Playing with numbers
Over the past 7 months we have heard a lot about what Somerset County Council has done. The turn around in its finances, the rebalancing of the budget. We have often been told about the improving financial position.
This has led residents and council employees to believe that more will be able to be done with SCC’s scarce resources. Especially in terms of delivering services.
But how real is this turnaround. Now Grant Thornton, SCC’s auditors, have issued their preliminary audit report. An dit does contain some alarming language.
Whilst much of it is couched in technical terms there are some clear and easily understood messages which are worth bringing out. The auditors acknowledge that the underspend against budget achieved in 2018/19 was £5.9m.
They also note “This underspend masks a greater underspend that has enabled the Council to increase the combined value of its general fund balances and earmarked reserves by a total of £20.4 million over the last 12 months providing more resilience in this area.”
So that’s good, right? How did they do it? Grant Thornton tell us “Elements of this total underspend were as a result of a combination of: nonrecurring; one-off; technical savings (e.g. minimum revenue provision totalling £4.2m benefit in 2018/19); additional use of the capital flexibilities (which was budgeted at £2.6 million but £8.6 million used), and; unplanned additional central government income (including £2.5 million extra adult social care funding).” In other words these are largely either one offs or technical accounting savings.
Things that it is less likely will be available to balance the books in 2019/20. And that has implications for the degree to which a turnaround has been achieved.
And some special earmarked reserves remain firmly negative. Grant Thornton are especially concerned about reserves for our schools and education “The Dedicated Schools Grant (DSG) has a cumulative deficit of £6.7 million, up from £3.9 million in the previous year. Despite the Council having submitted the required DSG Three-year Deficit Recovery Plan to the Department for Education (on 28 June 2019) that sets out the plans to recover this deficit, the increasing deficit against this reserve remains a concern and places further pressure on the already depleted financial position of the Council.”
In fairness you may ask if we are simply looking for the bad stuff. So let us put in some context. As of today, SCC has the worst reserves position of all the County Councils in England except Northamptonshire that last year was effectively declared bankrupt.
Grant Thornton put it very starkly: “However, biggest continued concern we have as your auditors remains the ability of the Council to balance its books into the medium term. Our high level analysis of the budget allocations to both Children Services and Adults Services across the MTFP indicates low levels of growth over the next 3 years in both areas and reflects the impact of increased debt charges (principal and interest) restricting the ability of the Council to increase budgets in line with historic annual increases in spend. “
So starkly that they will not, as yet issue an audit opinion of any sort on the councils financial statements in respect of Value for Money (which includes looking at SCC’s financial viability).
This means the auditors need to do more work to satisfy themselves which Somerset’s tax payers will be picking up the tab for. In fairness to SCC it could be worse. They could simply say that the council is not viable and they have not said that.
And the areas that give greatest uncertainty to the viability of SCC are the very areas SCC themselves have been trumpeting to any politician that will listen. Telling them the system is broken and needs fixing. For which great credit is due.
But the fact remains other county councils face the same problems and have not allowed their finances to get into such dire straits.
Again we will finish with Grant Thornton in their own words “As a result of this proposed additional work we are unable to conclude our VFM conclusion by 31 July 2019. Our auditors expert are aiming to complete this work by the end of August 2019 and we proposed to use their findings to inform our final VFM conclusion for 2018/19 that will be reported to the Audit Committee at their September 2019 meeting.”