Westway Development Trust: a developer's claims were "taken at face value" - 1/3

This auditor's report will make little sense if you haven't read Brian Deer's Notting Hell from The Sunday Times of June 17 2001. In July 2002 the trust renamed itself Westway Development Trust. A Westway Development Trust index of materials is also available

Inquiry into matters between the Royal Borough of Kensington & Chelsea and North Kensington Amenity Trust (NKAT)

PricewaterhouseCoopers

12 October 2001

Background and Terms of Reference

1. At a Council Meeting on 25 July, the Council resolved to invite PricewaterhouseCoopers (as the Council's auditors appointed by the Audit Commission) to investigate its National Non-Domestic Rates and Licensing arrangements with NKAT [Now Westway Development Trust].

2. Subsequent to the Council's resolution, the Town Clerk and Chief Executive provided the following Terms of Reference for the inquiry.

Terms of Reference for the inquiry

1. To inquire into the applications submitted by NKAT for

(a) fee waivers for the fee normally charged for a public entertainment licence.

(b) relief from non-domestic rates

2. To review the decision-making processes used by the Council to determine these matters.

3. To consider whether any improvements are necessary to decision-making systems; to advise on whether any relief should be reclaimed and recommend any other action as necessary.

4. To comment on any other matters arising from these inquiries.

To report findings to the Council's Cabinet Overview and Scrutiny Committee.

3. We conducted the inquiry in accordance with the Terms of Reference. During the inquiry we have studied relevant Committee reports and supporting papers; interviewed officers responsible for handling applications for discretionary fee waivers and discretionary rate relief reviews and obtained additional information, which we considered relevant to the review. We also met and discussed the issues with the Director of NKAT. However, we would point out that our review has been primarily concerned with the Council's procedures for dealing with the applications submitted by NKAT and we have not reviewed the procedures, systems or controls within NKAT for which we have no responsibility.

4. We summarise the results of our review, together with our conclusions and recommendations in the following sections of this report;

* Overall financial relationship between the Royal Borough and NKAT

* Fee waivers for public entertainment licences

* Rate Relief Applications

Overall financial relationship between Royal Borough and NKAT

Findings

5. It is necessary to consider the applications for discretionary relief in respect of the property at 12 Acklam Road (known as Subterania) within the overall context of the financial transactions between the Council and NKAT. The Council has been closely involved with the establishment and development of NKAT over a 30 year period and has provided financial support to NKAT throughout this period. The following table summarises the main ongoing commitments as at July 2001, based on information supplied by the Director of Finance & Information Systems.

Details of financial support

Amounts paid in 2000/01

Annual payment made under a Management Agreement in respect of the Westway Sports Centre based on a fixed percentage of agreed operating costs

£161,000

Deficit grant paid in connection with the repayment of a loan in respect of Portobello Green Fitness Club

£34,500

Annual grant to NKAT in respect of the costs of cleaning the pedestrian areas of the Trust's land including the mowing of the grassed areas

£38,200

Interest free loan in respect of Portobello Green Phase 2 (Notional interest at calculated at 10% of outstanding balance)

£14,500

Sundry grants

£3,500

Discretionary rate relief on Sports Centre, Fitness Club, Bay 66 and NKAT offices (the Council's 75% contribution element)

£15,730

 

Total financial support in 2000/01

£267,430

Westway Sports Centre Management Agreement

6. The largest item is the annual payment in respect of the Management Agreement for Westway Sports Centre under an agreement originally negotiated in 1980 with the former Inner London Education Authority, which continues through until 2011 and then is subject to an annual review. The agreement commits the Council to make annual payments towards the running costs and administrative overhead costs incurred by the Trust. The payment is calculated in relation to specified proportions of specific cost headings.

7. Under the agreement schools are entitled to free use of the facilities during the day (9am to 5pm) and at weekends a reduced charge. Schools, FE establishments and Youth Services are also entitled to free use of certain pitch facilities on weekday evenings. The Trust's annual report for 1999/2000 records 845 hours of free usage by schools and local youth groups in the year to 31 March 2000. This would equate to £190 per hour based on the annual payment. The Council does not have its own record to confirm the usage.

8. In view of the continuing commitment to make a significant contribution to the costs, there would appear to be scope for the Council to make greater use of the facility under the terms of the agreement. This would require an assessment of the current usage and an options analysis of the potential ways to increase the usage.

Portobello Green Fitness Club deficit grant

9. The deficit grant is tied to the repayment of a loan in respect of Portobello Green Fitness Club and is subject to review each year, by the Council. To date, it has been paid each year throughout the term of the loan on the basis that NKAT accounts have recorded an operating deficit on the facility in each year. The loan period runs until 2009. The accounts of the Trust indicate that the aim in the medium term is to operate the Centre as a financially self-sufficient facility for the benefit of the Community. The Council's grant is not tied to the provision of specific community activities.

Annual Grant to NKAT for the costs of cleaning pedestrian areas

10. The annual grant to NKAT in respect of the costs of cleaning the pedestrian areas of the Trust's land including the mowing of the grassed areas appears to have been paid since 1975. The Council's Policy and Resources Committee agreed on 15 July 1975 that the Council should accept responsibility for meeting these costs by way of an annual grant. It is largely an internal transaction as the Council provides these services and the recharge and the grant are internal accounting entries. The nature and extent of the services provided has been described in correspondence and file notes but is not captured in any definitive agreement. Similarly the costs of providing these services are based on a costing exercise carried out in 1991 and this amount was increased on an indexed basis up to 1996, since which it has been held at the 1996 cost level.

11. The nature and extent of financial support to NKAT provided by the Council reflects the Council's long-standing commitment to the community activities of the Trust. However there is limited documentation or evaluation by the Council to quantify the specific benefits to the community in respect of the financial support.

12. In our view, the overall level of financial support provided by the Council, which amounted to £267,000 in 2000/01, is relevant to the way in which the specific discretionary reliefs in respect of Subterania, which amounted to less than £7,000 in any year, were handled. Given the scale of the overall level of support and the lack of specific targets and monitoring arrangements attached to much of this funding, there was the potential that the discretionary reliefs in respect of Subterania could have been viewed as part of an overall level of support and therefore not subject to the level of detailed scrutiny that might otherwise have been the case.

Recommendations

The Council should nominate an officer to manage the relationship between the Council and NKAT and to maintain an overview of the support provided by the Council and the expected benefits to result from that support.

The Council should review the amount of free usage that it receives under the Management Agreement for the Westway Sports Centre and consider whether there is scope to increase the usage under the terms of the agreement.

The Council should review the basis and need for the deficit grant in respect of Portobello Green Fitness Club and, as part of this review, should require NKAT to submit some form of business plan to indicate when the Centre will achieve break-even and remove the need for the grant.

The Council should review the basis of grant-aiding the cost of cleaning the pedestrian areas of the Trust's land including the mowing of the grassed areas, including the basis for defining and costing the level of services provided.

The auditor's report continues >>>>