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Shopping centre purchase is ‘ongoing risk’ to county council

Manor Walks in Cramlington.
Manor Walks in Cramlington.

A Northumberland shopping centre, which was controversially bought by Arch in 2016, represents an ongoing risk for the company and the council, auditors have warned.

At last Wednesday’s meeting of the county council’s audit committee, external auditors EY presented their draft report for the local authority for the 2017-18 financial year.

For the second year running, EY plans to issue a modified value for money opinion, concluding that ‘the council had proper value for money arrangements in place except for in relation to governance and oversight at the Arch Group’.

The auditors do note that new governance arrangements have been introduced, but they ‘had not been embedded for the full financial year’.

In terms of land and buildings, the report explains that Arch valued Manor Walks in Cramlington and the adjacent Westmorland retail park – which were purchased for a total of £114million – at £117.75million.

EY’s own valuation suggests an acceptable range of between £110.65million and £119.25million, but would have expected it to fall at the lower end ‘given the current volatility in the retail sector’.

The Arch valuer, when asked by EY, said £117.75million was appropriate as the centre so far ‘appears relatively unaffected by the decline in the retail market’.

The report says: ‘We are content that this explanation supports the judgement taken; however, this is a significant judgement taken by management which we draw to the attention of the audit committee.

‘The value of the centre represents an ongoing risk for the Arch Group and for the council.’

After the meeting, Coun Nick Oliver, the Conservative administration’s cabinet member for corporate resources, said: “It’s a vindication – which is a shame in that it affects the value of a council asset – of what we were saying before we took control of the council.

“The question around whether Manor Walks was ever a good investment has been highlighted.

“It’s about Arch and its role, and we are still of the opinion that it should not have been doing those type of speculative investments.”

The EY report also says that they ‘identified a number of significant risks around informed decision-making as part of our audit planning work’.

These were the restructuring of the senior management team and agreeing an exit package for the former chief executive, the relocation of County Hall, the withdrawal of the Local Plan and the intention to wind up the Arch Group.

While EY did not intend to modify its value for money conclusion in relation to any of these, the report does set out some observations and recommendations.

The audit committee also received the annual report on the council’s treasury management and there are ‘a few bumps in the road coming up’, according to executive director of finance Barry Scarr.

For example, there is a ‘huge amount of money to refinance in the coming years’ – including around £270million in the next five years – and the interest rates will certainly be higher than they have been previously.

However, when signing off the council’s 2017-18 statement of accounts, committee members were assured by Mr Scarr that ‘the council’s overall position remains healthy’.

Ben O'Connell, Local Democracy Reporting Service