Did The Tories Nearly Bankrupt The Council?

A Damning Audit Commission report has exposed the financial mis-management of Thurrock Council prior to Labour taking over in May as putting the borough’s finances “close to bankruptcy”.

The report also highlights the financial and man-management challenges that face the new team of Chief Executive Graham Farrant and Leader of the Council, John Kent.

The council was found to be inadequate in three key areas: Financial Health, Good Governance and Strategic Asset Management.

In layman’s terms the council was found to not have a clear grasp on what its assets were. The report also highlighted once again that internal squabbling between departments has cost the council and the taxpayer dear.

The report highlights that the Tory administration left the reserves in a parlous state with only 1.7 million in the coffers when fiscal guidelines instruct councils to leave a minimum of £7 million but financial experts have looked at the report and have asked whether the situation is a lot worse.

The catalogue of criticisms include:

1. Putting assets that the council has “no control of” on the balance sheet (inc. foundation schools,voluntary-controlled schools and academies)

2. The Council does not have a robust process in place to ensure all the assets it owns are clearly identified and valued within the fixed asset register. Asset listings are held by individual services but communications between the services, Europa (who are responsible for valuations) and finance are not always clear. A single, comprehensive asset listing is a basic building block for the strategic plan and needs to be established as a priority.

3. The income and expenditure account excludes expenditure of £817,000 incurred in the year in respect of waste procurement costs. The Council has treated this expenditure
as a deferred credit which will be written off to the income and expenditure account over the life of the new waste contract.

The report disagrees with the Council’s treatment of this item as, in their view, it is not in line with relevant accounting standards which require revenue expenses to be recognised in the period in which it is incurred. If this expenditure had been included in the income and expenditure account the balance on the general fund reserve would be reduced from £2.1 million to £1.3 million.

4. The quality of the working papers provided by the Council in support of the entries in the accounts has once again been of a variable standard. Some working papers were
good, whilst others were inadequate. Although we providing a list of required working papers to the Council before 31 March, a complete set was not provided.

5. The Council’s budgets and accounts include no recognition of equal pay claims, although a number have been received.

These will potentially worsen the Council’s financial health and increase the risk of misreporting of the financial position.

6. The Council does not currently make any recharge to the Housing Revenue Account (HRA) in respect of Corporate and Democratic Core and Non-Distributed Costs. These costs are therefore charged in full to the General Fund. Although the sum that should be charged to the HRA will not be material, the failure to make this charge means that housing tenants are not contributing a fair share to these corporate costs and council taxpayers are subsidising the HRA.

The report refers to good practice:

1. Financial management and planning arrangements have been further strengthened during 2010. The 2010/11 budget was more robust that in previous years and proposals for the 2011/12 budget setting process are comprehensive and in line with best practice. Star chamber meetings and public consultation have been incorporated into the planned processes with the aim of agreeing a budget in November.

2. The MTFS has also been improved, but still needs further development. The Council is taking appropriate action to improve its financial management and strengthen its financial standing.

3. Management of the Vertex contract is also improved, with clearer accountability and information to show how the contract is performing. Commissioning within community wellbeing is meeting the needs of users with some examples of good practice. The Council is making progress in implementing the recommendations from our procurement report.

4. There are some examples of effective procurement within services. For example, the waste collection contract has resulted in service redesign and has delivered saving of £2 million for the Council.

A Thurrock Council Spokesperson said:

“Since May, the new council administration has already taken steps to address the issues raised by the auditor:

“Plans are in hand as part of the annual budget exercise to stabilise the council’s financial position whilst maintaining its low Council Tax and ensuring value for money.

“The current audit committee has raised expectations of the council finance and internal audit teams to deliver.

“Next month Cabinet will consider a report on a new council-wide asset management plan to ensure a more effective use of its assets to support its priorities.

An Industry expert said:

“The 1.3 million left in the account is shocking. However there are other possible debts referred to in the account such as Equal Pay claims and matters arising from Housing and unpaid council tax that can only make you speculate that the account could go into the red.

“You can have all the financial plans that you like but the report makes reference to systemic fault lines or a refusal to communicate and/or co-operate by various departments that the new leadership must sort out and sort out fast. Otherwise, the financial outlook looks very bleak indeed.

“It appears that the housing fund is not paying an appropriate contribution to it’s own management cost and other  householders are therefore financing social housing from the general fund – a creative way of making one budget bigger at the expense of another.”

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