Inquiry into pounds 7m loss on cable TV project: Liverpool council officials accused of incompetent management

FRAUD SQUAD officers have begun investigating how Liverpool City Council has been left with losses of up to pounds 7m from a project to connect 125,000 homes to cable television.

A confidential independent report, completed in April but still to be seen by councillors, has blamed senior officials for incompetent management of the project despite warnings of inadequate financial control, theft from stores, and fraudulent bonus claims.

The council's engineering department spent three years laying cables along 780 miles of trenches in south Liverpool after tendering successfully for a pounds 3m-a-year contract which officers said would set the authority in 'the fast lane of the information highway'.

When the council failed to win renewal of the contract in March 1993, losses had reached pounds 5.2m, a rate of more than pounds 5,000 a day. Cable had been projected to make a pounds 2m profit, and the 1991-92 budget for the city council assumed a profit from cable of pounds 1.35m. The project was already running into heavy losses.

This week the council will begin a complex legal rearguard action to reduce losses by seeking increased payments for the work it undertook for the cable franchise- holder, Cable North West.

Merseyside Police fraud squad has confirmed it has begun investigating a project which senior council officials described privately as beginning with a 'debacle', descending into 'absolute chaos' and ending in 'an unmitigated disaster'.

No disciplinary action has been taken by the council as a result of cable losses. Senior members of the controlling Labour group and Liberal Democrat opposition councillors believe rivalries between senior council officials left the city engineer's department helpless to control effectively a project on which it was never equipped to embark.

In response, one official blamed interference by councillors. 'Members buggered it up,' he told an internal hearing.

Statements and documents obtained by the Independent allege fraudulent bonus claims totalling thousands of pounds were regularly submitted by workers on the cable contract. Sources claim the council paid the bonuses, partly to avoid disputes, partly because 'neither management nor the labour force understood it'.

One official authorised bonus payments on subjective judgements he made of progress. 'It was like Torvill and Dean,' one former employee said. 'You got bonus for artistic interpretation.'

Abuses of the system meant 'certain men made a great deal of money', another former employee said. 'Men off sick are paid average bonus. Men who did not earn bonus were still paid 12.5 per cent.' Valuable materials are also believed to have been stolen from the depot servicing the project.

The independent report, commissioned by the council from KPMG Peat Marwick, found the council had ignored advance warnings that it would incur losses on cable. It allowed the project to spiral out of control, and compounded its errors by signing a contract for 1992-93 which increased losses and may have been illegally concluded without full approval by councillors.

The council has promised to publish the KPMG Peat Marwick report. No comment was available last week from senior officials.