Council report on WAMH debt

Press Release: 05/09/2005

Winchester City Council's Principal Scrutiny Committee and Cabinet will be discussing a report by the Council's Chief Executive at their meetings on 12 and 14 September about the circumstances surrounding the £353,483.29 owed to the Council by the Winchester Alliance for Mental Health (WAMH). The Alliance has now gone into liquidation with the debt to the Council unpaid.

Members will also have before them the conclusions of a Council-commissioned independent investigation undertaken by PricewaterhouseCoopers (PwC) on the circumstances in which the debt arose.

PwC record that the debt stemmed from the Council's wish to support WAMH in providing a service to those with mental health problems. The Council in effect gave credit to WAMH when it began to provide payroll services. Their debt was then allowed to increase because "on balance this was considered the best option for the community", when the alternative seemed to be closure of the service.

PwC noted that the Council did monitor the debt incurred and Members did consider different options for its management and reduction, and the risks associated with these options. They suggest that "a more robust risk assessment would have included a more thorough assessment of WAMHs financial position that would have indicated more firmly that the Council withdraw support, even though this would have caused WAMH to become insolvent at an earlier stage".

PwC conclude that "the decisions relating to the debts owed by WAMH were made in good faith with the intention of allowing it to continue trading and providing services to the community, and this appears to have had general support from Members."

They also state that "the risk assessment and financial assessment of the debt should have been fuller and better documented and the extent to which the Council was prepared to allow the debt to increase should have been formalised" and that "more formal arrangements, such as a signed contract, are necessary when the Council is providing services to other organisations."

The Council has already reviewed its policy of providing payroll services to third parties and continuing to allow credit should arrears arise. The Council has also introduced a requirement that in future all third-party organisations pay in advance.

In his report the Chief Executive notes that the Council's risk and financial assessments, whilst reflecting the norm for the time, could have been more robust and that the Council has since introduced new policies reflecting current practice in risk assessment.

A recommendation in the Chief Executive's report is that the Council write off the debt. The Chief Executive says "We make provision in our accounts for the non-recovery of debt and there is no direct impact on the level of the Council Tax, albeit that had the debt not arisen the reserves would have been higher and funds would have been available for other purposes."

The Chief Executive suggests that "the debt and likely write-off is very significant and Members will want to consider the actions taken at the time and the lessons learned". Members will now discuss both reports at the Principal Scrutiny and Cabinet meetings with a view to considering how systems and procedures should be further strengthened.