Northamptonshire County Council is racing against time to agree spending cuts after auditors this week told the authority it was in danger of setting an illegal budget.
The council, whose section 151 officer last month issued a section 114 notice, had been due to agree today (Thursday) budget proposals for 2018-19, which relied heavily on the sale of the council’s headquarters.
However, that plan was dropped after the council’s auditor, KMPG, wrote on Monday telling the authority that it must stop the process or provide reasons for not doing so.
KPMG’s letter said: “…the authority has begun to take a course of action which, if followed to its conclusion, would be unlawful and likely to cause a loss or deficiency…”
A spokesman for the council told Room151 that Thursday’s meeting did not consider the budget proposals, but agreed that the section 114 notice — which stops any unauthorised spending — would stay in place indefinitely.
The council will meet again on Wednesday next week to agree a revised budget, which it hopes will satisfy the auditors.
The spokesman said: “Between now and next week there will be meetings to reassess the budget. There will likely be further savings announced but those decisions will be made between now and at that meeting.”
Areas under consideration include the council’s library service, a move previously resisted by councillors.
Prior to this week’s meeting, the authority’s section 151 officer, executive director of finance Mark McLaughlin, called on councillors to take their share of responsibility for producing a balanced budget.
In his report on the now-abandoned budget, McLaughlin said: “Financial control has been improved during 2017-18 but will require further attention and rigour, and I have accepted this is a personal priority.
“However, the demonstration of financial discipline is something that must be led by decision makers — i.e. the members of the county council — and, in the current circumstances, this should begin with the acceptance of the maximum number of realistic savings options, including those which have proved controversial, or unpopular, during the consultation process since the draft budget.”
After McLoughlin’s report was produced, KPMG’s letter said that Northamptonshire’s estimate of expenditure for 2018-19 “is or will be unlawful and will give rise to an unlawful decision as to the authority’s council tax requirement for 2018-19 under section 42A(4) of the Local Government Finance Act 1992.”
In their hard-hitting assessment, the auditors said the proposed budget was heavily dependent on meeting a net revenue outcome of £416.8m in 2017-18.
Under the budget rejected by KPMG, the council proposed to spend £40.9m of capital receipts next year on transformation projects using temporary powers granted to councils by central government.
KPMG said the figure was “not on any view achievable” and “the proposed budget is premised on an incorrect estimate of likely revenue expenditure in 2018-19”.
In addition, the letter said that the planned use of the capital receipts depends on the council completing the sale of its headquarters by the end of the current financial year.
The auditors said the council failed to publish a full review of transformational projects approved in previous years, as is required by statutory guidance, including whether they have met predicted savings targets.
KMPG concluded: “These factors combined do, in KPMG’s view, indicate a lack of prudence in financial planning and the absence of robustness in discharging the accountability and transparency requirements of the statutory guidance.”
Elsewhere in the letter, KMPG said that it has “not seen any transparent plan” to address a funding gap of £26.9m in the 2017-18 budget.
“With less than six weeks to go until the year end, we do not see a credible route to the authority balancing its accounts for 2017-18,” it said.
“The amount of the overspend for 2017-18 must, in turn, be taken into account in the budget for 2018-19 and will make it all the more difficult to balance that budget.”
KPMG said that the council’s reliance on one-off measures, such as the proposed property sale, “is not a sustainable strategy in the long-term and does not address the underlying reasons for the structural deficit.”
The firm added: “In addition, there has not been a comprehensive and transparent exercise by the authority to identify and cost its statutory services, which would help it to identify further potential savings.”
In January, communities secretary Sajid Javid sent government inspectors into the authority over concerns about the shape of its finances.
