House of Commons - Welsh Affairs

Select Committee on Welsh Affairs Sixth Report

SIXTH REPORT

The Welsh Affairs Committee has agreed to the following Report:—

DENBIGHSHIRE COUNTY COUNCIL'S FUNDING LEGACY

Introduction

1. On 1 April 1996, local government in Wales was reorganised: the 8 county councils and 37 district councils were replaced by 22 unitary authorities. The responsibilities of Rhuddlan Borough Council, which covered an area including the coastal towns Prestatyn and Rhyl and inland to St Asaph, Rhuddlan, Dyserth and Bodelwyddan, were taken over by the new Denbighshire County Council.[1] It gradually emerged that there were serious problems with Rhuddlan's capital programme. As the accounts for 1995-96 were drawn up, it became apparent that in its last year of operation Rhuddlan had overspent by £3.9 million. And the inherited liabilities which Denbighshire had to meet in 1996-97 turned out to be some £3 million more than the expected £400,000. In July 1997 the District Auditor published a "Public Interest" report[2] drawing attention to the problems that had arisen. Since then the situation has become worse: it appears that some of Rhuddlan's grant-aided projects may not have been carried out in accordance with the terms of the grant, and the grant-givers may claw-back some of the grant allocated. The European Commission has already asked for some £0.8 million of European Regional Development Fund (ERDF) money to be repaid in respect of the Ffrith Beach development project, and it is feared that a further £300,000 may be at risk. A recent report by independent auditors suggests that grant for three other projects is similarly at risk: a further £2.3 million may be clawed back. Thus, Denbighshire has been burdened with a substantial, and unexpected, legacy of debt from Rhuddlan, which may amount to over £10 million.

2. The emerging story of Rhuddlan's debt has caused considerable public anger in Denbighshire. Concern has been heightened by uncertainty as to the scale of the debt, and by the absence of any clear account of what happened. We decided that good would be served by bringing the facts more clearly into the open, and by publicly questioning some of the key people involved. We therefore decided to hold an evidence session in Rhyl on Monday 22 March. The four groups of witnesses comprised the Chief Executive and officials of Denbighshire County Council; the District Auditor and colleagues; the Chief Executive and Members of the former Rhuddlan Borough Council; and Welsh Office officials. The transcript of this oral evidence and the related written submissions have been published as House of Commons Paper 340-i. Further written evidence is printed with this Report.[3] In this Report, we seek to highlight the seriousness of the problems which have arisen, to propose how matters may be moved forward, and to suggest some general lessons which should be learned for the future.

The "Rhuddlan debt"

RHUDDLAN'S PROGRAMME

3. Rhuddlan Borough Council had for some years pursued an ambitious capital programme, designed principally to regenerate tourism in the seaside towns of Rhyl and Prestatyn. This programme was funded to a large extent by external grants, from both European and UK sources. Over its last ten years, Rhuddlan received some £18 million in grant funding: £10 million from the European Regional Development Fund, £3 million from the Welsh Development Agency, £3 million from the Welsh Office, and £2 million from the Wales Tourist Board.[4] It appears that Rhuddlan's capital programme enjoyed a high level of public support until the overspend came to light, although the development schemes were not without their opponents locally.

4. Rhuddlan's Chief Executive Officer and Borough Treasurer, Mr Edwin Lake, played a key role in the capital programme, and was apparently given considerable discretion by the Council in its management.[5] In the Council's final months, as other staff left, he appears to have run the programme almost single-handed. When the Finance Director left in August 1995, to take up a post in a new unitary authority, it was agreed that Mr Lake — as the only officer qualified to do so — would take on the role of Chief Financial Officer in addition to his own.[6]

RELATIONS WITH DENBIGHSHIRE

5. The new Denbighshire County Council was established in shadow form in May 1995. Mr Huw Vaughan Thomas was appointed its Chief Executive in July 1995. Surprisingly, no meeting was arranged between the incoming Chief Executive and his predecessors.[7] The District Auditor has suggested that "dialogue and co-operation between the key players in Rhuddlan and the Denbighshire Shadow Authority in the final months were not conducive to the efficient exchange of information".[8] Denbighshire claim that repeated requests for information were refused by Mr Lake: Mr Lake, on the other hand, denies this.[9] Whatever the truth of this, it is clear that there was remarkably little contact between the two authorities in 1995-96, and what contact there was, was largely informal.

THE COMPONENTS OF "THE DEBT"

Overspend

6. It was not until the accounts for 1995-96 were being drawn up that it became apparent that Rhuddlan's capital programme had been significantly overspent in its final year. Rhuddlan paid out £10.1 million in capital expenditure, but had only £6.2 million in available finance, leaving a shortfall of £3.9 million.[10] Mr Lake assured us that when the budget was prepared for 1995-96, he had been satisfied that sufficient funding was available to meet the capital programme, and that when that programme was monitored in December 1995 or January 1996, he had still been satisfied that there was sufficient funding to cover the projected overspend.[11] Mr Lake was unable to explain what had gone wrong, though he suggested that the shortfall might have been caused by a reduction in income as much as by an increase in expenditure. Specifically he mentioned an unexpected reduction of WDA grant for the Ffrith Beach redevelopment of some £300,000.[12] He also suggested that expenditure on contractors' claims and on contract variations might be greater than originally estimated.

7. The District Auditor has also come to the conclusion that the shortfall was caused by a combination of factors: contract costs overran, allied costs were not properly budgeted for, and expected grant did not come to fruition.[13] In his view, "assumptions made regarding the costs of some projects and the availability of funding were over-optimistic".[14] It has been impossible either to verify or to disprove Mr Lake's claim that adequate resources were thought to be available, as proper records have not been found. Rhuddlan did not prepare a formal capital programme statement for 1995-96, on the ground that there were no new schemes (apart from the East Parade car park development, for which Denbighshire's consent was obtained). It is interesting that, in a memorandum sent to the Chief Executive Officer in June 1995, the Rhuddlan Director of Finance, Mr Mark Lewis, said that he was "seriously concerned about the financing of the 1995/96 Capital Programme", and it is not clear from his written evidence to us that these concerns — as opposed to concerns that there might be shortfall in 1994-95 — were satisfied.[15]

Inherited liabilities

8. In addition to the unfinanced expenditure in 1995-96, Rhuddlan left to Denbighshire inherited liabilities of over £3.3 million.[16] Mr Lake suggested that it was "inaccurate and misleading" to describe these capital payments as part of Rhuddlan's overspend. He pointed out, quite rightly, that there is nothing unusual in capital expenditure falling in more than one financial year, and that every new local authority would expect to have to make such payments. However, Denbighshire's complaint is not that they inherited capital liabilities but that those liabilities were so much greater than they had been led to expect. Mr Lake had suggested that they might have to pay between £300,000 and £425,000. As it turned out, Denbighshire faced bills of some £3.2 million, plus additional credit cover of £176,000 in respect of the Rhyl station Gateway project.[17] When asked to explain the disparity between what he predicted and what occurred, Mr Lake told us that some £0.5 million was for work done in March 1996, which was not certificated till April and therefore fell to Denbighshire.[18] Of the remainder, he suggested that most would be due to inflated contractors' claims; and he maintained that the final figure might be considerably less than estimated.[19] Denbighshire witnesses accepted that some part of the liabilities were claims, but said that most were normal contractual payments and fees for work done.[20] We find it hard to believe that contractors routinely overclaim to the extent that Mr Lake suggests: if they do, it is very worrying. Nevertheless, the possibility of excess claims still clouds the issue of how much "Rhuddlan debt" was inherited.

Claw-back of grant

9. Following a petition from a local resident in March 1997, the European Commission sent a "Control Mission" to Wales to check whether the Ffrith Beach project complied with the ERDF requirements.[21] The visit took place in June 1998, and the Commission notified the Welsh Office in November 1998 of its conclusion that the project did not comply with the original plans approved, and that £768,500 of the £1.125 million grant should be repaid. (The balance of £356,500 could be retained as long the intended output in terms of jobs and visitors was achieved — a condition which looks increasingly uncertain.) The Welsh Office appealed against this decision in December 1998, and were still awaiting a response from the European Commission when they gave evidence to us in March.[22] We understand that the negotiations are still continuing.[23] While we appreciate that the Welsh Office does not "want to push the Commission into a situation where we are forced to recover the grant from Denbighshire"[24], it seems most unsatisfactory that these matters take so long to resolve.

10. Meanwhile, concern has grown about other capital projects. Denbighshire commissioned Deloitte & Touche to study four projects (the Rhyl Town Centre Pedestrianisation Phase II; the Children's Village, Rhyl; the Events Arena and Rhyl Promenade; and the Rhyl station "Gateway") to establish the extent of any shortfall in financing and the potential for claw-back of grant. Their report, published in May 1999, is unable to predict the total likely amount of claw-back, since eligibility criteria are still uncertain and final claims are yet to be agreed. The report makes the general observations that Rhuddlan's claim forms and applications contain "the bare minimum of information" and "tend not to identify other matched funding", and some claims have been based on expenditure projections rather than actual costs.[25] In the case of the Rhyl Town Centre Pedestrianisation Phase II, it appears that there was an element of "double funding" with 100% funding from the WDA (in Town Improvement Grant) and 50% funding from the ERDF. In other words, both grants were claimed against the same expenditure — which should not have occurred.[26] This is likely to result in claw-back by the WDA.[27] Denbighshire estimates that £300,000 may be at risk of claw-back.[28] In the case of the Children's Village, there is uncertainty whether the costs of constructing a cinema are eligible for ERDF funding: this factor and the failure to secure private sector involvement may lead to claw-back. Denbighshire suggest that £1.4 million may be at risk. In the case of the Events Arena and Rhyl Promenade, while the scheme diverges from the original specification, there is thought to be no risk to grant entitlement. In respect of the Gateway, it appears that the contract for Phase II of the scheme was let after the expiry date for the award. Denbighshire suggest that £600,000 may be at risk. The potential claw-back from the three projects where grant is in doubt may amount to some £2.3 million.[29]

THE MISSING FILES

11. Efforts to get to the bottom of what happened have been hampered by the apparent loss of the former Chief Executive Officer's working file or files on Rhuddlan's capital projects. Mr Lake told us that there were around 100 files, contained in four filing cabinets in the room next to his office in Russell House in Rhyl, and that he handed these over to the Borough Secretary on 30 March.[30] Denbighshire confirm that they have received 94 files relating to Rhuddlan projects: what is said to be missing is the file or files in which Mr Lake maintained his own working papers.[31] Mr Lake denied that any files were shredded by the outgoing administration, as has been rumoured locally.[32] It seems strange to us that Mr Lake sought signatures for Waterford crystal glass and other valuables, but attached less importance to files explaining where Rhuddlan's money had been spent.[33] The procedures for handover were woefully inadequate. It is unlikely that the working files will turn up at this late stage: conclusions will have to rely on the information currently available.

RESPONSIBILITY

Rhuddlan officers

12. Responsibility for the Rhuddlan debt must lie principally with the officers of the former Rhuddlan Borough Council. In the view of the District Auditor, "Errors of judgement were made by certain officers of Rhuddlan Borough Council ... compounded by a failure to follow all the proper procedures".[34] He concluded that officers were remiss, even negligent, but not guilty of wilful misconduct, and thus there were no grounds for a surcharge.[35] He found no evidence of fraud or corruption. Given that the Chief Executive Officer took such a leading role in the capital programme, he must bear the major part of the responsibility. Mr Lake accepted — somewhat grudgingly — that the overspend amounted to mismanagement, though he demonstrated little evidence of contrition or even regret.[36] The Deloitte & Touche report observed that "there appears to have been a lack of understanding by Rhuddlan BC of the rules surrounding the various grant regimes".[37] Given Mr Lake's long experience and success in obtaining grant support, we wonder whether it was not so much a lack of understanding as a lack of care. The District Auditor suggested that the Chief Executive Officer's failure to keep Council members sufficiently informed of costs, contract variation and funding would have provided grounds for disciplinary proceedings, had he not left local government service.[38] Council officers have been found by the District Auditor to have been negligent in their management of very large amounts of public money: we empathise with the anger felt locally that those involved have got away without so much as a reprimand. It is time that the former Chief Executive Officer, who has admitted mismanagement, should now apologise to the community for what took place.

Rhuddlan Councillors

13. While the mismanagement of Rhuddlan's capital programme is primarily the responsibility of the Council's officers, it does not reflect well on the members of the Council. The Councillors from whom we took evidence (the Leader of the majority Independent Group, and the Secretary to the Labour Group) were keen to distance themselves from what had occurred, stressing that they relied on the advice of officers and trusted that the District Auditor would inform them if anything was amiss.[39] Indeed, as every former Councillor we contacted was at pains to deny that they had been Leader of the Council, we can only assume that it was left to the Chief Executive Officer to take on this role. Councils should be led by Councillors, not by Council Officers, however experienced. Rhuddlan Councillors appear to have been dominated by their Chief Executive to a degree that is most unhealthy. The way in which the Council operated was worryingly informal: full Minutes were not kept for meetings of the Council Committees, and Councillors accepted oral reports from officers on even major issues.[40] The District Auditor criticised members of the Tourism and Amenities Committee, in particular, on the grounds that they "should have been more thorough in obtaining financial reports from officers and more diligent in complying with the Prudential Code by gaining confirmation that suitable funding was in place to meet both planned and unplanned expenditure".[41] Rhuddlan Councillors cannot abdicate responsibility for their Council's financial mismanagement: they do not appear to have taken sufficiently seriously their duty to their electorate to ensure the proper management of public funds.

Denbighshire

14. Nor can Denbighshire escape some share of the responsibility for the problems which have landed upon it. They failed to take advantage of the shadow period to get a full understanding of Rhuddlan's financial position. Given the size and importance of Rhuddlan's capital programme, it is surprising that Denbighshire's Chief Executive did not initiate direct contact with Rhuddlan's Chief Executive Officer. There clearly was, and is, a lack of personal warmth between key players on the two sides, and we fear that this has impeded their professional co-operation. It is surprising that greater pressure was not placed on Rhuddlan to provide a formal capital programme statement for 1995-96. Too much was left to trust and unsubstantiated assurances. It is remarkable that no effort was made by Denbighshire to contact former Rhuddlan officers when the problems with Rhuddlan's finances became apparent, or to enlist their support in resisting claw-back by the European Commission.

The District Auditor

15. The District Auditor too has come in for some criticism for failing to draw attention to Rhuddlan's problems sooner. The current District Auditor, Mr Ceri Stradling, took up his post in November 1996, so cannot be held responsible for what happened previously; but there has been some question over whether his predecessor should have identified problems during 1995-96, or indeed in previous years. At the request of the Welsh Office, the Audit Commission commissioned a private sector auditor to conduct an independent investigation of the work of the District Auditor in respect of Rhuddlan's financial standing.[42] They concluded that the District Auditor's performance had not been remiss, that the audit investigations carried out were appropriate, and that there was no evidence that Rhuddlan's capital programme was unfinanced prior to 1995-96.[43] While it beggars belief that Rhuddlan's capital programme went so spectacularly wrong only in the last few months, there is no clear evidence to the contrary.

16. Denbighshire are of the view that there was something wrong, not with the performance of the District Auditor, but with the process of audit at that time. The practice until recently was not to audit grants on capital projects until the final grant claim was submitted. Denbighshire's Chief Executive has suggested that this practice meant that there were "question marks about the validity of the accounts certified by the District Auditor for the final years of Rhuddlan Borough Council".[44] The District Auditor explained that the annual accounts process would involve checking capital grant income, receipts and accruals, but that it would not be until final certification of grant claims that eligibility and double-funding issues would be addressed.[45] Thus, problems occurring several years ago are only now coming to light. The introduction of annual grant audit and certification from March 1999 was, in our view, long overdue.[46]

17. It seems that the role of the district auditor is more limited than is commonly thought. Mr Stradling emphasised that it is "the responsibility of management to operate in such a way that the body's financial standing is sound; the role of the auditor is to review the arrangements in place and carry out an independent assessment".[47] As he told us, "having proper arrangements in themselves is not a cast-iron guarantee that things may not go wrong ... it is dependent on officers and members applying those ... arrangements properly at all times". This fact was evidently not clear to Rhuddlan Councillors.

Grant-giving bodies

18. Some responsibility for the Rhuddlan debt must lie with the Welsh Office, and with the Welsh Development Agency and Wales Tourist Board, who grant-funded Rhuddlan's capital programme. It is clear that their monitoring of the £8 million in grants they dispensed was inadequate. Deloitte & Touche's report shows that Rhuddlan was allowed for years to get away with grant applications and claims which lacked rigour and detail, with very little being done to challenge them by the grant-giving bodies. When problems were identified, there seems to have been little follow-up. They placed, and continue to place, considerable reliance on the word of local authority officers and on the work of the District Auditor. Public money should be better looked after. As Denbighshire's Chief Executive suggested, grant-making bodies cannot "disown responsibility for the use of the grants".[48]

THE IMPLICATIONS FOR DENBIGHSHIRE

19. The burden of debt inherited from Rhuddlan has had a considerable impact on Denbighshire.[49] It impacted on Denbighshire's revenue position in the first two years. It has affected, and continues to affect, Denbighshire's capital programme. An estimated £3.4 million has been diverted from planned schemes across the county (for example, much-needed road improvement and school building repairs). As some of this could have been used as match funding to secure grant funding, the total loss may be as much as £5 million. The threatened claw-back of grant will make the situation worse. Denbighshire, as part of the West Wales and the Valleys area, is soon to be eligible for Objective 1 funding: there is real concern that the county will not be able to benefit fully from this great opportunity, if it has no money to provide match funding. The Rhuddlan debt has taken a large amount of officers' time, diverting them from other, more positive, work. It has had a negative effect on the public image of the county and its local government, discouraging further investment by the private sector. And it continues to divide the local community, with resentment against the Rhuddlan area from other parts of the county.

20. As soon as the Rhuddlan problems became apparent, Denbighshire contacted the Welsh Office to inform them of potential financial difficulties.[50] In February 1997 the Welsh Office agreed to a financial assistance package, allowing Denbighshire to finance Rhuddlan's unfinanced expenditure by transferring £1 million originally intended for Home Renovation Grants, and by a loan of a further £1.5 million, to be paid back over three years from 1998-99.[51] In August 1997, following publication of the District Auditor's Public Interest report, the Welsh Office extended this package to allow a transfer of £1.27 million housing money and a further loan of £2.5 million, to be repaid over five years from 1999-2000. The package has since been extended to provide £100,000 to fund a review of Rhuddlan's capital programme and to dispense with the agreed repayment of £0.5 million in 1999-2000 and 2000-01, if the Council is required to pay grant back to the European Commission.

21. The Parliamentary Under-Secretary of State for Wales told the House on 25 June that "we have done all that is possible and reasonable to assist the authority ... the Welsh Office has to be seen to act fairly with Denbighshire, but also to other local authorities".[52] Of course, Denbighshire should not receive preferential treatment, and we recognise that all unitary authorities inherited some outstanding debt. The Minister's statement that Denbighshire is in the lowest third of Welsh authorities in terms of outstanding loan debt is a little misleading. Welsh Office figures show that, at 31 March 1998, Denbighshire's outstanding debt stood at £921 per head, which is the highest figure in Wales.[53] As ever, statistics can be found to support whatever view you wish. While the assistance package has allowed Denbighshire to cover the Rhuddlan overspend, it has been left to absorb its inherited liability of £3.3 million. As far as we are aware, Denbighshire is uniquely positioned among Welsh local authorities in view of the unexpected nature of its debt and its size in comparison to the authority's overall budget.

FURTHER INQUIRY?

22. There have been many calls in Denbighshire for a full public inquiry into the Rhuddlan debt. We can fully appreciate the frustration felt locally that all the facts are still not known. We readily acknowledge that our own inquiry has thrown little new light on the exact causes of the overspend or the increased inherited liabilities. As the District Auditor has suggested, it is unlikely — given the lack of papers — that the full facts will ever be known. But we believe that there needs to be further study of what went wrong in Rhuddlan, in order to ensure that it does not happen again. We suggest below that the National Audit Office and the Audit Commission together initiate a review of audit practice and grant-monitoring, using Rhuddlan as their starting point. We believe there are important lessons which should be learned from Rhuddlan for wider application in Wales and across the UK.

Lessons to be learned

LOCAL GOVERNMENT

23. Rhuddlan offers many lessons for the future operation of local government. Councillors must take responsibility for ensuring the good financial management of their Councils. While officers will always play the major part in day-to-day management, it must be clear that Councils are run by Councillors. Councillors must be of sufficient calibre to be able to challenge experienced officers, and understand the many complex financial matters which are put before them. There ought to be much clearer guidance as to the degree of discretion which can properly be delegated to officers, and there ought to be safeguards to ensure that too much power is not vested in individual officers. It should be made plain, in our view, that it is not acceptable for the posts of Chief Executive Officer and Chief Financial Officer to be combined, even for short periods. We welcome the Government's proposals to strengthen and reinvigorate local government, as set out in the White Paper "Local Voices — Modernising Local Government in Wales"[54], and we note that the draft Local Government (Organisation and Standards) Bill, currently under scrutiny by a Joint Committee of the two Houses of Parliament, will apply to Wales. We suggest that Rhuddlan should be borne in mind as a useful object lesson, when reform of local government is being considered.

24. One clear lesson from Rhuddlan is that satisfactory auditors' reports in themselves do not guarantee that a local authority is in good financial health. This simple fact, though obvious to an auditor, is not always understood by Council members or the public. The limitations of the District Auditor's role should be spelt out more clearly in guidance to local authority members.

25. It is likely that local government in Wales will be not be subject to further reorganisation for a good many years. Nevertheless, it may be useful to learn lessons for the future from the handover from Rhuddlan to Denbighshire. There should, in our view, be much clearer guidance as to roles and responsibilities in the shadow period. It is clear that the effectiveness of the old authority was greatly reduced by staff losses, and the effectiveness of the new by the fact that many of its officers were working in dual roles. Though it may be hard to avoid some disruption, when officers are naturally eager to secure posts with new authorities, it might be possible to offset the increased workload of remaining officers by the short-term employment of support staff, for example. Consideration should be given to retaining key staff from the old council to prepare the final accounts of their last year in operation.

EUROPEAN STRUCTURAL FUNDS

26. We believe that Rhuddlan provides very significant lessons for the future operation of the European grants process. The imminence of Objective 1 funding in large parts of Wales, Denbighshire included, gives these issues particular urgency. It is vital that those applying for grant-funding appreciate the importance of keeping to specification and of fulfilling the terms of the grant. Risk of future claw-back must be avoided. We urge the National Assembly, perhaps through the Wales European Task Force, to develop new guidance for grant applicants which is thorough, yet readily understandable. We suggest that this should be supplemented by a series of seminars or local workshops on the application process, and perhaps regional advice centres. This will require resources, but we believe this would be cost-effective in the longer term.

27. The Deloitte & Touche report has shown that the monitoring of Structural Fund money has not been adequate. It is quite bizarre that the problems with the Rhuddlan projects only came to light because of a complaint by a member of the public. Monitoring of Structural Fund grants must be much more effective. While there is no evidence of fraud in Rhuddlan, the potential for fraud must be great. We suggest that the National Assembly should increase the number of staff involved in this area considerably.

28. What we have learnt in this inquiry of the performance of the European Commission has been less than impressive. Welsh Office witnesses appeared to find it unsurprising that they were still awaiting in March a response to a letter of December.[55] Less used to the ways of the Commission, we were surprised by its slowness in responding to our own inquiries: indeed getting a response at all required considerable chivvying.[56] We accept the assurance of the Director of the Commission's Regional Policy and Cohesion Directorate that their delay in responding was simply error, "not a sign of a low priority given to requests for information from Committees of national Parliaments".[57] As European integration proceeds, it is increasingly important that the Commission be open and accessible to inquiry from Select Committees of national Parliaments, and indeed from the National Assembly. We see no reason why we should accept lower standards — in terms of quality and speed of information — from the European civil service than we would from our own. We urge the European Commission to review its procedures for dealing with inquiries from national Parliaments and to establish clearer lines of responsibility and communication. We understand that our experience is by no means unique among Select Committees of this House, and ask the Government to raise the matter through the Council of Ministers.

GRANT-MONITORING AND AUDIT PRACTICE

29. The Rhuddlan events also hold lessons, we suggest, for the way in which UK grant-funding is monitored and audited. At present, the grant-giving bodies rely to a very great extent on the probity of the recipients of grant, and on District Audit. There appears to be little attempt to verify claims for themselves. Each grant-giving body appears to operate a different regime: greater consistency would make things much easier for applicants and auditors. One problem area may be the division of responsibility for audit between the National Audit Office (central government) and the Audit Commission (local government). We note that the National Audit Office currently has no power to follow grant down to the point of spending. We suggest that there would be merit in giving the National Audit Office the right of access to the accounts of local authorities, in order to follow through their audit of grant-giving bodies. We believe that there is need for a fundamental review of audit practice and grant-monitoring, and suggest that it would be appropriate for the National Audit Office and the Audit Commission to carry this out jointly.

Conclusion

30. Responsibility for funding local government in Wales passed on 1 July to the National Assembly of Wales. We hope that Assembly Members will recognise the severity of the financial problems facing Denbighshire and will provide further financial assistance to the county if it is required to pay back grant to the extent that is feared. We urge the Assembly to support our proposal of a review of audit mechanisms to ensure that problems of this kind do not escape attention for so long again, and that the expenditure of public money is better monitored in future. The imminence of Objective 1 funding requires that the system for monitoring Structural Fund moneys be reviewed with particular urgency. For its part, we hope that Denbighshire will begin to put the Rhuddlan legacy behind it and move on. Rhuddlan did not just leave a legacy of debt, but a legacy of extensive capital investment and innovative developments. It is now up to Denbighshire County Council to promote these projects positively.

1 Denbighshire County Council also took over the major part of the district of Glyndwr and a small part of the district of Colwyn. Back

2 Section 15(3) of the Local Government Finance Act 1982 requires the District Auditor to consider whether, in the public interest, he should make an immediate report on any matter coming to his notice in the course of an audit. Back

3 References to "Q" are to the question numbers in the oral evidence, and references to "Evidence, p" are to the pages in the written evidence published with the oral evidence, in HC 340-i. References to "Appendix, p" are to the pages of the additional written evidence published as Appendices to this Report. Back

4 District Auditor's report to Denbighshire County Council as the Authority designated to replace the former Rhuddlan District Council, 25 July 1997 ["Public Interest report"], page 3. Back

5 Public Interest report, paragraphs 7, 10-11. Back

6 Evidence, p 36. See Public Interest report, paragraphs 63-69. Back

7 Qq 44-45. Back

8 Public Interest report, paragraph 40. Back

9 Evidence, pp 34-35, 78-79; Qq 43-56, 211-215, 222-225. Back

10 Public Interest report, paragraph 41; Q 22. Back

11 Evidence, pp 36-37; Q 281. Back

12 Evidence, p 37; Qq 227-230. See also Appendix, p 9, paragraph 2. Back