The two senior executives of Croydon Councils’ controversial and debt-struck housing offshoot Brick by Brick are expected to leave their roles this week after a damning independent report.
Chief executive Colm Lacey and chairman Martyn Evans are due to step down on Wednesday in the wake of the highly critical report review of the council-owned housing company by accountants PwC. The report comes after the council’s decision to declare itself effectively bankrupt because of mounting debts, some of which is due to the financial problems of Brick by Brick.
The PwC report said: “There is currently no financially qualified member of the Board to provide challenge to BBB’s reported performance or forecasts.”
The report says new leadership of Brick by Brick is required. It states: “There is a lack of financial capacity and capability within BBB. In addition to the appointment of a qualified Director of Finance we expect there to be at least one additional suitably qualified member of staff who can support the development of robust financial information to proactively manage the BBB business.”
It gives the council an ultimatum on Brick by Brick’s future: Close, continue to trade or sell. However the consultants say it urgently needs to appoint a new financial director in order to help with the restructuring.
The council has not hesitated to act on these recommendations. Their strategic review states they will “remove the two current Directors of BBB, in their capacity as Directors.”
The report says : “BBB performance has consistently been below that forecasted in its business plan. As a matter of urgency a Finance Director should be appointed. The Council’s oversight of BBB has been lax, allowing inadvertently for loans to expire without formal agreement to extend them.”
The council has plans to appoint two new directors with financial backgrounds: Duncan Whitfield, Strategic Director of Finance and Governance of Southwark council and Ian O’Donnell, a finance consultant who is working on the financial review at the Council.
The lack of financial competence was a major area cited by PwC. Lacey had previously stated that the company is financially healthy, but the report said otherwise.
It states: “Brick by Brick has total borrowings of £214m, comprising loans to the council itself of £199.5m plus interest payable of £14.4m”. No interest or capital loan was repaid to the council in the financial year 2019/20.
Brick by Brick has attributed its failure to repay loans to the Covid-19 pandemic, however PwC says that “COVID was a relatively minor causal factor given the year ended on 31 March 2020.”
Brick by Brick was established in 2016, with one of the main objectives being to maximise the use of the Council’s assets to deliver new homes. The report found that it originally planned to deliver 500 residential units a year, with planned sales of £132m which should have allowed the commencement of debt repayment. However it states that: “As of October 2020, the delays in bringing new homes to the market has put the Council at serious financial risk and resulted in only a handful of new homes being available. As a consequence, savings have not been made. The severity of this situation has not been exposed until late in 2020, as the formal controls that should have been in place were absent.”
The council themselves recognise this, stating that the “ambitious strategy of development, endorsed by the Council when it agreed the business plans, has placed the Council at risk in relation to these loans.”
The previous report in the public interest criticized the council for its risky investments that have contributed to the financial crisis, which include £545m in loans for housing and commercial property investments.