Lutfur Rahman. Pic: Tower Hamlets Council

Mayor Lutfur Rahman and Tower Hamlets Council have been accused of cronyism and potential corruption after  a report by accountants PricewaterhouseCoopers severely criticised its financial management.

The report, commissioned by Eric Pickles, secretary of state for communities and local government, said the council’s grant system lacked transparency  and that some groups had obtained cash without applying for it. The full report can be read here.

Announcing that he was sending in commissioners to take over the running of aspects of the council, Pickles told MPs that the report “paints a deeply concerning picture of obfuscation, denial, secrecy, the breakdown of democratic scrutiny and accountability and a culture of cronyism risking the corrupt spending of public funds.” He told the Commons that Rahman had dispensed money like a ‘medieval monarch.’

Rahman and the council rejected the suggestions of fraud and corruption and said Pickles had gone further in his criticisms than the report.

PWC report proves what I’ve said all along. We can always improve, but ‘corruption’ and ‘fraud’ claims are baseless lies. #TowerHamlets

— Lutfur Rahman (@MayorLutfur) November 4, 2014

The review scrutinised the council’s spending specifically in the awarding of grants, property sales and publicity, which they found had a “disproportionately high profile in relation to the monetary values involved.”

It looked specifically into the case of Poplar Town Hall, which was controversially sold to the second highest bidder who was found to be associated with the mayor.

Jim Fitzpatrick, Labour’s MP for Poplar and Limehouse said: “It is shocking that Poplar Town Hall was sold, in a dodgy process, to a member of [Rahman’s] campaign team.” The actions by Pickles and the report were backed by local Labour figures; the party ejected Rahman in 2010 before he was elected Mayor. John Biggs, the Labour London Assembly member for the area who was defeated by Rahman in the election last Spring, said: “Lutfur now has nowhere to hide and should think very carefully about whether his actions are compatible with remaining mayor.”

The report also identified a lack of transparency over Tower Hamlets’ “rationale for decision to grant awards”. It was found that grants of over £400,000 were awarded to organisations that were ruled ineligible or did not meet the required evaluation score.

An Ofcom finding, echoed in the report, said that there was a clear implication that “the authority monies were spent inappropriately on what amounted to political advertising for the benefit of the mayor, breaching the Code of Recommended Practice on Local Authority Publicity”.

Pickles ann0unced an intervention package to end council activities that do not comply with value standards, remove the risk for further failure and rebuild the council’s management capacity.

He said he was sending in a team of three commissioners, accountable to him, who will oversee  functions of the Council identified in the PwC report until March 2017. They will report back to him every six months.

The council noted that while the report did identify some issues that need to be improved, there is no hard evidence of criminality or fraud.

Rahman said in a statement: “I was always confident that wild claims about fraud would not be substantiated. Both my officers and I want to get on with our jobs serving all residents in Tower Hamlets.”

Pickles’ report took 6 months to complete and cost just under £1 million, which Tower Hamlets Council have been called on to pay.

The mistake Eric makes re £1m bill is that it gives Lutfur an attack line with possibly wavering supporters — Ted Jeory (@TedJeory) November 4, 2014

Fitzpatrick said: “Many people will be concerned at the cost of the inspection – likely to be over £1.3 million [sic]. Tower Hamlets has the highest child poverty [rate] in the UK, and Lutfur Rahman is already proposing to cut nurseries and children’s social services. Tower Hamlets tax payers should not have to pay the costs of this exercise.”

In July a petition was submitted to the High Court calling for Rahman to be tried over electoral fraud.

The investigation began after a BBC Panorama documentary broadcast in April accused Rahman of foul play during his mayoral term.

By Jack D’Arcy and Kate Ng