Answer: all three councils were late in producing accounts for the year ended 31 March 2017, had a problem with the accounts for the previous year and were issued with a statutory written recommendation by their auditors during the year. This is not a select troika to which any council wants to belong.
This information is included in the Report on the results of auditors’ work 2016/17 which was published by Public Sector Audit Appointments (PSAA) in December 2017. PSAA is the body responsible for appointing auditors to local authorities (LAs) and other public bodies.
Missing the deadlines
All three councils reported late for the years ended 31 March 2016 and they were among 26 councils, out of a total of 357, where auditors had not issued an opinion on accounts by the statutory deadline of 30 September 2017.
The PSAA report says that the reason for the Reading Borough Council (RBC) delay includes:
Problems with the quality of the draft accounts and supporting working papers mainly caused by issues linked to staff capacity following the departure of some experienced finance officers.
RBC accounts for last year have still not been finalised whereas Derby City Council’s Accounts for the year ended 31 March 2017 were approved in December 2017 and the Isles of Scilly 2017 accounts in January 2018.
Local government legislation requires that a formal written recommendation from an auditor must be considered by a full council meeting. It must also be sent to the Secretary of State for Housing, Communities and Local Government and the PSAA.
Along with RBC, the Council of the Isles of Scilly and Derby City Council both received statutory recommendations during the last financial year.
For Derby City Council, the PSAA report states:
Recommendations relate to weaknesses in the council’s internal control environment and delays in the closedown of the accounts for 2015/16 and 2016/17.
The wording in the report is the same for the Council of the Isles of Scilly and for RBC:
Recommendations relate to the council’s current and forecast financial position.
RBC auditors Ernst and Young’s recommendation letter dated 2 February 2017 requested urgent action in relation to sustainable resource deployment, maintaining a sound system of internal control and children’s services.
The budget problems faced by other councils including the Isles of Scilly were mentioned at the 21 February 2017 RBC full council meeting when the budget for the current financial year was set. “I think the Isles of Scilly have declared themselves insolvent,” said Councillor Rachel Eden [at 1:39:45].
The Council of the Isles of Scilly entered into a strategic collaboration with Cornwall Council because of these problems.
The Isle of Scilly accounts for the year ended 31 March 2016 included a statement in the foreword from the Section 151 officer (the chief finance officer):
Following the departure of the previous Section 151 Officer the Council entered into a strategic collaboration agreement with Cornwall Council and I formally took the Section 151 officer role on 1 October 2016. Since that time it has become evidently clear to me that the Council is ill equipped in its current set up to able to deal with the complex and technical accounting required of a unitary authority, particularly one with the breadth of services and legal standing as the Council has…
What happened next at Reading
RBC budget monitoring reports for the current financial year have been more upbeat in tone than those for last year. The latest report included actual income and expenditure up until the end of November 2017 and a forecast for the rest of the year.
The report predicted a £900k underspend and also an unspent £1.6 million from the council’s contingency fund. The contingency fund of £7.7 million was created when the budget was set in case savings, which were hoped for but might not be achieved, did not materialise.
The positive message came with a two part health warning:
- within the net underspend, there are overspends in some areas, in particular care costs for children and adults,
- some of the cuts made in this financial year will not be sustained into next year, meaning that new savings must be found to replace them.
When this report was considered by RBC policy committee on 15 January 2018 the chief executive Peter Sloman warned of the need for more cuts and other measures to control spending in the forthcoming year.
Postscript: when budgetary control goes badly wrong
Northamptonshire County Council (NCC) has been in the news because it introduced immediate spending controls on 2 February this year.
Despite signing off the accounts on time, NCC auditors KPMG used the ‘value for money opinion’ which forms part of the audit report to say:
… the Authority did not have proper arrangements in place to take properly informed decisions and deploy its resources to achieve planned and sustainable outcomes for taxpayers and local people plan, to effectively to support [sic] the sustainable delivery of strategic priorities and maintain statutory functions.
In January, the Secretary of State for Housing, Communities and Local Government Sajid Javid appointed an independent inspector to report on the authority. He said:
My decision to appoint an inspector is not taken lightly. I hope it sends a strong signal that robust processes are in place to investigate allegations of failures in financial management and governance in local government.
- Council of the Isles of Scilly
- Derby City Council
- PSAA – Report on the results of auditors’ work
- Woe, woe and thrice woe!
- Auditors finally deliver a report on council finances
- Auditors now have their two pennyworth on Council finances
- Council meeting 21 February 2017 papers & webcast
- The best we can do in the circumstances
- Council’s going bankrupt? Don’t be Scilly!
- Policy Committee 15 January 2018 papers & webcast
- Financial Roundabout at Reading Borough Council
- Immediate spending controls put in place at Northamptonshire County Council
- Northamptonshire County Council Statement of Accounts
- Inspector appointed to investigate Northamptonshire County Council