awarded to organisations which had been “ruled ineligible or which did not meet the required evaluation score”, the report found.
Elected councillors often intervened and made “significant changes” to the recommendations of town hall officials on the awarding of grants.
The report also uncovered the existance of the so-called 954 Fund, a pot of £954,000 drawned from across the council from surprlus spending, including £400,000 from an IT scheme. Grants were handed out to lunch clubs, youth services and the Boishakhi Mela community festival by Mayoral Executive Decisions. Some grants appear to be duplicated payments made for the same services under separate contracts. There was no advertisement or open application process for locals to access the fund.
"All proposed uses of 954 Fund monies have been derived from elected Members, in particular the Mayor and Councillor Asad," the report found.
The report also found that Mr Rahman’s council failed to get “best value” for the taxpayer when it sold off three public buildings: Poplar Town Hall, the Sutton Street Depot and the Mellish Street building.
Poplar Town Hall, a Victorian building close to Canary Wharf was sold for £875,000 in 2011 to Dreamstar a company part-owned by Mujibul Islam, with plans to turn it into a 25-bedroom hotel.
Mr Islam is the chief executive chief executive of Medialink, the registered owner of Mr Rahman’s election campaign website, lutfurformayor.com.
PwC concluded: “The winning bidder was, as a matter of fact, connected to a person with other business interests that had an association with the Mayor.”
The report found that the Dreamstar bid had been submitted late after other bids had been opened, “creating a risk of bid manipulation”.
Mr Rahman’s administration ignored officials’ advice to select the highest bidder, the report found, and instead decided to award the bid to whichever of the two highest bidders could prepare paperwork first.
Dreamstar later requested and was granted changes to the contract it had signed, which “further undermined the purpose and credibility of the contract race process”, PwC found.
The malpractice extended to the awarding of council contracts, PwC found, with council procurement practices flouted.
In a “significant number of cases” there were no signed contracts, and there was a “prevalent lack of audit trail” in procurement documents. Bidders were not told how the competition would be examined.
The report said there was “some evidence” that the Mayor and his cabinet had become involved in the selection of suppliers before bids opened. In other cases, they had overreached their powers by removing two proposed suppliers from a shortlist of four.
“If it were true that the Mayor or Cabinet Members intervened in this way, that would represent a clear breach of the Authority’s procurement policies,” PwC said.
The council repeatedly frustrated the inquiry, PwC said in its report. It found the council responded to concerns of wrongdoing with “denial or obfuscation” rather than investigation.
“Despite its public assertions of support for the inspection, the authority has at various stages raised a number of obstacles to our progress which have significantly delayed the provision of information or documentation and which in large part led to our request for an extension of the timetable for the Inspection,” PwC said.
The report also found that local television channels had broadcast an advert for the council.
“The clear implication is that Authority monies were spent inappropriately on what amounted to political advertising for the benefit of the Mayor .... This in itself constitutes a failure to comply with the best value duty in this instance,” PwC said.
Overall, the council as it is currently run appears incapable of rectifying the failures. It noted that the three core officers – the head of paid service, the Section 151 officer and the Monitoring Officer – have been held by a number of people on an interim basis.
The council has had no chief executive since 2012 – a non-political post for a career administrator - with Mr Rahman instead adopting those powers.
“This means that, for most purposes, the head of paid service, as well as other corporate directors are all directly accountable to the Mayor,” the report found.
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