Folkestone & Hythe District Council: Audit Reports Expose Contract Rule Failures and Demand a Compliance Reset

They are, without doubt, three remarkable women: capable professionals with a clear, shared intent to get Folkestone & Hythe District Council back to basics on governance. In plain terms, they want every officer to follow the rules on spending public money and buying services — the Contract Standing Orders (CSOs) and the Financial Procedure Rules (FPRs) — every time, without exception.

That intent is now being turned into action. Mandatory CSO/FPR training is being rolled out for all 464 staff. The message to budget holders and anyone involved in procurement or contract management is simple: compliance is not optional, and “we’ve always done it this way” is not a defence.

A lot of what sits behind this push will feel familiar to anyone who has followed the audit trail. Time and again, the same themes have surfaced: non-compliance with CSOs, non-compliance with financial rules, and the knock-on risk of financial irregularities and contractual irregularities. What changed at the Audit & Governance Committee on 7 December 2022 was the temperature in the room. The council’s three statutory officers faced sustained, forensic questioning from councillors who were clearly determined to pin down what went wrong, what is being fixed, and how quickly.

The underlying reason for the hard line is obvious enough. The council is projecting an £18.5m deficit across four years. In that context, further laxity on process is not just untidy — it is potentially expensive. The statutory leadership is signalling, in effect: we cannot afford “informal” procurement, missing paperwork, weak controls, or casual approaches to contract valuation. Those habits create risk, and risk is what turns into cost, challenge, and reputational damage.

This is also about legal exposure. A council that cannot demonstrate “due process” — following its own rules, recording decisions properly, showing it treated suppliers fairly and spent lawfully — leaves itself open to challenge, including judicial review and other legal routes. Training is not a magic wand, but it is a necessary foundation if the culture has drifted.

The three statutory officers of Folkestone & Hythe District Council are.

Head of Paid Service & Chief Executive  Dr. Susan Priest

Director Corporate Services & Chief Finance Officer (S151) – Charlotte Spendley

Assistant Director Governance & Law – Monitoring Officer – Amandeep Khroud

These roles are not optional extras. They exist because law and regulation require councils to have senior officers responsible for staffing, finance, and lawful decision-making. When they say “this must change”, it is not a suggestion.

At that meeting, three substantial reports landed on the table.

The Report Number AuG/22/22 – Subject: The Audit Findings for Folkestone & Hythe District Council and FHDC AUDIT FINDINGS REPORT 21-22

Quarterly Internal Audit Update Report from the Head of East Kent Audit Partnership

Governance Update

First came the external auditor’s Audit Findings Report for 2021/22. One example in Appendix A illustrates why details matter. Grant Thornton identified that an Otterpool loan was held at cost (£1.25m), while Otterpool Park LLP’s net asset position at 31 March 2022 was £0.537m. The auditors challenged the council on recoverability: if the LLP was not a going concern, the council’s maximum recovery could be limited to that net asset position. That implies a potential loss of £712,000 — and the report states this was rectified.

The audit findings also highlight the special complexity that comes when a local authority has material interests in subsidiaries, associates and joint ventures — such as Oportunitas Ltd and Otterpool Park LLP. In those circumstances, the council must produce group accounts, not just a “single entity” set of statements. Here, Grant Thornton noted that a short-term debtors figure in the group balance sheet was wrong: £4.132m was stated, but it should have been £17.442m. Put plainly, the amount owed to the group within the short term was understated by £13.31m — an understatement of around 322%. That has now been corrected, but the point is stark: this was not a rounding error. Short-term debtors are a key indicator of cashflow health and liquidity — in everyday terms, how much money is due in, and whether the organisation can meet its near-term commitments without unpleasant surprises.

In the second document – Quarterly Internal Audit Update Report from the Head of East Kent Audit Partnership can be summed up by the chart.

Second came the Quarterly Internal Audit Update from the Head of the East Kent Audit Partnership. The headline message, as summarised in the report, is that contract management controls and governance received “Limited Assurance” because testing identified multiple weaknesses. One core problem is painfully practical: officers were generally aware that CSOs exist, but many were unfamiliar with the full requirements. The audit also found a lack of awareness about the need to make a genuine pre-estimate of contract value across the whole life of the contract — which matters because getting the value wrong can mean using the wrong procurement route, breaching thresholds, and undermining competition and value for money.

The same update raised other control issues that will resonate with residents because they touch everyday services. It notes no reconciliation between actual income received (as recorded on the council’s financial system) and expected income (as recorded on the garden waste system). It also records instances of car park machines going out of service because cash boxes were full and had not been emptied by the contractor. These are not abstract “governance” problems; they are basic control failures that affect revenue and service reliability.

Again the Cllrs excelled and onwards they charged

Third came the Governance Update, which we have previously reported on. This is where the language becomes hardest to ignore. In Housing Planned Maintenance — contract management — the audit work found that management could place “No Assurance” on the system of internal controls around both procurement and contract management. A “No Assurance” conclusion is as serious as it sounds: it means fundamental weaknesses or non-compliance were identified and immediate action is required because governance, risk management and controls are not adequate to manage the risks in that area.

Worse still, the report states that significant levels of non-compliance were identified, including with basic procedures. Fourteen recommendations were agreed with management, including two “critical priority” items and twelve “high priority” items. That is the language of an organisation that has drifted away from the standards it must meet.

 

The Governance Update also covers officer interests and related party issues. It reports fourteen recommendations, seven of them high priority, with “Reasonable Assurance” on policies and procedures but only “Limited Assurance” on the internal controls operating around the officer interest process. The recommendation is essentially for clarity: declarations and related party transactions need clearer definitions about what must be recorded (for example, whether the related party is an individual or a company, and the nature of the relationship). It also points to a transparency issue: purchase orders on the Badger system should be reviewed to ensure the relevant details are properly reflected in the council’s published transparency data.

On transparency more broadly, the council appears to be trying to steer a path between public accountability and data protection. It has shown a willingness to publish company names connected to declared interests without naming individual officers, in order to reduce identification risk while still making the public record more meaningful.

There was also discussion of a data breach and the subsequent investigation. The report describes efforts to establish the facts surrounding the disclosure of sensitive information that ended up being published online. Our understanding is more mundane than the drama: papers were reportedly lost, found by a member of the public, and forwarded on. Whatever the route, the governance point remains: confidential information handling needs to be tightened, and the report identifies management opportunities to improve how staffing data is protected.

One further headline matters for democratic accountability. It was said that two sets of audited accounts are expected to be signed off in January. If that happens, it would mean the 2021/22 accounts will finally be opened for public inspection — albeit months later than they should have been under the normal timetable.

So where does this leave residents? The statutory officers have, in effect, drawn a line in the sand. With a projected £18.5m deficit over four years, further non-compliance with financial rules and Contract Standing Orders is being treated as intolerable. The hope is that mandatory training is not just a tick-box exercise, but the start of a real cultural shift: a cascade of better habits, better records, better controls, and fewer nasty surprises.

And yes, it is the season when people recommend “light reading”. If officers want one document that explains why process matters, they could do worse than The Judge over Your Shoulder — because it spells out the central truth of public administration: if you cannot show you followed due process, you may not be able to defend your decision when it is challenged.

   

We think these three statutory officers (pictured above) are capable of delivering the change that is being demanded of them — and of the organisation they lead. The question now is whether the training becomes a genuine reset, or just another report that says the right words while the old habits quietly carry on. With £18.5m of pressure on the horizon, the council does not have the luxury of finding out the hard way.

The Shepway Vox Team

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