The report of the Deputy Section 151 Officer is attached.

Contact: Ben Jay (01743) 250691

The Committee received the report of the Executive Director of Resources (Section 151 Officer) – copy attached to the signed Minutes – which provided an overview of the Accounts for the year 2022/23 and details of the reasons for the most significant changes between the 2021/22 Accounts and the 2022/23 Accounts.

The Executive Director of Resources (Section 151 Officer) introduced and amplified his report.  He drew attention to the table of deadlines and confirmed that the draft Accounts had been produced by the 31 May 2023, out of line with other Local Authorities who had not yet completed theirs.  He explained that the External Audit work would take place between 19 June and 30 September by which time the Accounts had to be published and the External Auditor would provide his opinion and certificate.  Members of the Committee congratulated the team on all their hard work in producing the draft Accounts by the deadline and within two months of the year end.

The Executive Director of Resources (Section 151 Officer) explained that the Analytical Review (Appendix 2) set out the most significant changes between the 2021/22 Accounts and the 2022/23 Accounts ie a variance of either 10% or £8m.

In relation to reserves, a query was raised that in paragraph 2.3 of the report it stated that ‘the Authority’s earmarked reserves and provisions had decreased by £31.697m, however, on page 117 of the accounts under reserves, it said ‘earmarked reserves have decreased by £37.05m’.  In response, the Head of Finance Management and Reporting explained that paragraph 2.3 referred to ‘Reserves and provisions’ which included things like bad debt provision and other provisions they had to make during the course of the year, whereas the accounts refer specifically just to reserves.

A query was raised in relation to those area referred to in Appendix 2 as having decreased in income following removal of a Covid-19 uplift and whether there had been an increment in those grants based on eg 2018/19, or was there actually a reduction in ‘real’ terms based on the pre-covid period.  In response, the Executive Director of Resources (Section 151 Officer) explained that covid funding was provided for specific purposes over a period of time however it was not ring-fenced and provided that the pressures added up to the amount that was provided, that was fine, however this meant that once the covid uplift was taken away you were suddenly exposed to the underlying issues leading to some areas shifting incrementally in a direction that was not so visible, given the covid funding and the uncertainty about how long the pandemic would continue and how long the funding would continue.  During the budget setting process when those areas were considered, a decision was made to build growth into these areas because they had shifted in a different way that had been hidden. 

Turning to page 149 of the draft Accounts, concern was raised that cashflow at the end of the period 2021/22 had dropped from £27m to £6m.  In response it was explained that the cashflow statement referred to cash but also cash equivalents which included any short-term investments that was technically cash held by the authority, so the level was not as low as it appeared, and cash balances were still around the £100m level.

A query was raised in relation to the amount of debt/borrowing which appeared to be down from £521m to £491m and whether it was declining or was just an anomaly compared to where it was 3 or 4 years ago.  In response, the Executive Director of Resources (Section 151 Officer) informed the Committee that levels of borrowing had generally fallen and that the only borrowing he was aware of during the last decade was for the Housing Revenue Account, it also included things like PFI and finance leases, but that the authority had not borrowed any money for general fund purposes for a decade.  He went on to explain how the overall cashflow of the authority was managed and how funding decisions were made including the Treasury Advisor giving an overview on a monthly basis in terms of whether they felt that the Council was over/under borrowing.  In response to a further query he confirmed that long-term debt was coming down and the debt that the Council did have was fixed so not exposed to interest rate changes.  As these loans matured and were paid off a question was asked whether to replace this debt but for the last decade this had not been replaced.

In response to a query about whether it would make monetary sense to repay any debt early due to the rise in interest rates or would there still be a charge.  In response the Executive Director of Resources (Section 151 Officer) explained that the Council’s Advisors kept this under consideration, and he agreed to check the position with them.  However, if interest rates went up, this reduced cash balances so there was no point paying debt off to borrow at a higher rate. 

The Executive Director of Resources (Section 151 Officer) answered a further query in relation to usable capital receipts reserve and whether this could be spent because of the savings that would be accrued.  He explained that capital receipts could be used to fund capital expenditure and reduce the need for borrowing and it was explained why the position was zero.  The Head of Finance Management and Reporting explained that usable capital receipts could be set aside and used against the MRP so rather than hold them in a reserve, that was how they were treated for the following year.  The Strategic Management Accountant gave more detail and explained that it was an accounting adjustment that allowed the authority to make a revenue saving in the following year until the capital receipts were required to fund new expenditure.

Concern was raised that External Audit had not yet started their work on the Accounts despite them being produced by the deadline of 31 May 2023 and assurance was sought on whether External Audit would complete its audit in time for them to be published on 30 September 2023.  In response, the External Auditor explained that the planning work for the 2022/23 accounts had been undertaken and they were awaiting some responses from the Council but that their formal plan would be presented to the July meeting of the Audit Committee.  They were however hoping to get some testing underway prior to that. He explained some of the reasons for the delay including a resourcing issue which it was hoped would be resolved following the recruitment of a number of new starters. He felt that the substantive audit work would be completed by the end of September 2023 and he would be in a position to produce the Audit Findings report within two months of that.

Turning to the 2021/22 audit, this was substantially complete apart from an outstanding issue in relation to the biannual valuation of the Pensions Fund which may be materially misstated.  He hoped to issue an opinion on the 2020/21 accounts by the end of the month.  The Committee felt that as the Council had completed its accounts in time it should be given priority over others who had not done so, in response, the External Auditor explained that the work for Shropshire Council had been brought forward for that very reason and would be undertaken in the early tranche.  He assured the Committee that they would work closely with the Council and possibly work on site in order to make some efficiency gains.

Members felt it was not acceptable that accounts going back to 2020/21 had not been signed off.  In response the Executive Director of Resources (Section 151 Officer) expressed his concern that the authority was progressing into the 2023/24 financial year with the biggest savings plan the authority had ever had, and yet the basis on which that was set had no independent assurance.  The External Auditor explained that the statutory framework required the accounts to be published by 30 September and if they were not completed then a note had to be included stating why the audit was not complete.

RESOLVED:

To note the content of the 2022/23 Draft Statement of Accounts.