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Police have been called in to probe Medway Council's trading arm.
The move has been revealed after an internal investigation into Medway Commercial Group (MCG) highlighted a projected £1 million loss.
As revealed by KentOnline in February, an employee has been suspended from MCG duties while the review is carried out.
Medway Council leader Cllr Alan Jarrett (Con) initially ordered the probe following an outcry over the Towns’ failing CCTV system.
Deputy leader Cllr Howard Doe, who took over as chairman of the company at the beginning of the year, has led the ongoing inquiry, which included an audit of accounts.
This week, a report revealed MCG made an actual loss of £667,000 in 2018/19 and is set for a projected loss of £400,000 in 2019/20.
It also found a number of additional projects “had been progressed which were outside the core business and had not provided an adequate return on investment”. These have now ceased or been transferred.
The council would not comment on how much, if any, of the £1,067,000 is linked to the police investigation and what the additional projects were. It also wouldn’t discuss what had happened with the suspended employee.
Labour leader Cllr Vince Maple has described MCG as “an unmitigated disaster” and voiced concerns about the length of time the ongoing review is taking.
Speaking on Tuesday, Cllr Doe said: “As well as continuing to focus on ensuring we provide excellent services across our four core business areas, we have had to refer certain issues to the police.
“For this reason we are unable to comment further on the matter while it is under investigation.
“I would stress nonetheless that ensuring value for council taxpayers’ money remains of the utmost importance for the council and addressing the financial situation at MCG is a priority for us that is being tackled by the actions we have taken over the last six months.
“There will be a significant reduction in MCG’s losses this year, which include one-off costs required to undertake the review and implement its recommendations, and we are confident the measures that have been implemented this year place MCG in a much more favourable position to be profitable next year.”
A list of priorities has been drawn up, including more rigorously recorded financial information and “new systems put in place which will be subject to regular internal audits”.
As part of the review, the workforce has been cut as services and projects were stopped or prioritised.
There are currently 46 full-time employees compared to 55 in April last year.
Overhead costs have “reduced significantly as expenditure on consultants supporting these projects have been scrapped”.
Cllr Maple said: “Handing back contracts, losing more than £1 million over two years, having more than half of CCTV cameras across our community not working - time and again they have failed.
“The worry is the ongoing investigation, which started at the beginning of 2019, has still to report which could have serious implications for MCG as an organisation, the Conservative elected members and senior MCG staff involved at the time.
“The public deserve better than this and when that investigation finally reports, I suspect there will be many serious questions for individuals to answer.”
MCG began trading in April 2016 and was contracted to run four key business areas — CCTV; alarm systems, including an out-of-hours call centre; school services, such as catering and waste management; and recruitment.
It was asked by the council to develop a new £25m independent school for children with special educational needs in Gillingham. But the authority has since taken this scheme out of its hands.
Police declined to comment on the investigation when asked by the Messenger.
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