Cheltenham Borough Council - Public Interest Report

KPMG LLP, the appointed auditors of Cheltenham Borough Council, have issued a public interest report which highlights flaws in the decision-making process followed by the Council in pursuing a legal claim for damages against its former Managing Director, Christine Laird. The conclusions and recommendations could have some general implications for Councils in dealing with litigation relating to employment issues.

The Council took its former Managing Director to the High Court in January 2009, in pursuit of its claim that she had not disclosed relevant information about her health when applying for the post in 2002. The High Court claim came after several years of dispute between Mrs Laird and the Council.

The Council lost the case, and incurred external costs of £1.045million as a result. The report acknowledges that it is not unreasonable for a council to go to court to seek recovery of a substantial financial loss. However, KPMG found that, in this case:

• the Council incurred significant expenditure and management time in pursuing the claim for damages;

• there was a lack of clarity in the Council's constitution over who should make decisions in relation to this significant legal case, and in practice the decision-makers changed during the process;

• there were flaws in the decision-making process, because decisions were made with an over-emphasis on legal matters and not enough on financial, reputational and risk matters and some potentially crucial decisions were not addressed and others were made too late;

• the Council did not manage the case as a corporate issue, despite its financial and reputational significance, and, while it focused on developing a legal case, it did not apply wider project and risk management processes; and

• the Council took some understandable precautions in the way it managed the Committee process but these had the unintended consequences of limiting the opportunities for Members to be fully informed and involved.

In all, the report makes 26 recommendations for the Council to consider. KPMG's audit director Ian Pennington commented: 'The Council was right to consider its options over whether it could recover some of the significant costs it had incurred, but mistakes were made which, if avoided, may have limited the further costs that the Council incurred. There was no single issue or failing, rather there were a series of issues that taken together over time created the situation. The Council did not recognise this as events were unfolding and did not respond effectively or early enough.

The comments and recommendations made by the external auditors in this case may have relevance to how Councils should respond to litigation against them, as well as legal action they initiate – for example on equal pay claims.

The full report is available at: www.audit-commission.gov.uk

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