Arm’s-Length, Out of Reach: How to Audit the Companies Your Council Owns

Local authorities have learned to love the limited company. It is a flexible vehicle for building homes, running leisure centres, generating energy and managing regeneration. It is also a convenient place to park risk, debt and decisions that would otherwise have to pass through a committee room. The result is a shadow council: a lattice of subsidiaries, joint ventures and trading arms that spend public money while often escaping the scrutiny reserved for public bodies. If we are serious about demanding better, we need to open that layer up.

Begin with the group accounts

Every council publishes a statement of accounts each year. It is usually a dense PDF, and it is the first place to look. Search for ‘group accounts’, ‘subsidiary’, ‘joint venture’, ‘associated undertaking’ and ‘trading company’. The notes should list the entities the council controls or holds an interest in, often with a registered company number, the proportion of shares held and a description of the business.

Do not stop at the list. Read the related party transactions note and the note on loans, guarantees and indemnities. A company may be legally separate, but if the council has lent it millions or guaranteed its borrowing, the public balance sheet is exposed. The question is not whether the company is technically outside the council. It is whether the risk sits with residents.

Put the directors on the record

Companies House is free, fast and underused. Take each company number from the accounts and pull the filing history. You will find annual accounts, confirmation statements and, crucially, the register of directors. Check who has been appointed and when. Check whether those directors are also councillors, senior officers or close associates of either. Check for a pattern of resignations before accounts are filed.

Directors of council-owned companies are often unpaid, but that does not make their decisions less consequential. They may approve contracts, borrowing or service charges. If a board is stuffed with the same cabinet members who set the council’s budget, the separation between commissioner and provider is thinner than the constitution suggests. Companies House will not tell you who exercises real control, but it narrows the field.

Read the accounts like a campaigner

The company’s own accounts are the next layer. Look at turnover, profit, dividends, intercompany loans and any audit qualification. A company that exists mainly to borrow on the council’s behalf will show large creditor balances and interest costs. A company set up to deliver housing may show a healthy surplus while the council pays a management fee. A leisure company may show a loss that the council covers through a subsidy.

Ask why the service is being delivered through a company at all. Commercial freedom, borrowing rules and tax treatment are legitimate reasons. So is the desire to keep decisions away from scrutiny. The accounts will not answer that question directly, but they give you the evidence to ask it in public.

Procurement: the paper trail behind the contract

Councils publish contract registers and procurement pipelines, though rarely in a form that makes arm’s-length awards obvious. Search for the company name, then ask for the contract between the council and its own company. If the award was made without competition, ask for the exemption assessment. The ‘Teckal’ exemption allows in-house awards where the council exercises control and most of the company’s activity is for the council. It has conditions, and those conditions should be documented.

Submit freedom of information requests for the contract value, performance measures and any variations. If the company subcontracts to a private firm, follow that trail too. Public money does not become private simply because it passes through a subsidiary.

Conflicts of interest are not a footnote

Ask for the company’s register of interests, board minutes and declarations of interest. Some companies publish almost nothing. That is itself a finding. A councillor who sits on the board of a company bidding for council work has a conflict; the question is whether it was declared and managed. The same applies to officers who oversee the contract while holding shares in a supplier.

If the company refuses, use the Freedom of Information Act and the Environmental Information Regulations where they apply. Refusals can be challenged. A pattern of refusal is a story.

Use the audit committee

Council audit committees meet in public. Put a question in public participation. Ask for internal audit reports on companies, the annual assurance statement and the external auditor’s value for money conclusion. Ask whether the council maintains a complete register of its companies and whether each has a business plan, a shareholder agreement and a published annual report.

Statutory guidance expects councils to maintain oversight of their companies. You do not need to be an accountant to ask whether that oversight is real. You need the papers and a seat in the room.

Build the public file

Turn what you find into a spreadsheet: company name, number, directors, council funding, contracts, accounts filed, audit qualifications and identified risks. Publish it. Send it to councillors, the local press and your MP. Ask candidates at the next election whether they will publish a full register of council companies and an annual scrutiny report.

The shadow council thrives on obscurity. Audit it, name it and put it in the light. That is how a council becomes accountable again.