Are councils by-passing public scrutiny?

PUBLIC SECTOR FINANCE Anti-roads campaigners may have shown up a loophole that is leading to unnecessary secrecy. By Paul Gosling

Anti-roads protesters in the North-east claim to have uncovered a "black hole" in the auditing system that allows hundreds of millions of pounds of road building each year to be approved without proper checks. Campaigners have been in conflict with Newcastle City Council for three years as they tried unsuccessfully to force the authority to disclose its figures for justifying the Cradlewell by-pass, which opens later this month.

The pounds 12m new road was given the go-ahead after Newcastle council submitted a cost-benefit analysis to the Department of Transport, applying for a Transport Supplementary Grant. But the figures used by Newcastle council are being questioned by campaigners. It was when Geoff and Penny Stansfield, owners of a local hotel, attempted to object to the calculations that they found there was a problem about audit jurisdiction.

Andrew Foster, controller of the Audit Commission, which audits local authorities, wrote to Mrs Stansfield saying: "Transport Supplementary Grant is distributed by the Department of Transport, according to conditions laid down by the Government and the department. Those conditions do not require the audit of applications for grant and the commission and its auditors, therefore, have no remit to audit such applications."

Yet Robert Sheldon, chairman of the House of Commons Public Accounts Committee, also wrote to Mrs Stansfield, on behalf of the National Audit Office, responsible for Government departments, saying: "While the National Audit Office is responsible for ensuring that money voted by Parliament is properly accounted for, it is specifically excluded from access to the accounts or records of local authorities and has no authority to audit the accuracy of information which local authorities use to prepare their bids or to check how the grant is actually applied once it has been approved. The National Audit Office relies on certificates from the District Auditor, appointed by the Audit Commission, to obtain assurance that actual expenditure is fairly stated and has been properly incurred in accordance with the conditions under which the grant was approved."

Meanwhile, Peter McNamara, formerly head of Newcastle's highways department, refused to release the calculations to local people as "a matter of principle" adding that "there is no requirement on us to provide this information to other people".

As a result, Newcastle council has been involved in an ill-tempered and festering dispute with the anti-roads campaigners, that has led to the council's annual accounts being challenged, and an objection being lodged against the district auditor for alleged wilful misconduct in failing to audit the cost-benefit analysis. Unprecedentedly, the Audit Commission appointed an outside independent auditor to review the work and approach of the Newcastle district auditor, who was found to have acted correctly. But the dispute has taken up many hours of Audit Commission business.

Both the Audit Commission and the National Audit Office maintain that the dispute does not indicate that there is anything wrong with the current system. Newcastle MP Nick Brown is not so sure, having asked several Parliamentary Questions on behalf of the local protesters to try to bring information into the public arena, though he is not persuaded by the campaigners' case.

Mr Brown says it is not surprising that the council's case was challenged by local people. "They only had the local authority's word on the figures, which puts the onus on the ordinary citizen to become an expert overnight," says Mr Brown. "It is cumbersome and prone to delays, and the council was very secretive, but I am not satisfied that the process was unfair. I don't think the procedure is satisfactory, I would like to see more candour. There should be more in the public domain, though I can't say the decision-makers were unreasonable."

Friends of the Earth argues that if the decision-making and the figures behind them were more open, then different decisions would in fact be taken. Roger Higman, FoE's senior transport campaigner, says that when the National Audit Office did check the Department of Transport's projections for road usage they were found to be broadly accurate - but only because the gross over-estimates in the South were balanced out by the gross under- estimates in the North.

FoE believes that if expenditure on national and local schemes were fairly compared, then there would be much less major road building, and far more minor road improvements. "The money available for small-scale schemes has been limited," says Mr Higman. "There is good evidence that the rate of return for local road building and minor works is much better than for national road building. The Department of Transport does not accept this as it believes that local authorities over-estimate their figures."

It is rumoured that the Audit Commission is seriously considering checking the figures used by local authorities for cost-benefit analyses, to prevent any repetition of the Cradlewell row. However, no one at the commission was able to confirm whether this was correct.