One of many emerging risks arising from the COVID-19 crisis is that of council finances.
This is not as immediate and high profile as the threat to human health and life – but in the medium term it could come to cast doubt on the sector’s ability to provide the basic services that local people expect – and the sector’s ability to continue to protect the most vulnerable.
Not only are councils having to expend significant amounts of resource on the operational response – they are also losing substantial income.
This financial crisis is not new – it has been building for many years. At the beginning of this crisis it looked likely that the substantial additional expenditure involved would be defrayed by Government, but it looks like this may not be correct – witness the Secretary of State’s ominous statement that local government should be expected to “share the burden” of the crisis with Government nationally.
It may be the case that flexibility around the issuing of section 114 notices – the formal reports that Directors of Finance must prepare if they consider that their authority cannot deliver a balanced budget – provides some short term relief. But in the medium term the sector still faces a crisis. Without the injection of substantial new funds, this year, many councils are likely to run out of money.
Councillors have to understand the scale of the problem as it affects their locality, and what steps can be taken to shore up and protect vital services.
This is likely to involve closer working with audit committees. In many councils, the link between scrutiny and audit is poorly defined. Information is rarely passed back and forth. Scrutiny makes little use of audit’s forensic examination of the council’s finances – audit makes little use of scrutiny’s wider investigations into council services.
Taking this opportunity to think about how councillors can use audit and scrutiny across the piece to review, understand and take action on finance is, we think, vital.
Here is how it might be done.
- Conversation between the chair of audit and the chair of scrutiny to ensure that priorities are aligned and there is mutual awareness of the key challenges;
- Developing a joint understanding on:
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- In-year financial monitoring. How are financial procedures being altered (in line with delegation) to meet local need? How are we sure that these arrangements are robust and subject to proper oversight from the s151 officer?
- Budget management. How are individual budgets being managed, bearing in mind that they would have been set before the crisis began to unfold? How are virements between budgets – likely necessary at this time – being managed?
- Risks and pressures associated with loss of income. Income from fees and charges, and from commercial activity, will have collapsed. Business rate and council tax collection is likely also to be impacted. What does this mean for the delivery of a balanced budget?
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- Overall risks and pressures. How has the changed financial landscape altered the corporate risk register? What action is being taken in consequence?
- Once this joint understanding has been reached what critical points of pressure and concern are there? Where should audit take a lead on these matters, and where should scrutiny? How can scrutiny build an understanding of these pressures into its wider work.
s151 officers will be overwhelmed with work at the moment, dealing with the financial implications of this unprecedented situation. Audit and scrutiny work therefore has to help them to carry out their duties. As such, conversations about the role of audit and scrutiny will need to involve the s151 officer too. In every council, that officer’s needs – and expectations about member involvement – are likely to be different. But we hope and expect that non-executive members will have a crucial part to play.
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