Tag: wifi

When is a wifi investment not an investment?

We have been told repeatedly by Mr Bluh that Swindon Borough Council’s decision to give Digital City a loan of almost £½M of our money was an ‘investment decision’. Indeed, the powers under which the decision was made with the involvement of most of the council’s cabinet were delegated powers for investment decisions. So it is rather surprising that the council has recently provided the following response to a Freedom of Information request.

Council officers were not asked to investigate possible investment into Digital City (UK) Limited. Officers were only asked to consider the provision of a loan.

So if in the council’s now stated view this was not an investment, how legally could the decision to make the loan have been made under delegated powers applying only to investment decisions?

Unaudited

After last night’s disgraceful performance by Swindon Borough Council’s Scrutiny Committee — when the wifi deal was approved based on a report circulated to committee members before he weekend but kept secret from the public — it is no surprise that the Audit Committee meeting tonight was equally weak. Illustrating the worthlessness of the tawdry deal between Mr Bluh and Mr Montaut, the representative of the Audit Commission present at tonight’s meeting made clear that regardless of whether the council invited the Commission to investigate, the Commission itself would decide for itself whether it would do so.

With the arrogance that we have now come to expect from Mr Bluh, he dismissed concerns raised by Mr Martin and Mr Moffatt that the security obtain by the council for the loan was woefully inadequate. Mr Bluh may believe that the installed network — however little of that there might be — would be worth more than £450,000, but as noted later by the council’s own Director of Finance “It is early days and I wouldn’t want to put a value on it.

Unfortunately for Swindon taxpayers, Mr Bluh seems to believe that he knows better than his professional council officer advisers. He behaves like an elected mayor in what is meant to be a cabinet run council, trusting that cabinet so little that he overruled the advice of the Borough Solicitor that there was a better way to make the decision on the wifi deal, simply to avoid telling most cabinet members about it.

During tonight’s Audit Committee meeting Mr Martin noted that if the council was intent on doing similar deals in future, it needed to ensure that it has officers as capable and “as sophisticated as those we do business with” to ensure the deals adequately protect the council’s interests. In his view, the deal done with the other partners in Digital City (UK) Ltd gives no assurance that the council will ever see its share of any profits there might be: the other partners could easily consume any profits in salaries and charges and the council — having only a minority stake in the company — would be unable to stop that.

But capable and sophisticated council officers are of no value if they are ignored. For as long as arrogant people like Mr Bluh are in charge, Swindon taxpayers’ money will continue to be put at what many perceive to be undue risk.

A letter to the Audit Commission

Forget disreputable deals between Mr Bluh and Mr Montaut on referring Swindon Borough Council’s wifi deal to the District Auditor, this is what the auditor should be examining. The letter below was submitted to the Audit Commission in February.

Transactions between Swindon Borough Council and Digital City UK Ltd.

Background

Swindon Borough Council has provided a loan of £450,000 on commercial terms to Digital City UK Ltd (registered no. 06990831). In return for that loan it has received a 40% equity stake in the company. If the loan is repaid within 2 years, Avidity Consulting Ltd (registered no. 06990825) has an option to purchase 5% of the company’s shares from the council for £1. Avidity Consulting already has a 25% stake in the company. The other shareholder is aQovia UK Limited (registered no. 06846037), which holds the remaining 35% of the company. Digital City UK Ltd is intending to install wireless internet across the entirety of the borough of Swindon.

The decision to make the loan was made by three council officers with the approval of two councillors who are members of Swindon Borough Council’s cabinet.

I have a number of concerns in relation to this undertaking.

1) Both Digital City UK Ltd and Avidity Consulting Ltd were incorporated on 14 August 2009 as ‘off-the-shelf’ companies. They became active on 22 September 2009 and 21 September 2009 respectively. They thus have negligible track record. aQovia UK Limited was incorporated on 13 March 2009, appears to have become active on 16 September 2009 and thus also has limited track record.

In these circumstances, considering the lack of history, trading records and accounts for Digital City UK Ltd, Avidity Consulting Ltd and aQovia UK Ltd, I would expect Swindon Borough Council’s due diligence to pay particular attention to the plans of Digital City UK Ltd. Much of the information in relation to this has been withheld by the council on grounds of commercial confidentiality. However, in a Cabinet Member Briefing Note to Councillor Mark Edwards (Cabinet Member for Finance and Benefits) and Councillor Roderick Bluh (Leader of the Council and Chair of the cabinet), dated 12 October 2009, that was made available to Swindon Borough Council’s Scrutiny Committee meeting of 14 December 2009, it is stated that:

“The success of the company, particularly in the early stages, and consequently the potential for Swindon Borough Council to achieve a return from its shareholding will depend to a large extent on the success of the marketing campaign. A formal marketing plan has not yet been developed, but a Brand Consultant and Marketing Specialist have been informally assisting the project and will be formally engaged once the company is live.”

It thus appears that at the time the decision to invest £450,000 was made, the plans of Digital City UK Ltd were not yet well formed. Furthermore, the response by the council in relation to diligence (in the minutes and annex to the minutes of that Scrutiny Committee meeting), appear in tone, in my view, to be dismissive rather than suitably detailed.

2) The Managing Director of Digital City UK Ltd is Mr John Richard Hunt (commonly known as Rikki Hunt). He is also owner of Avidity Consulting Ltd which is providing consultancy services to Digital City UK Ltd, and a non-executive director of Swindon Commercial Services Ltd (registered no. 06969563) which is Swindon Borough Council’s direct services company and the main contractor to Digital City UK Ltd for installation and maintenance of its wireless network.

Mr Hunt is also Chair of Swindon Strategic Economic Partnership (SSEP), which is charged with implementing some of the council’s social inclusion objectives under the Swindon Local Area Agreement, including the Swindon Digital Challenge proposal, and a non-executive director of The New Swindon Company Ltd (registered no. 04509901) of which Swindon Borough Council is a major funder, and a board member of the Swindon Partnership which is tasked with producing the Swindon Local Area Agreement.

By virtue of his close association with Swindon Borough Council and in particular the SSEP, Mr Hunt may have been in receipt of privileged information in relation to the council’s and SSEP’s plans for widening access to the internet. As a consequence of this it is possible that a conflict of interest could occur in his company’s approach to the council. Under Section 175 of the Companies Act 2006, a director has a duty to ensure that they avoid a situation in which they have, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. In light of that Act and of the sixth of the Seven Principles of Public Life, I would expect, given Mr Hunt’s close connection with Swindon Borough Council that, as part of its due diligence, the council would ensure that no such conflict had occurred. However, the information made available to the public by the council provides insufficient evidence that this assurance was obtained.

3) Mr Hitesh Kumar Patel was appointed director of Digital City (UK) Ltd on 26 September 2009. Mr Patel is also Group Director Business Transformation and in that capacity one of the authors of the Cabinet Member Briefing Note to Councillors Edwards and Bluh, dated 12 October 2009 and mentioned in (1) above, that recommended providing the loan of £450,000 to Digital City (UK) Ltd. There is no mention of this directorship in the briefing note, nor in any of the other information presented to Swindon Borough Council’s Scrutiny Committee meeting of 14 December 2009. As Mr Patel’s directorship pre-dates his advice to Councillors Mark Edwards and Roderick Bluh, in the absence of further information to the contrary this would appear to present a conflict of interest which, under the Seven Principles of Public Life, Mr Patel had a duty to disclose.

4) It has been repeatedly stated publicly by the council leader, Roderick Bluh, in comments reported in the local press that this was a delegated ‘investment’ decision, and this is also mentioned in the Cabinet Member Briefing Note shown to the Swindon Borough Council Scrutiny Committee. Mr Hitesh Patel has also stated that the decision to provide the loan was made by the Director of Finance (Mr McKellar), the Director of Law and Democratic Services (Mr Taylor) and himself, the Group Director Business Transformation.

The delegated authority for such a decision originates from resolution (5) at Minute 28 of the Cabinet meeting of 23 July 2008, subsequently ratified by full Council on 13 November 2008.

“That the Treasury Management performance for 2007/08, be noted, and the Council be recommended to approve the proposed change to the Annual Investment Strategy, as detailed in paragraph 2.6.7 of the joint report (In respect of joint venture arrangements, to permit the Director of Finance and the Director of Law and Democratic Services, in consultation with the Cabinet Member for Resources, to invest in such schemes provided that the overall terms of the arrangement are suitably advantageous for the Council, subject to the Soft Loan Accounting requirements contained in the 2007 Statement Of Recommended Practice.).”

with paragraph 2.6.7 of the ‘joint report’ being

“In order to pursue its regeneration objectives, the Council is planning to enter into a series of joint venture arrangements with private sector partners. There may be circumstances in which it is advantageous in financial and risk terms for the Council to consider acting as banker for a scheme, subject to the terms and exposure being acceptable. In this context, it is proposed that the annual investment strategy is amended to permit the Directors of Finance and Law and Democratic Services, in consultation with the Cabinet Member for Resources, to invest in such schemes provided that the overall terms of the arrangement are suitably advantageous for the Council, subject to the Soft Loan accounting requirements contained in the 2007 Statement Of Recommended Practice.”

Whilst the decision may have been within the letter of this resolution, it does not appear to have been within its spirit. The decision was not made in pursuit of regeneration objectives, but, according to the Cabinet Member Briefing Note, primarily in support of social inclusion and sustainability objectives. Also, the decision was not made as a consequence of a decision by the full council or cabinet to implement town-wide wireless internet access, but as a result of the company approaching the council seeking investment.

5) If this decision were not within the scope of investment decision described in (4), the council’s constitution does permit delegated decision by individual cabinet members in certain circumstances. That delegated authority is specified on page 5 of the constitution:

“To speed-up decision making and to allow the Cabinet to concentrate on major matters, Cabinet Members have the delegated power to make day-to-day decisions in relation to the areas within their portfolio.”

Given that the decision to loan £450,000 and take a 40% share in Digital City UK Ltd for the purpose of it providing boroughwide wireless internet was announced with a press release on 16 November, and the launch of the service in Highworth was by a member of the parliamentary opposition’s shadow cabinet and accompanied by further press coverage, it seems to me that this decision is firmly in the class of ‘major matters’ for which the delegation described on page 5 of Swindon Borough Council’s constitution should not occur.

6) Swindon Borough Council is allowing Digital City (UK) Ltd to send and receive commercial and private internet traffic via its own Local Authority access point(s) to the internet. I am concerned that this may have serious implications under the Government Code of Connections (’CoCo‘), and that Swindon Borough Council may be inappropriately subcontracting or reselling internet service supplied to local authorities.

Whilst none of these issues individually may be cause for great concern, taken together I believe they are sufficient to warrant further investigation. Given the complicated nature of company law I would like the audit commission to examine the commercial relationships mentioned above and clarify whether they are appropriate and represent acceptable and best use of public money.

A shameful failure of scrutiny

A deal has been done between Mr Bluh and Mr Montaut, apparently in an attempt to suppress further scrutiny of Swindon Borough Council’s dealings with Digital City (UK) Ltd.

I have reached an agreement with the Labour Group Leader that as and when the wi-fi project, which is fully supported by both the Conservative and Labour Groups, has been finally cleared by the Scrutiny and Audit Committees then in the interests of allowing the wi-fi project to move forward without further damaging publicity, without incurring additional costs to the taxpayer and to stop the enormous amount of officer time being spent on this issue to date, I will ask the external auditor to confirm the findings of the internal audit report and also to confirm that due process has been followed throughout. It is time to allow this fantastic, innovative opportunity to get properly underway to deliver for Swindon.

There’s nothing fantastic about squandering local taxpayers’ money, Mr Bluh; nor in being so careless in the deal that much of what councillors and council officers have said on the matter has turned out to be untrue; nor in investing in a project so laxly run that even though it was eight months behind schedule and had to ask for its loan conditions to be relaxed, the company board had not met. And just how arrogant it is of Mr Bluh to think the District Auditor needs his permission to investigate. As I noted a couple of days ago, the District Auditor has already been asked to investigate the wifi deal.

What has this acheived for Mr Montaut? Nothing, just an external enquiry that would have happened anyway.

I have been calling for an external enquiry for months now, because this council needs to focus on the things that matter to all Swindoners, like getting value for money for our council tax payers and ensuring that our public services are working to suit the needs of our townspeople. With the external auditors now investigating the Conservative administration’s wi-fi deal, I believe the council can do this.

That sounds to me like Mr Montaut, the chair of the Swindon Borough Council’s Scrutiny Committee, wants to abandon scrutiny of this deal.

The role of the chair of a council’s scrutiny committee is to hold the council administration to account. To shirk that responsibility through worthless back-room deals like this is a shameful failure.

Narrow support

I’m sure that Mr Bluh will claim that the uncritical report by Swindon Borough Council’s internal auditor is an unadulterated vindication of the way the council has spent almost £½M of our money on a loan to Digital City (UK) Ltd for wireless internet. I’m equally sure that Mr Bluh will claim that the absence of any investigation yet by the District Auditor shows that he has no concerns either. However, as Mr Bluh likes to tell us, ‘language is important’, so let’s look at exactly what the council’s internal audit report into wifi says.

The remit of the internal auditor’s report is quite narrow. It addresses six specific issues set by the chair of the council’s audit committee, Mr Dickinson.

  • The arrangements regarding the security of the Council’s investment including assessment of credit worthiness of Digital City (UK) Ltd.
  • Whether the Council has complied with its own Treasury Management policy and the best practice set out by CIPFA.
  • What profit-sharing arrangements are in place.
  • Whether EU directives have been breached in particular Article 87.
  • Whether value for money can be demonstrated.
  • What, if any, lessons can be learned for the future.

That means there are some significant omissions, as noted in the report.

Since the commencement of the investigation a number of further concerns have been raised in two letters and an e-mail addressed to the Council’s External Auditors…. At the meeting on 15th March 2010, the Council’s Scrutiny Committee raised concerns regarding the possible conflict in interests of the Group Director: Business Transformation who was listed as a Director of Digital (UK) Ltd and the author of the Cabinet report requesting release of the second phase of the loan…. The internal audit investigation has not covered the additional areas of concern mentioned in the correspondence to the External Auditor, or the issues raised at Scrutiny.

The scope also specifically excluded ‘whether due process has been followed as this has already been examined by the Scrutiny Committee who confirmed that it had.’ The report is also unusual in that it includes a disclaimer.

This investigation focussed on the areas agreed in the terms of reference for the investigation only. It did not include a full internal audit of all Council systems mentioned in the areas of concern nor did it include a full review of the adequacy, or robustness, of the documents listed in Appendix 3. Any recommendations relating to Council policy and procedure generally which arise from the findings of this review will be addressed in a separate internal audit report.

Clearly, there’s far more that could have been investigated, but wasn’t. And not only is it not a full audit, but any recommendations that have resulted from it are to be hidden away in a separate later report which Mr Bluh will no doubt hope appears after the present furore has passed.

Let’s also look at what the District Auditor has said.

The External Auditor (Martin Robinson — District Auditor) has confirmed to the Chief Executive that there is nothing contained in the correspondence that requires investigation by him at this stage.

That doesn’t mean he will not investigate. Indeed, correspondence from the District Auditor that komadori has seen indicates that he might.

You will be aware that the council’s Internal Auditors are currently reviewing various aspects of this issue. I am awaiting the outcomes of their review before giving the matter my own consideration as a prelude to deciding whether there are any aspects of it that I would wish to pursue any further…. I therefore hope to be able to respond more fully to the issues raised… by mid-May.

The scrutiny of Swindon Borough Council’s wi-fi deal is not yet over. Far from having a clean bill of health, it remains under close clinical supervision.

Deferred

At a tempestuous meeting this evening of Swindon Borough Council’s Scrutiny Committee — which at one point became a Tomlinson versus Tomlinson debate — it was agreed to defer a decision on the council’s loan to wi-fi company Digital City (UK) Ltd to the next meeting of the committee.

The committee agreed to a proposal by Mr Tomlinson (with amendments from Mr Moffatt) to defer a decision, pending clarification as to just who are the directors of Digital City (UK) Ltd — because Companies House records still show the only director as Rikki Hunt — and an investigation as to the providence of the investments in Digital City (UK) Ltd — because Companies House records show one of the shareholders to be Isle of Man registered aQovia Limited rather than UK registered aQovia UK Ltd. The main (90%) shareholder in aQovia Limited being Sara Kilduff whose main business is, apparently, a ‘virtual PA’.

The meeting also added to the catalogue of what in Mr Bluh’s view are ‘minor errors’; namely that entering an Isle of Man company — with full address — as a shareholder of Digital City (UK) Ltd rather than a UK one was just a matter of missing out the ‘UK’. Quite how this can be viewed as minor when the shareholder agreement underpinning the loan is with aQovia UK Ltd rather than the registered shareholder is something only Mr Bluh seems to ‘understand’. We were also asked to believe that not knowing who the registered directors are does not matter because the company has not made any ‘strategic decisions’. Seemingly, being eight months behind the original project plan and asking for variation of loan conditions are not strategic decisions.

Quite why Mr Bluh still has confidence in this ‘partnership’ is a mystery, especially as every time the company that constitutes the partnership makes a mistake, Mr Bluh refutes all responsibility. Why he expects any member of the public to have confidence in it is an even greater mystery.

Language is important

That was Mr Bluh’s oft repeated refrain to Mr Montaut during the debate at last night’s special meeting of Swindon Borough Council’s cabinet. But rather than using the phrase ‘language is important’ to attack Mr Montaut, Mr Bluh should reflect on how the meaning of language has been distorted in the record of the council’s actions relating to the wifi deal. There were many new meanings that we learnt for simple phrases at the council meeting last night.

  • When in a report presented to the meeting it said “The delay in having a fully operational ‘back-office’ customer care and billing operation has hindered opportunities to sell.” it actually meant the back-office software was ready, but the company never intended to start selling before it did.
  • Where Mr Patel wrote on his LinkedIn profileBoard Director Digital City (UK) Ltd” he actually meant “SBC observer on Board of Digital City”.
  • When Mr Jones, the council’s chief executive, wrote in a letter to Ms Snelgrove on 26 January “we have a director on the board” what he actually meant was “we have a director position on the board but have not filled it yet”.
  • By analogy, where in the appendix to the minutes of the 14 December 2009 meeting of the Scrutiny Committee it states “The Council has one Director representing its interests on the Digital City Board.” it also meant “we don’t yet have a director on the board”.
  • When Mr Bluh said to the Special Committee at its 25 March meetingThis is a loan repayable with interest at above commercial rate” what he should have said was “This is a loan repayable at a commercial rate”.

With a record like that of saying one thing but meaning another, it’s little wonder that the scrutiny of this deal continues.

More scrutiny to come

Recently, Mr Buckland offered some sound advice to his colleagues on Swindon Borough Council.

The failure by a Council official to declare that he was in fact a Director of the operating company is an example either of incompetence or of something worse.
I blogged recently that I was sure that the lack of openness was not the result of deliberate subterfuge. I still hope that I am right. My advice to those involved is to come clean about everything now. As well as a demonstration of transparency, it may well be the best thing to do in order to secure the future of the project, which I hope will be a success.

It’s advice that Mr Bluh seems very reluctant to accept. In his view, there’s nothing more he needs to tell us about how the council is spending almost £½M of our money on a venture described in parliament as having ‘a detrimental effect on small and medium-sized IT companies in Swindon’.

This deal has been subjected to the most enormous scrutiny in the past months and has passed all those tests.

Err… has Mr Bluh forgotten that his latest attempt to throw our money at the wi-fi project didn’t pass through the last meeting of the council’s Scrutiny Committee? Just what aspect of ‘failed’ is it that Mr Bluh interprets as meaning ‘passed’?

It also seems not to have occurred to Mr Bluh that it has ‘passed’ some of those scrutiny tests only because very limited information was made available. It is for that reason that it has been referred back to the council’s cabinet, where additional information will be presented next Wednesday. It is unfortunately that the claims of Mr Patel that he did not know he was a director of Digital City (UK) Ltd seem inconsistent with the letter sent by the council’s chief executive, Mr Jones, to Ms Snelgrove on 28 January stating

we have a Director on the Board.

It’s difficult to know who, if anyone, involved in this at the council can be believed.

However, from later this week there will be a new Swindon Borough Council representative on the board of Digital City (UK) Ltd. It is proposed that Mr Perkins become a director of the company. Quite what the relevance of his cabinet responsibility for “children’s services” has towards the alleged social inclusion objectives of the wifi project is less clear. Perhaps the more relevant Mr Mattock is out of favour… or has less favours owed to him.

In a recent pep-talk to his party members the blue nest’s Mr Pickles said

We have seen what can be done as a council, and now it is time for our extremely good candidates to get into place and bring some honesty, decency and straightforwardness into government.

We have indeed seen what can be done as a council, and recently it’s not been pretty. If they’re to stand any chance of getting into national government they’ll first need to bring some honesty, decency and straightforwardness to local government.

If Mr Bluh wishes the scrutiny to stop, he first needs to ensure that the very serious concerns about the way he spends our money are answered, and answered honestly.

Key lines of enquiry

Before he was interrupted by the borough solicitor at the meeting of Swindon Borough Council cabinet just over a week ago, Mr Bluh tried to say — though it’s not made it into the minutes of the meeting — that the only thing that external auditors were looking at in relation to the council’s wi-fi deal was ‘value for money’ and that they were not investigating any issues of process. What it does record of in the minutes of the meeting is Mr Bluh’s view of what is important in this issue.

He did not believe it was necessary to await the outcome of the Audit Committee review that was to look at the best value aspect of the loan agreement for the project.

Let’s look at the Audit Commission’s ‘key lines of enquiry’ when considering value for money.

The use of resources assessment considers how well organisations are managing and using their resources to deliver value for money and better and sustainable outcomes for local people. The assessment comprises three themes that focus on:

  • sound and strategic financial management;
  • strategic commissioning and good governance; and
  • the management of natural resources, assets and people.

Sound financial management and good governance: I’d certainly welcome a thorough examination of those for this wifi deal. Perhaps we could start with an in-depth examination of the governance process and how a director of Swindon Borough Council came to be a director of a company before giving advice to Mr Bluh that the council should invest in that company.

Another noticeable omission from the meeting minutes is Mr Patel’s denial that he was a director of Digital City (UK) Ltd. What it does say is that an appointment to the company’s board will be made, but says nothing about the situation at that time.

The Cabinet were advised that under the loan arrangements, the Group Director, Business Transformation would represent the Council at meetings of the Board of Digital City (UK) Limited and that he received no remuneration from the company. It was confirmed that the Special Committee was likely to be asked to make an appointment to serve on the Board in the near future.

Meeting minutes have rarely been so misleading.