THE real state of chaos within Lambeth council, believed to be Britain's worst-run local authority, is revealed this weekend after the completion of secret internal inquiries into financial scandals and rackets that have rocked the beleaguered London borough in recent months.
Confidential papers obtained by The Sunday Times reveal a picture of fraud and mismanagement in the Labour-controlled borough on a far greater scale than previously suspected. Councillors believe that direct intervention by government may be only weeks away.
Among the papers are damning internal audit reports on the maintenance of council housing, the single biggest local concern among the borough's 240,000 residents. The findings, which have been kept from Conservative and Liberal Democrat councillors, are that Lambeth:
* Charged thousands of times the real cost for simple repairs and maintenance. Most of this was done by the council's own direct labour organisation (DLO) or sub-contractors.
* Altered or destroyed documents to allow unnecessary, unauthorised or fictitious work to be billed to the authority. Papers relating to millions of pounds of public money are missing.
* Handed out £2m of work for the environment department's homelessness initiative programme to "a small select list" of contractors, without tenders and on the say-so of one council officer.
The internal papers surfaced just a week after the government's District Audit Service issued a "public interest" report accusing the council of unlawfully misdirecting more than £20m. Paul Claydon, the district auditor, spent two years investigating Lambeth and spoke of "an unacceptable incidence of fraud and malpractice".
Among his discoveries was an elaborate racket surrounding the DLO, preventing competition from private firms. This included an unlawful "profit-sharing" arrangement through which, in a single year, 21 officers and 90 manual workers split £215,000 between them, in addition to their normal pay.
Claydon's report, and a similar inquiry by Herman Ousley, the borough's former chief executive, published earlier this year, focused mainly on road maintenance, also the DLO's domain. The new papers are the first study of housing maintenance and paint an even worse picture.
For the first time it has been possible to examine specific jobs carried out by council staff or sub-contractors. In one instance, a repair to a wall had a correct price of £184.30, and a special Lambeth price of £8,573.54. In another, a £33.86 job to replace ceramic tiles was billed at £1,055.62. One item which rightfully should have cost £7.26 was billed for £10,204.74.
It is believed the vastly inflated bills disguised not only simple theft but complicated long-term frauds. They were also used to justify the existence of the DLO, employing more than 3,000 people.
More than a third of the borough's residents are council tenants and the picture revealed is likely to cause outrage.
Further scandals are expected to surface, including a suspected racket in housing benefit payments. The sums of money misdirected are huge. Based on auditors' best guesses, about £5m a year may have been lost to the rackets - 10% of council taxes.
Police investigations have so far been thwarted by what appears to be systematic weeding of documents from council files. The new reports show that paperwork relating to more than £2.5m of housing work is missing.
This weekend, The Sunday Times uncovered a new problem that some Labour councillors concede may force government intervention and the closure of the DLO. While many council tenants could not get satisfaction from repair services, others were compelled to have work done that they had not asked for and did not need. Council employees and sub-contractors would approach tenants directly, do unnecessary work and then submit inflated bills to the authority.
One tenant duped in this racket was Winnifred Jennings, a 74-year-old widow. She said she was surprised by a council employee in September 1991 who said he was the "gas man" and insisted that she have two fires replaced in her one-bedroom flat in Streatham. He showed council identification and wanted to do the work the following day.
"Nothing was wrong with my fires," she said. "But it just seemed he was so eager to put these new fires in."
In fact, the new equipment was of poorer quality. But according to the confidential internal papers, the council was charged £71,620.82 for building work on Jennings's home, more than the flat was worth.
At Lambeth's town hall in Brixton, once the scene of "loony left" protests about government cuts, there was an atmosphere of panic as officers and councillors sought to clarify their positions.
Lambeth's Labour group met in emergency session on Thursday night to find a way out of the crisis. Members argued that to prevent the government from seizing the initiative by sending in commissioners or closing the DLO, the council should shut the labour organisation itself.
The leak of the internal papers comes at the borough's lowest point since 1986, when Ted Knight, the leader, and 30 other councillors were disqualified from office and surcharged for refusing to set a rate. After Knight's removal, the borough went on the break all records for high spending and taxation.
John Harrison, deputy leader of the council, said yesterday: "The internal audit reports are extremely serious. It's unacceptable that the council can continue without fundamentally sorting out the problems, which we have begun to do. If you turn a blind eye to basic facts you are not acting responsibly."
Read a Sunday Times investigation by Brian Deer of Lambeth Council and its Member of Parliament Kate Hoey