The auditors of the Leathermarket Joint Management Board which runs 1500 homes in SE1 have warned that the tenant management organisation's relationship with the council is "not working".
Leathermarket JMB was established in 1996 and manages a number of local council estates including the Tyer's Estate, the Lawson Estate, the Elim Estate and the Meakin Estate.
At the JMB's annual general meeting at its Leathermarket Street offices on Tuesday night members voted unanimously to serve Southwark Council with a 'breach notice' – a formal legal document to say that the council was not fulfilling its obligations to the JMB under the terms of the legal agreement between them.
The move to adjourn the AGM until November and issue the breach notice was sparked by concerns raised by the London Bridge-based auditors Reeves & Neylan.
"Due to the way that the finance department of Southwark Council appears to operate it is not possible for them to provide any accurate figures within what would be an acceptable timeframe in the commercial arena," the auditors wrote in a letter to the directors of Leathermarket JMB.
The auditors, who emphasise that they have "no concerns" about the JMB's own financial management, note that the schedule provided by the council "appears to contain expenses that had previously been agreed not to be chargeable to the JMB".
The letter continues: "We have advised the management of the JMB to obtain supporting evidence from Southwark Council before accepting this. However, we have amended the accounts to reflect this and so disclose a large loss."
We invited the council to comment on the claims made by the JMB and its auditors but the authority was unable to provide a response.
Reeves and Neylan have urged the JMB to reconsider its relationship with the council: "We feel that the directors need to consider the long term future of the JMB. Until the last couple of years all parties knew what the allowances covered.
"Since the rules appear to have changed, or possibly just the staff at Southwark Council, and the management of JMB cannot have the confidence required to run such an organisation on a day to day basis and the directors cannot consider strategic matters when there is no certainty as to the actual income level."
• A copy of the auditors' letter and the financial outline can be downloaded from the JMB website.