Agenda item

External Audit: Financial Sustainability Assessment - Isle of Anglesey County Council

To present the report of External Audit.

Minutes:

The report of External Audit which sought to assess the sustainability of the Council’s short to medium term financial position as part of a broad study of the financial sustainability of all 22 councils in Wales was presented for the Committee’s consideration. The report focused on the financial strategy of each council as well as reviewing financial indicators of each council’s financial position in relation to performance against budget; delivery of savings plans; use of reserves, Council tax and borrowing.

 

Mr Alan Hughes, Audit Lead, in introducing the report acknowledged that despite its having been overtaken by events and its publication delayed by the Covid-19 pandemic, the contents of the report remain relevant from the perspective of setting out the fundamental principles of good public financial management. He referred to the overall conclusions of the report as noted below and guided the Committee through the substance of the detailed report highlighting the findings which formed the basis of those conclusions 

 

           Overall it was found that the continual funding of unrealised savings and year end overspends from general reserves is not sustainable; the Council needs to develop a more sustainable financial strategy to deliver services within available funding whilst building usable reserves to improve its resilience. This conclusion was reached because -

           The Council has had an overall overspend in recent years and is allocating significant additional resources to fund the increased pressure in key services.

           The Council has a track record of delivering a substantial amount of planned savings, but undelivered savings create additional financial pressure; the Council is likely to find identifying and delivering savings increasingly challenging going forwards.

           The Council’s continued use of reserves to fund year end deficits and planned revenue expenditure is not sustainable.

           Council Tax collection rates have remained stable and council tax as a proportion of the Council’s income has grown over the last decade; and

           The Council has no purely commercial focused projects and overall borrowing is set to increase.

 

The Director of Function (Resources)/Section 15 Officer responded to the report’s findings highlighting that changes do happen in a normal year but that the scale of the changes brought about by Covid 19 has impacted significantly on the Council’s finances. Notwithstanding, the need to draw on the Council’s reserves to balance the 2019/20 budget did not materialise and consequently, the level of general balances is now approaching the target of 5% of the net revenue budget as agreed by Council. It is difficult to predict how  the 2020/21 financial year will evolve – with reduced income and additional costs the Authority could potentially find itself with an overspend of £2m to £3m dependent upon how quickly restrictions are lifted and the extent of additional financial support that Welsh Government may provide. In the longer term the Council’s financial situation will be influenced by when social distancing measures  are lifted thereby enabling resources such as leisure centres to operate closer to normal capacity. In accepting that the Council does not always succeed in delivering fully on its savings programme, the Director of Function (Resources)/ Section 151 Officer advised that in such circumstances the Council does review and adjust its budgets accordingly; alternatively, savings may be realised over a longer timeframe than the financial year for which they were planned or underspends may be identified in one area that can be used to meet the shortfall in another area so the Council does take steps to mitigate the savings gap. The idea that planning for an enhanced level of savings over and above what is actually required is one that is accepted and will be looked at in the event that savings have to be found for the next financial year. The 2020/21 budget included savings to the value of £300k; by and large these were straightforward to identify and have been implemented fully. In respect of Council Tax collection the Council’s performance for the 2018/19 and 2019/20 financial years placed it in the upper quartile with an annual collection rate of 97.3% (in the region of 99.3% over 3 years). However, Council Tax collection has been affected in the past six months by the Covid 19 pandemic and the Council Tax recovery process has been delayed as a result. In terms of commercial income the opportunities for the Council to undertake commercial investment are limited and with hindsight it is fortunate in not being dependent on commercial sources of income as those have been particularly hit by the pandemic with councils who are committed in this way having been significantly affected by the loss of income.

 

The Head of Audit and Risk referred back to the Internal Audit report on Financial Resilience which formed part of the assurance work completed in 2019/20 which was undertaken to benchmark the Council against the new CIPFA Financial Code issued in 2019. She confirmed that a copy of the audit review report which produced a Reasonable Assurance opinion would be forwarded to the Committee’s members once it has been translated.

 

In considering the External Audit report the Committee raised the following points –

 

           In recognising that the report had been overtaken by events the Committee believed that it should be revised and updated to reflect the Council’s actual  position in particular the positive revenue outturn result for 2019/20 and improved reserves position.

 

Mr Alan Hughes confirmed that the contents of the report had been agreed with the Council’s Officers as part of the factual verification of the draft during February/March, 2020 on the basis of the information available at the time. The final version was not issued until much later due to the intervention of Covid-19. The indications at the beginning of the calendar year were that the Council would again overspend its budget meaning it would have to further deplete its general reserves to make up the deficit; had this happened the General Fund would have fallen to an estimated £4.6m at the end of 2019/20 below the reserves threshold agreed by Council thereby perpetuating a pattern that is unsustainable in the long-term and placing the Council at greater financial risk. In the event, having invested additional resources in the services that were under pressure, the Council delivered an underspend on its revenue budget at the end of the financial year which helped improve its reserves position. However, when faced with reducing reserves the Council’s approach has been to replenish the reserves through ad hoc underspends rather than through planned contributions from the base budget.

 

In confirming that consideration has been given to building up the reserves on a planned basis and has been discussed with the Executive , the Director of Function (Resources)/Section 151 Officer clarified that in light of the Council’s financial position at the time, significant Council Tax increases over 2 years and additional investment in under pressure services, the Executive determined not to increase the balances through a budget that underspends by design, but recognised also that this was an option had the Council’s reserves level continued to decline.

 

           The Council’s performance in delivering savings when benchmarked against that of other councils of similar size and structure.

 

Mr Alan Hughes clarified that although the Council delivered 82% of planned savings in 2018/19 it meant that savings to the value of £400k were not achieved; the challenge for all councils in not achieving their planned savings is that those unachieved savings are then carried forward to the following year thereby placing additional pressure on those councils and their Officers to deliver the cumulative savings required, leading to potential overspend and use of reserves to bridge the gap. If savings form a significant part of budget setting then it might be advisable to aim to over-achieve the savings target especially if the savings carry an element of risk.

 

           Mr Dilwyn Evans, Lay Member thought that zero based budgeting represented  a better approach in terms of operating efficiently and that the Council should aim to preserve its cash reserves as far as possible rather than utilising them for capital purposes especially when the cost of borrowing is very low.

 

It was resolved to accept the External Audit’s Financial Sustainability Assessment Report with regard to the Isle of Anglesey County Council and to note its contents.

 

ADDITIONAL ACTION - Head of Audit and Risk to circulate the Internal Audit review report on Financial Resilience once translation has been completed.

 

The Chair highlighted at this juncture that as the Committee had now been in session for three hours, under the provisions of paragraph 4.1.10 of the Council’s Constitution, a resolution was required by the majority of those Members of the Committee present to agree to continue with the meeting. It was resolved that the meeting should continue.

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