Agenda item

Officers noted that they welcomed the recommendations and had already been working on them through the GRIP and the FMP, as presented to the Committee.

EY noted that the report had been issued to Full Council and noted concerns over financial sustainability and management of this; data quality; the DSG deficit; and the pace of delivering improvements. EY referenced prior Value for Money commentary for 2023/24; the early-stage nature of the transformation at the time; and the risk of capacity being consumed by financial remediation at the expense of other priorities. The statutory report therefore highlighted these concerns and sought a clear, timely response.

Members queried the Council’s responsibility for the Dedicated Schools Grant (DSG) and recent changes. Officers explained that the High Needs Block of the DSG had long been underfunded nationally.

Clarification was provided on the Safety Valve agreement:

• From 2020, several councils were invited to consider entering into a safety valve agreement. Hillingdon opted in on the second phase 2021/22, following learning from phase 1.
• Some councils have used their General Fund to offset deficits it has been a long standing view of Hillingdon that the high needs underfunding is a government concern.
• In year one, the Council contributed £4m from reserves
• In years two to five, £4m annually was allocated from capital receipts
• The DfE matched these amounts through grant funding
• However, this required approval for DfE from MHCLG via a capitalisation direction, which was not obtained
• When the agreement was suspended, both the Council and DfE ceased contributions. Discussions are ongoing regarding a new agreement

Members asked for further clarity and officers confirmed that the DSG sat within the General Fund, with a statutory override in place until 2028 to prevent the deficit from impacting the Council’s reserves. Officers were confident of a new arrangement as without it, many councils could face Section 114 notices or Exceptional Financial Support (EFS).

Despite historic underfunding, the in-year DSG deficit had improved, with a breakeven projected for 2027/28. The safety valve agreement remained temporarily suspended while renegotiations with the DfE continued.

Members noted the Section 24 report was a serious matter. Members suggested that there were five streams to it: difficulties in setting a balanced budget effective controls on data; issues about underfunding and the forthcoming spending review; bad debt provision; and prior year accounting adjustments.

Members requested a breakdown of prior year accounting adjustments and the auditors’ views at the time those adjustments were applied. Officers agreed to share available information. EY noted that the Council’s underlying financial pressures would remain challenging even without the accounting adjustments.

Members noted that the month 4 budget monitoring report was due for publication by 11 September for Cabinet and asked if a month 3 report can be made available so that the Council meeting on 11 September can be more informed about the current financial position. Officers clarified that it was not necessary to carry out monthly monitoring and lots of Councils had moved to quarterly. The month 2 report went to July Cabinet and the month 4 report will go to September Cabinet. In month three officers conducted a light touch monitoring as the focus was on preparing for the MTFS Star Chamber sessions so that there would be better understanding of robustness ahead of December Cabinet.

Members asked why it was not done monthly. Officers advised that they were focused on delivering an updated monitoring position to Cabinet, who do not meet in August and so there was no month 3 Cabinet position. It was also a priority to correlate the monitoring process with the MTFS and budget build process. If the £14m accounting adjustments were taken aside as a one-off, other underlying drivers were demand areas including temporary accommodation, children’s and adult’s social care.

Members asked if the new approach to bad debt provision was overly cautious. Officers clarified that this was up to the Section 151 Officer’s judgement, underpinned by experience since the pandemic (delayed courts affecting Council Tax/ Business Rates recoveries), recent write-offs of uncollectible debt, and an ongoing programme to cleanse and grip debt across the Council.

Members asked whether Section 24 was a precondition for borrowing, and why the Section 24 had been issued if borrowing was possible. Officers advised that Section 24 was not about borrowing, and potential EFS was separate. Section 24 reports were issued by EY, not officers. EY explained that as part of each annual audit, they expressed commentary on the Council’s value for money arrangements and were required to report any significant weaknesses identified. Section 24 reports were an additional auditor power and were an extension of value for money work. It was not linked to the Council’s ability to borrow money. The Section 24 was about the Council’s arrangements for managing its financial position, not the financial position itself. While the Council was taking steps to address this, these were in early stages. EY noted that Section 24 were uncommon and reflected the auditor’s significant concerns about arrangements and the need for timely action.

Members referenced the report whereby a review by CIPFA had highlighted low morale in the finance team. Officers noted that the results of the staff survey did not indicate this, and the survey would be presented to the next Committee. Staff survey results had significantly improved from last year.

Members also quoted the report that said “The Council has good services, low taxation and charging policies and members are committed to their local area, but affordability to maintain this position and the current operating model is untenable”. Members asked if there was confidence in achieving a tenable model. Officers highlighted structural pressures such as being a port authority, homelessness burdens and underfunding. Officers further noted that discussions with the Home Office were ongoing over funding, which would help to address the untenable/ tenable balance.

The Chair welcomed the report, noting that action was needed at pace, and asked if officers were confident in the plans being delivered at pace. Officers noted that they were working at the right pace, recognising that the Council was a complex organisation with demand pressures, and was working with Grant Thornton, the GLA and EY.

Members asked about historic under-delivery of savings and asked why confidence was higher now. Officers cited strengthened governance including a savings app, and routine scrutiny through Select Committees. Officers also noted new transparency in Cabinet reports, including a “written out” column.

The Committee agreed to invite the Cabinet Member for Finance & Transformation to the next Committee meeting.

RESOLVED: That

1. The recommendations of the external auditor contained within the report issued under Section 24 Schedule 7(2) of the Local Audit and Accountability Act 2014, were noted;

2. The programmes of work already in place to address the recommendations were noted and the Audit Committee would continue to monitor their delivery; and

3. The Committee invited the Cabinet Member for Finance & Transformation to the next meeting