Agenda item

The Portfolio Holder for Finance and Enabling presented an update on the Finance Recovery Plan for the Executive Committee’s consideration.

Members were informed that the purpose of the report was to set out the processes the Council had been following to rectify a deterioration in its financial position and processes due to the impact of the implementation of a new financial system in February 2021 during the Covid-19 pandemic.  A finance recovery programme had been put in place from April 2022 to start to rectify the situation. This was reported through to the Executive Committee in September 2022.    

The Financial Recovery Plan had built on comments from the external auditors, Grant Thornton, relating to the 2019/20 accounts, which were only approved in the autumn of 2021 and the subsequent issuing of the Section 24 recommendations to the Council on 31st October 2022 due to non-delivery of the 2020/21 Statement of Accounts. Comments on the 2019/20 accounts had highlighted issues on working papers, which were raised as a significant issue.

The Committee was informed that the Council continued to move forward with the rectification processes required in particular:

·       The Corporate Peer Challenge took place in March 2023, which was a joint review with Bromsgrove District Council, and the associated action plans had been discussed at the Executive Committee meeting held on 13^th June 2023.  This included a “finance action plan”, to meet the Peer Challenge’s recommendations.

·       Redditch Members, at a meeting of the Executive Committee held on 13^th June 2023, approved the implementation of the recommendations of the Bromsgrove Audit Task Group whose objective was to carry out a root and branch review on how and why Bromsgrove District Council received Section 24 recommendations.  This Task Group met in February 2023 and its findings were initially presented to the Redditch Audit, Governance and Standards Committee at a meeting held on 23^rd March 2023.

·       The Audit, Governance and Standards Committee, as a standing agenda item, reviewed progress against the audit recommendations, and national and local deadlines.

In terms of closure of the 2020/21 accounts, Members were advised of the following timeframes:

·             Agreement of treatment of the take on balances would take place in early July 2023 as significantly more testing was required by the external auditors.

·             Provision of the draft 2020/21 accounts to the external auditors (to begin the audit) would take place in July 2023.  This was dependent on the external auditor’s confirmation that they had approved both Councils’ take-on balances work.  The auditors were having issues in how they needed to test the transactional data due to their “normal” models not working on the authorities’ data.

·             The 2020/21 audit was due to take place between July to September 2023 (although these were estimated timeframes).

·             Sign off of the 2020/21 accounts was scheduled to occur by November 2023.

·             Closure of the 2021/22 accounts was planned for sign off by May 2024.

·             Closure of the 2022/23 accounts was planned to be signed off by November 2024.

The Committee was asked to note that at the recent Local Government Association (LGA) Conference held in July 2023, it had been highlighted that over 500 Council audits relating to 2021/22 accounts and earlier were still to be completed by external auditors.  This therefore remained a significant issue for the sector.

Subsequent to the publication of the agenda for the Executive Committee meeting, an updated paper had been issued in relation to how the Department of Levelling Up, Housing and Communities (DLUHC) planned to remedy this position.  This would include imposed deadlines over a short period of time for delivery of reports.  It would be the case that these deadlines might result in qualifications and disclaimers of opinion in the short-term for a number of local bodies. Officers believed that these steps were necessary to reset the system and to restore the assurance which was provided by timely annual audits.  Further consultations and discussions were taking place over the summer recess to address this.

Of the key financial returns, in the previous two weeks, the Capital Outturn Reports for 2020/21 and 2021/22 had been submitted.  The key returns that had still not been delivered were the Revenue and Capital Outturn forms for 2020/21 and 2021/22 and the VAT returns.  Although the Government allowed these returns to be completed based on estimates, the level of uncertainty due to previous issues with the cash receipting part of the Council’s finance system meant these could not be completed until the external auditors signed off the Council’s take on balances and the Council provided the draft accounts to the auditors.

Members were also asked to note that over the second weekend in July 2023, the Council had moved to the latest version of the TechOne System 23A.  This would provide improved functionality. As a consequence of this, a series of updated finance training sessions would be rolled out for staff.  More financial compliance measures would come into effect soon and would be detailed in the Quarter 1 monitoring reports.

In terms of Council procurement Members were asked to note:

·             The new ‘No Compliance No Order’ regime that had been live for a month by the date of the Executive Committee meeting. There were a few issues to resolve with the software but Officers anticipated that these would be resolved with the upgrade to the system.

·             Many departments were proactively obtaining quotations for lower value works.  A lot of the remaining issues for the Council were in respect of training issues that were in the process of being resolved.

·             The number of contracts in place was growing regularly and Officers were confident that this process was having a positive effect.  Officers were hoping to reach a position where the number of orders coming through was minimal.

·             A spreadsheet was being collated for requests received that were not connected to any contracts and these would be discussed with teams going forward.  Officers anticipated that eventually the number of orders coming through in this manner would be minimal.

Once the report had been presented, Members discussed the following points:

·             The progress that had been made in respect of addressing the Section 24 recommendations and the extent to which the Council was at risk of receiving further Section 24 notices.  Officers clarified that as long as the Council continued to implement the Section 24 recommendations, no further notices were likely to be issued to the authority.

·             The costs associated with the external audit of the Council’s accounts.  Members were informed that the external auditor’s fee for auditing the accounts would increase because they would have to do more work than had been anticipated when the fee was set, due to the issues with the Council’s finance system.

·             The reasons for issues encountered by the Council in terms of staff turnover and recruiting new staff into the Finance Department.  The Committee was advised that a number of experienced members of staff had retired during the Covid-19 pandemic.  In addition, following changes to working practices during the pandemic with the increasing amount of home working, many experienced and qualified staff had been recruited to work in London.  Staff employed by organisations based in the capital were eligible to receive London weighting on their wages, even if they did not live there, and authorities like Redditch Borough Council could not offer comparable remuneration. 

·             The difficulties experienced by other local authorities and external auditors when trying to recruit experienced and qualified staff, which were impacted by the same issues.  Members were asked to note that organisations based in Birmingham also offered higher wages than authorities in Worcestershire and this similarly had an impact on the competitiveness of local Councils as recruiters.

·             The arrangements in place for the recovery of debts to the Council and the level of debt recovery by the date of the meeting.  Officers explained that like many Councils, the authority recovered Council Tax at a rate of 98 per cent.  Business rates recovery levels had declined across the country, following the Covid-19 pandemic and were closer to a 96 per cent recovery rate.

·             The need to rectify the suspense accounts in order for the Council to chase up all debts.

·             The training that had been provided to 83 members of staff in respect of the Council’s finance system and the costs involved in delivering this training.  Members were advised that this training had been delivered by Council officers, rather than external trainers.  Further training had been postponed to take place in August and September 2023, after the latest upgrade of the Council’s finance software.

·             The impact of inflation on the potential costs involved in delivering Council projects and the extent to which this was taken into account when the Council calculated costs.  Officers clarified that contingency figures were often incorporated into calculations to enable the authority to cover any unforeseen costs.  Often, extra costs would only become apparent when bids were submitted during the procurement process and where necessary Members would be asked to consider budget bids to cover additional costs.

·             The delays that had been experienced in respect of the auditing of the Council’s accounts and the potential for alternative external auditors to undertake this work in the future for the Council.  Members were informed that Grant Thornton were due to undertake an audit of the Council’s 2022/23 accounts.  Bishop Fleming was due to subsequently take over as the Council’s external auditors and would audit the 2023/24 accounts.

·             The impact that use of a new finance system had had on the Council’s procurement processes.  Whilst there had been problems experienced with the new finance system, Members were advised that for the first time the Council could link procurement to specific contracts.

RESOLVED that

1)          progress made on the financial recovery be noted including:

a)  delivery of the Statutory Accounts

b)    delivery of Statutory Financial Returns

c)    improvements in the Control Environment

2)          the work still under way to move back to a best practice operation and the associated timetable for completion of this work be noted.