Agenda item

To receive an information report (copy enclosed) from the Head of Finance and Audit on the Financial Sustainability Review.

The Audit Wales representative introduced the report to the Committee and gave a brief outline of the report.

 

Thanks were given to the Officers and Members who were interviewed as part of the work.

 

The Council’s financial sustainability was critically important in terms of the challenging financial context the Council was currently facing. The report provided assurance that Council’s had proper arrangements to support their financial sustainability including explaining Council's financial position and the key budget pressures and risks to their financial sustainability.

 

Audit Wales reviewed the Council’s strategic approach to support its financial sustainability, its understanding of its current financial position, and its arrangements for reporting and oversight of its financial sustainability. The audit was limited to a consideration of the arrangements that the Council had put in place to support its financial sustainability. It was not a review of the Council’s wider financial management, or of individual financial decisions that the Council had made or intended to make.

 

Audit Wales recognised that some factors which would impact on the Council’s financial sustainability would be beyond the scope of the audit, as the audit focussed on the arrangements that the Council were putting in place. However, where common issues through fieldwork carried out were identified went beyond the arrangements the Council had in place, would be reported on in Audit Wales’ planned National Summary Report.

 

It was also recognised the unprecedented financial challenges that Councils had faced for many years and were likely to continue to face for at least the medium term. This included the public sector funding pressures that followed the financial crisis in 2008 and the impact of the pandemic both at the time and its continued aftereffects. More recently Councils had also faced significant real-terms reductions in spending power as a consequence of the fasted increase in inflation for decades. Alongside all of the above events there had also been a significant increase in demand for some services including for example the impact of an ageing population and the resulting increased demand for some services. These factors were largely outside the control of any individual Council.

 

The report set out Audit Wales’ view on the Council's financial arrangements, and where appropriate, where these arrangements could be strengthened to help improve the Council's financial sustainability over the medium term.

 

Overall the audit found that the Council engaged well with members and officers when setting its budget but, it currently lacked an approach to find sufficient savings or an implemented transformation plan to bridge its funding gap.

 

Members were referred to the recommendations of the report given to the Council following the completion of the report (previously circulated).

 

The Chair thanked the Audit Wales representative for the report.

 

The Section 151 Officer gave a summary to the Committee of the Council’s response to the Audit. The report was welcomed by the Council and reiterated the financial pressures the Council was facing. It was important to note the national context of the report which highlighted common challenges across all Councils and the speed in which inflation had increased and the demand for services would have an impact on Councils across the country. The Council was developing a Transformation Programme which had been shared with all members over the past couple of months.

 

A Management Response had been compiled and this was being reviewed by Cabinet and the Corporate Executive Team (CET). Many of the recommendations had already been identified by the Council. The response was a live document, and the Council would continue to respond to the recommendations from the Audit Wales report.

 

The Committee discussed the following further –

 

The Chair questioned when the National report would be published. The Audit Wales representative stated that it was hoped that the report would be available in mid-November 2024.

 

Members questioned if the Council could have made financial preparations and decisions sooner in anticipation of the decreasing budget. The Section 151 officer explained that forecasting what could potentially happen in the future was very difficult as financially everything was changing on a daily basis. Primarily what the Council were trying to do was focus on the statutory services that needed to be delivered by the Council.

 

Members referred to the use of reserves within the report and questioned if the use of them was sustainable. The Section 151 Officer explained that the report was referring to the use of reserves in setting the 2023/24 budget. The budget was set however, the Council was spending more due to the forecast for the demand of services and the cost of services increasing at a faster rate than they were when the budget was set.

 

Members stated that the report should assist in trying to identify and promote examples of good practice and be shared with all 22 local authorities facing the same financial challenges.

 

Members stated that the concept of stress testing was fundamental in sustaining the sustainability of revenue and capital spend across Wales and questioned why the work conducted by Denbighshire Council based on the Chartered Institute of Public Finance and Accountancy (CIPFA) report from 2022 was not mentioned within the report. The CIPFA report raised six observations following a review of Local Authorities –

·       Over ambitious savings

·       Lack of Medium-Term Plan

·       Leadership

·       Adequate Governance

·       Weak Financial Management

·       Lack of reserves

It was stated that if the use of the six observations above had been used within the report, it would help with the understanding of the reality of the situation that Councils were facing.

 

The Audit Wales representative reassured members that the CIPFA observations would be stress tested and would be included within the National Report when it was published.

 

Members asked if there was a ranking table of Councils’ financial sustainability so that DCC could understand how it was performing against other Councils. The Audit Wales representative explained that it would be problematic to compare Councils to one another. There was a process followed relating to ‘what was expected’ according to best practice and ‘what could be’ given better conditions.

 

The Chair thanked the Audit Wales representative and the Head of Finance and Audit for the report.

 

RESOLVED: that the Committee noted the Financial Sustainability Review and wished to endorse the process of stress testing and recommend that it should be completed on a regular basis and be shared as good practice with all 22 authorities.