The Audit and Governance Committee of Newham Council met on Thursday 4 January 2024 to discuss the governance arrangements for Populo Living Ltd, the council's wholly-owned trading company. The committee reviewed an advisory report by Veritau, which highlighted significant areas for improvement in how the council oversees Populo. Key concerns included a lack of clarity in shareholder roles, insufficient evidence of robust scrutiny, potential conflicts of interest, and inadequate risk management processes.

Populo Living Ltd Governance Review

The Audit Committee reviewed an advisory report by Veritau concerning the governance arrangements for Populo Living Ltd, the council's wholly-owned trading company. The report identified several areas where improvements are needed to ensure robust oversight and accountability.

Lack of Clarity with Shareholder Roles and Absence of Scrutiny

A significant concern raised was the lack of clarity surrounding shareholder roles and the absence of sufficient scrutiny of Populo Living Ltd. Veritau's report found limited evidence that the council's Shareholder Group was holding the company strictly to account, despite its terms of reference stating it acts as an accountability mechanism. The report noted that the Shareholder Group, which includes senior officers and Populo management, acts in an advisory capacity and does not directly report to the Mayor or Cabinet. This structure potentially creates conflicts of interest for senior managers who are involved in both advisory and decision-making capacities.

Furthermore, neither the council's Overview and Scrutiny Committee nor the Audit Committee currently have a role in overseeing Populo Living Ltd. The report stated, Overall, despite our enquiries it is not evident where formal scrutiny and oversight is actually being performed within the council's governance process to ensure that the company is held robustly to account prior to decisions being made by Cabinet. ¹

ACTION AC193 was agreed, requiring formal minutes to be taken at the Shareholder Group monthly meetings and for the most recent set of notes to be circulated. Veritau will also provide the committee with a copy of their testing plan, detailing the information they requested and the replies received, under ACTION AC194.

Conflicts of Interest and Appointments

The review highlighted a lack of appropriate arrangements to manage potential conflicts of interest between council and company roles. The council does not have a formal policy for managing conflicts of interest for members of the Shareholder Group or company boards. A particular concern was the reliance on one senior officer, the Director for Community Wealth Building, who fulfils multiple key functions: a member of the Shareholder Group, an interim council representative on Populo's board, and the primary commissioning officer. This situation was described as contributing to a significant conflict of interest existing due to the lack of independence and transparency that the governance process requires. ²

The report also noted that despite the council's Shareholder Agreement and Articles of Association stating the council should appoint non-executive directors to the company board, there is currently no independent council director on the board. The appointment process for council directors has faced challenges, with the sole internal applicant reportedly having insufficient experience.

ACTION AC195 was agreed, requiring a copy of the conflict of interests policy to be circulated to the Committee.

Council Risk Management and Scrutiny

The council's arrangements for managing the risks associated with owning a trading company were found to be inadequate. The Veritau report stated, with risk management we have not been provided with evidence to confirm how/ that the council is effectively managing the risks associated with its trading company. ³ While Populo maintains its own risk register, it was unclear how this information was being scrutinised by the council. The council's corporate risk register includes a risk related to the governance of the company, but it was unclear if this risk was being effectively managed with appropriate mitigation actions.

The report also noted that the council had not formally conducted risk assessments or reviewed its risk tolerance in relation to Populo Living Ltd to ensure it remained within the council's overall risk appetite levels.

ACTION AC196 was agreed, stating that an audit would be taken on the action plan created from the report and the progress made in December 2024.

Reprofiling Dividend Payback and Extending Loan Covenants

Concerns were raised regarding the reprofiling of dividend payback and the extension of loan covenants for Populo Living Ltd. The council has agreed to defer dividend payments until 2045, a significant shift from previous plans. The report noted that changes to company performance and the delayed dividends represent an increased risk to the council. ⁴ While senior management expressed confidence in the asset portfolio's ability to cover debt, the report found no evidence that this strategy had been adequately risk-assessed or that the reducing outputs had been robustly challenged.

ACTION AC199 was agreed, requiring the Committee to be sighted on a formal exit strategy for Populo.

Business Plans

The timeliness and production of Populo Living Ltd's business plans were also a point of concern. The report highlighted that the business plan for 2021/22 was produced late, and the 2023/24 plan was not presented until April 2023. Crucially, there was no business plan produced for 2022/23, meaning a 12-month period where the council could not effectively oversee the company's performance in business plan terms. The report found no evidence that the council had challenged these delays or rigorously scrutinised the information within the business plans, especially given that performance targets were consistently not being met.

ACTION AC197 was agreed, that the Chair of the Committee liaise with the Chief Executive regarding officer non-compliance with audit requests.

Company Review and Grant Thornton Report

The council's approach to reviewing its trading company was also questioned. The report found no evidence that the council had formally considered Populo's activities alongside its business plans since the company was repurposed in 2018 to focus on affordable housing. Furthermore, the council had not formally responded to or acted upon recommendations from a June 2022 Grant Thornton report that advised a review of working capital funding arrangements and equity investments in Populo Living Ltd. Similarly, an internal review report from August 2022 had made recommendations that had not been fully implemented.

Actions Log

The committee reviewed its actions log. ACTION AC184, concerning ensuring officers had the right to work in the UK, was noted as being added to the corporate risk register by the Corporate Director of Resources. However, a member expressed dissatisfaction with the response regarding compliance with mandatory training, and Action AC189 will remain open until further assurance is received. Members also requested further clarification on Action AC187 for the February meeting.

Year Ahead Forward Plan

The committee discussed its forward plan for the year ahead. Concerns raised by Councillor Nate Higgins regarding the effectiveness of standards processes, delayed reports, and lack of access to reports were noted.

ACTION AC198 was agreed, that a meeting be held with the Corporate Director of Resources and the Chair of the Audit Committee to discuss these concerns. A request to bring forward the confidential Fraud Report from April to the February meeting was also noted and would be followed up.