Concern As Financial Watchdog Uncovers Bigger-Than-Reported Year End Loss At Scilly’s Council
The budget crisis facing Scilly’s council is deepening after its financial watchdog uncovered that their overspend last year was over ten times more than first reported to councillors in September.
It means the authority, which is already making significant cuts to its expenditure, has even less cash in reserves than it thought.
The finding was highlighted by the authority’s auditors, Grant Thornton, who reported their work in progress to members at yesterday’s Full Council meeting.
The auditors say the original deficit of £49,000, quoted in the statement of accounts for 2015/16 and published and considered by Full Council in September, was incorrect.
Instead, they say that figure could be £511,000.
It means the Council’s general reserves, essentially its rainy day account for unexpected expenditure, has fallen from a figure of around £1m reported to members in March, to half that – just over £500,000.
That sum could change again if the auditors find more errors.
In addition the auditors are also worried that the Council still doesn’t have a medium-term financial plan in place.
The situation could get worse.
Chief Executive Theo Leijser has said the Authority needs to make savings of £678,000 in the current year although there will still be a predicted deficit of £276,000 by the year-end.
If that happens the reserves could be reduced to under £300,000, which is lower than Chief Finance Officers have recommended in the past as prudent.
If the Council uses up all its reserves it could become technically insolvent.
But it’s unclear whether Mr Leijser can deliver on those savings. In public meetings held in Scilly last year, he told residents that he had set “a balanced budget” where the authority would only spend what it received in income.
So the revelation of yet another large budget deficit could be an embarrassment for Chief Executive Leijser, who has been in the top position for almost three years.
He was appointed by the then new Council Chairman Amanda Martin in late 2013, when reserves stood at just over £2m, to solve the budget crisis and modernise the Council.
However, as the financial watchdog has highlighted, the authority has failed to get its finances in order during that time and now faces serious challenges over its short-term future solvency.
The report again warns the Council that they need to make serious improvements to their financial controls.
The same warning was made in 2014 and 2015 and the auditors say the situation “remains poor.”
The auditors say the authority needs to plan and, “perform a detailed cash flow analysis for 12 months from December 2016.”
And they caution that, “for a council the size of the Isles of Scilly delivering meaningful savings is challenging and there is a risk that depleting resources further could impact on the efficient running of the Council and delivery of core services.”
The statement of accounts should have been signed off by both the external auditor and the responsible finance officer, known as the Section 151 officer – newly appointed Andy Brown from Cornwall Council – by the end of September 2016 and approved by Council at their meeting on 27th September.
That was deferred due to the problems with the accounts and the auditors say they are still not in a position to give an opinion.
In his covering report, Mr Brown writes that he and the auditor, “have agreed that January will be the final deadline for resolution and either way the statements will be produced for signing.”
And Mr Brown states that, “immediate work will begin on moving the Council’s financial systems onto the platform operated by Cornwall Council.”
He says in his report that there will be no financial implications of the move to this new system.
We contacted Council Chairman Amanda Martin yesterday to ask how the authority will be addressing the budget crisis and how this will impact on Council services.
A Council spokesperson told ScillyToday: “The budget deficit is higher than initially forecast. Specifically, debts, and therefore projected income, have been overstated by £546k and need to be restated in the accounts.
“The auditors are working with the council’s Chief Finance Officer to complete the statement of accounts by the next meeting of Full Council on 26 January 2017, by which time the exact figures will be known.”
Council Chairman Amanda Martin said “the closure of the statement of accounts for 2015/16 is of critical importance for the Council to be able to set next year’s budget. Regrettably, our local authority is facing huge budgetary pressures in common with all public authorities throughout the country and further savings will be required.”