Auditors have issued an adverse audit report for Redditch Borough Council, telling the council it needs to save £1.5m over the next three years and is at risk of breaching its statutory duty to set a balanced budget.
The report by Grant Thornton revealed that it has issued a section 24 notice, recommending urgent action to prevent both its general fund and housing revenue account balances being exhausted by the end of 2020/21
It also expressed concern the council had failed to properly plan to deal with its financial woes.
A report from Grant Thornton, considered by the council’s audit committee this week, said: “Because of the significance of the matters we identified in respect of financial sustainability, we are not satisfied that the council has made proper arrangements to secure economy, efficiency and effectiveness in your use of resources.
“We therefore propose to give a qualified adverse conclusion.”
The auditors pointed out that it had already identified financial troubles in 2017-18 saying then that Redditch was “not in a financially sustainable long-term position and does not have sufficiently developed plans to address this”.
Remarking on the current position, Grant Thornton said: “One year on and the council finds itself in an even more challenging financial position.”
In 2015, the auditor issued four recommendations under the predecessor legislation to section 24 of the Local Audit and Accountability Act, relating to the council’s accounts production and budgeting process, which were addressed.
However, Grant Thornton said in its most recent report: “It is both disappointing and concerning that we again find it necessary to take this unusual step to ensure that the council takes appropriate action to manage its finances.”
It added that “short-term decision making and an inability or willingness” to take difficult decisions means that the council is likely to exhaust available reserves by March 2021.
Of the £1.5m savings needed, £1.2m needs to be found in the current financial year.
Conservative council leader Matt Dormer—whose party gained control of the borough during elections in 2018—warned that council tax could rise and levels of service could be threatened.
“We are not afraid to take tough decisions required to protect the public purse and are putting the politics to one side to make the changes which will have immediate positive impact on our services and residents—and provide long-term benefit to the borough.”
David Thain, the recently appointed portfolio holder for finance, conceded that the council’s finances were “in less than a healthy state”, but added the council was determined to achieve a robust financial plan for the future.
Grant Thornton’s section 24 recommendation says the council needs to take urgent action to head off exhausting current working balances of £1.2m by the end of 2020-21.
“Failure to take effective action will put the council at risk of breaching its statutory duty to set a balanced budget.”
Redditch continues to grapple with finances for the current year. In March, Grant Thornton found that a medium-term plan approved in February identified savings of £1.13m for 2019-20. The report says savings of £949,000 are being implemented while £181,000 are still to be found.
“The council is rapidly approaching an extremely serious financial situation. Urgent action is needed to ensure that the council lives within its financial means and continues to be financially viable,” said the report.
Control of Redditch council moved to the Conservatives in elections last year when it was the last Labour-controlled authority in Worcestershire. In elections in May the Conservatives increased their control by one seat, bucking the national trend.
Under the section 24 legislation, the council must now consider the recommendation at a meeting within a month.
In March, Grant Thornton issued a third section 24 notice in three years to Birmingham City Council, concluding the authority faces a “unique level of one-off risks”, including funding for the 2022 Commonwealth Games.
