Calls for Government probe after auditors raise financial reporting errors at Ben Houchen's Tees Valley authority

The consultancy giant said it was unable to sign off TVCA’s 2024-25 accounts, saying it uncovered “material misstatements” and “material inconsistencies”.

It said these included differences between the opening balances and corresponding closing balances.

EY also said “there was a general lack of responsiveness to our audit enquiries”, and TVCA failed to inform the accountants of significant governance changes.

In its latest Cabinet papers, TVCA said “there is a risk that matters arising from the conclusion of this review that may have an impact on the financial position of the authority”.

A spokesperson said the combined authority had accepted the auditors’ findings and “significant action has been taken in response to historic weaknesses in finance and governance arrangements”.

The revelations are the latest in a string of controversies around Tees Valley’s finances and governance, particularly around Teesworks.

The freeport, which covers the former Redcar steelworks site, was initially a 50-50 joint venture between public body South Tees Development Corporation (STDC) and businessmen, Chris Musgrave and Martin Corney.

A transfer of shares in November 2021 saw the businessmen take control of 90 per cent of Teesworks Ltd, the company vehicle for the scheme, which was supported by Lord Houchen, who has been mayor since 2017.

More than £500m of taxpayers’ money has been spent, with Mr Musgrave and Mr Corney extracting at least £120m via dividends and other payments.

A Government review in January 2024 found “no evidence of illegality” but made 28 recommendations for improvements in governance and transparency with Teesworks and TVCA.

The EY report, published in last week’s Audit and Governance Committee papers, raised concerns that TVCA may have ended its response to this too soon.

“In our view, the effective closure by the authority of its action plan after six months is indicative that the authority may not have fully embedded the required improvements in its governance structures and processes and there is therefore an increased risk that such changes will not have the lasting impact they were intended to achieve.”

Following the EY report, Mr McDonald said he had written to Mr Reed “to seek the department’s assessment of these scandalous developments”. MHCLG did not respond to a request for comment.

The Labour MP has been a long-standing critic of the Tory mayor, who branded Mr McDonald “a coward” in 2023.

The latest controversy come after the Labour Government issued a Best Value Notice to TVCA in April, saying there were “weaknesses in value for money arrangements”.

Speaking at last week’s Cabinet meeting, chair of the independent advisory board Rob Whiteman said he would be supportive of this being lifted: “But it’s not our decision, it’s a decision for the department.”

A TVCA spokesperson said: "Significant action has been taken in response to historic weaknesses in finance and governance arrangements highlighted in the Tees Valley Review in 2024 and which were accepted by TVCA.

"The Tees Valley Review found no evidence of illegality and no evidence relating to legality has been raised by the auditors. No decision by TVCA or STDC has ever been found to be unlawful.

“The past practices do not cover the current period during which a new TVCA statutory team has been in place to drive improvements.

"Detailed and robust action has been taken to address shortcomings and, under new leadership, we have strengthened our finance function, increased capacity and expertise, and are embedding new systems and processes to ensure effective governance and oversight.”