Scilly’s Council Will Need Temporary Loan To Pay Staff And Suppliers

Scilly’s Council has been issued with a formal notice to improve its financial controls and has been told it will need to borrow up to £3m to pay its staff and suppliers in the last two months of the financial year.

It will also use surplus money raised by services such as the airport and water to stay solvent.

The so-called section 24 notice issued by the authority’s external auditors, Grant Thornton, under the Local Audit and Accountability Act 2014, says the Council will need to reassess the level of their General Fund Reserves, essentially their savings account, improve financial reporting to members and review their financial strategy for the next few years.

A copy of the recommendations will also be sent to the Secretary of State for Local Government.

At last week’s Full Council meeting, members received a finalised copy of the authority’s accounts for the financial year that ended last March. They were supposed to have been signed off in September, but the external auditors found anomalies, which required further investigation.

As feared, they showed that the Council’s reserves stood at around £0.5m – half of what they thought they had.

But the bad news didn’t end there. New Chief Finance Officer, Andy Brown, told councillors that an analysis of their spending for the current financial year shows that they’ll be overspent again by another £494,000 and that will need to come from reserves.

That means there’s likely to be just £42,000 left in the authority’s reserves by the end of March.

Because council tax is collected for only the first ten months of the year, with no income for the last two, the council could effectively run out of usable cash for its day-to-day running.

They’ll need to borrow up to £3m to cover their costs – essentially taking a ‘pay day’ loan to tide them over until April.

Controversially, they’ll also need to use money raised in so-called ‘trading accounts’ like the airport, housing and water. Any surplus income could now be added to the reserves.

Last year councillors recommend large increases in the airport landing fees because they said the facility needed to replenish its own depleted capital reserves, in order to replace essential equipment and provide for future runway maintenance.

And in 2015, water rates in Scilly were raised by 12% to cover shortfalls in that trading account. At the time, Council Chairman Amanda Martin said there was “no option” but to raise prices in order to start “banking some money” and avoid drawing on reserves.

But money raised from those accounts could now be diverted into propping up the Council’s depleted finances.

At the Full Council meeting, Cllr Christine Savill sought assurances that any money taken from those services would be repaid in the future because they were “key areas of infrastructure for the community.”

Mr Brown told her they could look at that “when we get on an even keel,” although added that was, “some time off.”

Members also approved a list of budget savings for the next financial year, which should cut around £544,000 from their annual outgoings.

These included withdrawing funding for the Tourist Information Centre, raising an extra £200,000 through commercial waste fees and changes to disposal, switching to fortnightly rubbish collections in winter, reducing street sweeping and litter collection and reducing funding for Scilly’s Healthwatch organisation.

Councillors have also been asked to consider changes to the operation of the sports hall and pool and possible disposal of the Wesleyan Chapel.

Cllr Richard McCarthy thanked Andy Brown, saying he deserved “a pat on the back for making us face up to this situation” and describing the report as, “not a terribly healthy read.”

Council Chairman Amanda Martin also thanked the Council’s new Head of Finance, Diana Mompoloki, for “some extremely hard and thorough work finding these figures out.”

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