External auditors found “several weaknesses” in Warrington Borough Council’s accounts for 2017/18, including concerns that its £1.6bn of debt is “not affordable”, according to a report.
An audit findings report by Grant Thornton for Warrington’s 2017/18 accounts was presented to the council’s Audit and Corporate Governance Committee last week. It proposed to issue an adverse value for money conclusion on Warrington’s audited accounts for 2017/18.
Grant Thornton stated that this is due to “several weaknesses” identified within the council’s arrangements in place during 2017/18 to ensure financial sustainability and manage financial risk.
The weaknesses found were around the council’s Minimum Revenue Provision policy, arrangements to ensure compliance with the prudential code, monitoring and reporting of investments and the decision-making process for the Redwood Bank investment.
The report said: “Based on the work we performed to address the significant risk, we were not satisfied that the council had proper arrangements for securing economy, efficiency and effectiveness in its use of resources.”
According to Warrington Borough Council, the authority’s accounts for 2017/18 have now been signed off.
Debt risk
Grant Thornton detailed that the “weaknesses” found in the council’s arrangements to ensure compliance with the prudential code are based around Warrington’s high level of debt, which now stands at £1.6bn.
The report said: “The council’s debt burden is one of the greatest amongst unitary authorities in England and is the highest in its peer group.”
The external auditors also highlighted their concerns over the council’s investment portfolio, which “has largely been financed through debt”.
“We remain of the view that debt of over £1.6bn as well as the limit of 23.3% on commercial income as a percentage of budget is not affordable, prudent and sustainable over the long-term for the council.
“We consider that setting the limit of commercial income as a percentage of budget based on the reduction in government funding is an arbitrary way of setting this limit.
“It does not demonstrate that such a level of commercial income is sustainable or that the underlying debt is affordable,” the audit findings report said.
In February, Warrington Borough Council confirmed that it would begin talks with CIPFA over the authority’s capital strategy and level of borrowing.
Based on the work we performed to address the significant risk, we were not satisfied that the council had proper arrangements for securing economy, efficiency and effectiveness in its use of resources.
Governance weaknesses
Grant Thornton’s audit findings report also identified weaknesses in the governance arrangements at the council over a modified contract.
The contract detailed Warrington’s options to buy additional shares in Redwood Bank for a total of £20m.
Under the original terms of the contract, if Warrington had only invested £10m (and negated on the option to invest a further £20m) their shareholding in Redwood Bank would only have been marginally diluted by a very small percentage. However, under the modified terms, the dilutive effect was much clearer.
The report stated: “The modification of the investor agreement was so significant in its potential dilutive effect that we believe further approval should have been sought before it was signed.
“We believe weaknesses existed in the governance arrangements in place over the review and approval of the modified terms to the investor agreement.”
15th Annual LATIF & FDs’ Summit – 19 September 2023
250+ Delegates from Local Government & Investment
Sign off delays
In response to the audit findings report, Cathy Mitchell, deputy Leader and cabinet member for finance, said: “We are pleased that our 2017/18 accounts have been signed off.
“While we recognise the significance of the accounts being approved, we know that the delay has caused prolonged uncertainty for our residents.
“Following the resolution of objections raised in relation to our accounts, we have latterly, over many months, been unable to confirm our 2017/18 accounts due to a national issue that has affected all English councils.
“This matter has now been resolved, which takes us ultimately to the point of being able to sign off our 2017/18 accounts.
“We have, throughout this entire and incredibly complex process, continued to engage positively with our auditors on all matters related to our accounts.”
—————
FREE weekly newsletters
Subscribe to Room151 Newsletters
Follow us on LinkedIn
Follow us here
Monthly Online Treasury Briefing
Sign up here with a .gov.uk email address
Room151 Webinars
Visit the Room151 channel
