Agenda item

A report to advise the Audit Committee of the recent Section 114 notices and associated reports issued by the Chief Finance Officers (Section 151 Officers) at two Local Authorities (the London Borough of Croydon and Slough Borough Council) and provide information on the recent capitalisation directions issued by the Ministry of Housing, Communities and Local Government to support the financial position of several Local Authorities during 2020/21 and 2021/22.

Consideration was given to a report to advise the Committee of the recent Section 114 notices and associated reports issued by the Chief Finance Officers (Section 151 Officers) at two Local Authorities (the London Borough of Croydon and Slough Borough Council) and provide information on the recent capitalisation directions issued by the Ministry of Housing, Communities and Local Government to support the financial position of several Local Authorities during 2020/21 and 2021/22.  Attached to the report at Appendix 1 was information explaining what a Section 114 notice is and what happens when such a notice is issued.

The report was presented to assist the Audit Committee to:

a) Discharge its future Scrutiny function in ensuring there is consideration that the Council effectively manages its budget and oversees partnerships; and

b) Appropriately consider the work programme included elsewhere on the Agenda.

The Committee was advised that the detailed information that had been published in the public domain for the London Borough of Croydon had identified that the Scrutiny Committee should have better held the Executive of the Council to account in ensuring operational services spent within their agreed budget allocation.  The Scrutiny Committee should also have had a better oversight of Council’s partnerships. 

The Committee was reminded that the Performance Overview Scrutiny Committee within the Council had responsibility for scrutinising the deliverability of the Council’s agreed budget and providing oversight of key partnerships and that the Scrutiny Committee had considered an update report on the Financial Administration in Local Government at its meeting on 26th August 2021.

The Committee was advised that the issuing of the Section 114 notice at the London Borough of Croydon had been subject to review by a Select Committee of the Ministry of Housing, Communities and Local Government (MHCLG).  This review   had identified the importance of effective Scrutiny to ensure that services were delivered within their agreed budget envelope.  The view expressed to the MCHLG Select Committee was that if Croydon had brought under control the budget in the overspending areas of Children’s and Adults’ Social Care, the Council would not have needed to engage in high-risk commercial investments to generate extra income to balance its budget.

The Committee was also advised that events had also identified a lack of oversight of partnerships in several Authorities resulting in historic losses materialising in the 2020/21 accounts. This had contributed to the issuing of the Section 114 notices at both Slough and Croydon.  It had also led to certain Authorities such as Nottingham City Council having to obtain a capitalisation direction from the MHCLG to set a balanced budget for 2021/22.  Details of all authorities having been required to obtain a capitalisation direction from the MHCLG were outlined within the report. 

Background information relating to issuing of the Section 114 notices to the London Borough of Croydon and Slough Borough Council were outlined within the report.

It was reported that whilst the circumstances of each Authority requesting a capitalisation direction were linked into their own unique circumstances, some common themes were emerging as to why such a direction was required.  These were detailed as:

·         A failure to set aside sufficient Minimum Revenue Provision (MRP) to cover the cost of borrowing undertaken; and

·         Setting a budget with a very low level of general balances (as such the ability of the Authority to absorb a financial shock is minimal); and

·         Poor partnership governance of wholly owned companies.

It was suggested, that within reviewing its work programme, that the Committee liaise with the Performance Overview and Scrutiny Committee to ensure adequate oversight of these areas within the Council.  The impact on the Future Work Programmes of the Performance Overview and Scrutiny Committees and Audit Committee was outlined within the report.

Members were advised of the entitlement of the Committee to challenge any issue to ensure that there was an oversight of risks associated with partnerships.

The Committee was requested to note the report and utilise the information provided when considering the work programme as detailed in Item 9 of the agenda. 

A discussion took place around the issues in which it was agreed that there was a requirement for a formal process and system to scrutinize that the appropriate issues were considered prior to the approval of capital projects.  The requirement to seek specialist advice prior to entering contracts/partnerships was also recognised. 

The Committee was advised that Oldham Council adhered to the Prudential Code guidance.  It was acknowledged that some Authorities did not apply the guidance as it was not currently compulsory.  The Government and CIPFA were moving toward applying regulations in relation to this issue.

It was also suggested that case study be presented to the Committee of a robust business case and gateway review to enable the Committee to ensure the appropriateness of the process.  There was also the suggestion of a Task Force to flag up and rectify issues.

RESOLVED – That the report be noted.