TWO damning reports have been published heavily criticising the council’s corporate governance and finances – but what does it mean?
The Chartered Institute of Public Finances and Accountability (CIPFA) and the Department for Levelling Up, Housing and Communities (DLUHC) published their findings into the council’s governance and finances on Monday.
Both reviews were triggered earlier this year when Slough Borough Council (SBC) asked for a capitalisation directive of £15.2m from government to obtain permission to sell off some of their £1.2bn-worth of assets to fill a then £10m black hole.
Before we delve into the reports, here is a short history tour of how the council got into this financial position in the first place.
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Historic accounting errors, the council’s finance team having ‘insufficient’ skills, and ‘inadequate’ governance arrangements were uncovered by external auditors Grant Thornton in the 2018/19 accounts earlier this year.
The council had reserves of £8.2m which were drained to £550,000 after the audit revealed the income from the council’s 50 per cent stake in Slough Urban Renewal was in error.
This has resulted in Grant Thornton issuing four Section 24 statutory recommendations concerning the council’s arrangements for financial reporting and the management of its reserves.
Steven Mair, chief finance officer, came in with his ‘A-team’ of finance officers and uncovered further problems, including a projected £174m blackhole by 2025 and borrowing quadrupling to £760m, which would give Slough the unwanted title of the third highest level of borrowing per head for English unitary councils.
The minimum revenue position - money set aside to pay off debt - has been ‘incorrectly’ calculated since 2016. The council should have been paying £20m a year but paid about £40,000 annually.
Now the council has to pay up to nine times that £20m figure, triggering a new capitalisation directive request of up to £600m to reduce their borrowing and ease pressures off its future budgets.
This new request will be submitted by November 10, council leader James Swindlehurst said at a media briefing on Monday.
Cuts will be needed as Mr Mair warned the council will need to make about £20m worth of savings every year for the next five years.
Now that short history is out the way, what did the CIPFA and DLUHC reports say?
The DLUHC report
Jim Taylor, Salford’s former chief executive, led a governance review into the council whilst a section 114 was issued, freezing all non-essential spending.
The paper was broken down by administration of financial affairs and corporate governance, democratic services and scrutiny, and service reform.
His report found “sustained and systematic failure across some functional processes, governance and certain services”.
Some of the problems identified date back ten years ago when the Slough children’s services were given an ‘inadequate’ rating by OFSTED. The Department for Education had to step in when “serious systematic failures” and “longstanding and serious concerns about the leadership, management, and governance” were found.
Corporate governance processes were inadequate and poorly understood by officers and members, resulting opaque decision-making in capital projects with significant decisions being made behind closed doors by cabinet councillors.
Over-ambitious
An example of this was the Moxy Hotel. Back in 2017, cabinet approved a capital spend of £42.765m for it to be built at a confidential meeting. However, only £29.5m was included in the capital programme approved publicly by council in 2018 to give the project the go-ahead.
This increased spending was never mentioned or referenced within its five-year capital programme approved by council in 2019.
SBC also made “over-ambitious” investments in property, such as three leisure centres, an ice rink, its £54m HQ, and affordable housing, which created “substantial financial risk” and quadrupled its borrowing to the tune of £760m this year.
Senior councillors were also criticised for taking too long to wake up to the “seriousness and urgency” of the situation.
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Some key decisions have been in the wrong meeting, according to the report while others have not been properly scrutinised by members.
“Insufficient resources” are to blame for this with the council’s interim head of democratic services leaving the organisation July 2021 and the current monitoring officer only being available for one day per week.
“Some members feel let down by the information given to them by officers…some members now have limited confidence in officer reports due to the current situation,” the report stated.
Scrutiny has been “under-resourced” while various officer posts remain left open.
The council’s transformation programme, which was undertaken from 2019 and sought to modernise the council’s service delivery model, was “executed poorly”, resulting in the authority operating at “sub-optimal level”.
The restructure, which had a consultancy cost of about £2.6m, commenced during the Covid-19 pandemic. There is no evidence of any formal report to cabinet members in 2019 that adequately outlines the risks with this venture.
Embarrassingly, 123 of the letters sent to staff contained many errors, causing “distress” to employees. These errors were eventually corrected.
As a result, the programme ended up failing and delivering an estimated £2.5m saving rather than a projected £5.2m saving.
The report states: “There remain over three hundred vacancies and three hundred agency staff (many in key core positions) and many interims within the new council structure and it is unlikely they will all be able to be filled permanently.”
SBC relies “too much” on consultancy and has added a £13.6m strain on its revenue budget from 2019/20. £6.5m of which has been advising on property and assets.
SBC’s HQ Observatory House came under fire for the Wifi and phone systems not working properly, resulting in “children’s social workers [being] unable to work from the new building for many months”.
The council went ‘cashless’ last year and had been temporarily unable to process cheques from residents.
The CIPFA report
The review found the council will need “ongoing oversight”, despite the sale of assets, with further support and spending reviews from 2022/23 needed for the council to balance its budgets in the medium-term financial strategy.
However, for immediate support, Slough will require a capitalisation direction worth £112m to cover its liabilities, as well as £33.2m for 2022-23 and £29.3m over the following two years.
Over £52m of that £112m figure stems from past liabilities such as GRE5, which its shares was bought by SBC to fix the Grenfell-style cladding issues at apartment building Nova House.
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“All of these figures are indicative and could be influenced by a range of economic and demographic factors,” the report added.
The council will have to make around £20m in savings annually for five years. The review found the council does not have a “good track record” in delivering savings and will find it difficult to make these savings from statutory services such as adult social care.
This creates “uncertainty” around SBC’s ability to deliver savings in the medium to long term. CIPFA, at this stage, cannot provide assurance the council will be able to balance its future budgets.
What happens next?
Both reviews have made a series of recommendations the council must act on. As part of DLUHC’s intervention proposal, independent commissioners will be brought in, who will be at SBC for three years and will oversee this work and use their powers to take matters into their own hands if SBC doesn’t fulfil their duties.
The intervention proposal is “designed to make sure that the authority has made sufficient improvement within the next three years to be able to comply with its best value duty on a sustainable basis.”
The council will have to complete within three months an assessment of the functional capability of all service areas to identify the gaps in capacity and capability.
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It must also prepare an improvement plan to action on its financial sustainability; improvements in democratic services, including the audit and corporate governance functions; a scrutiny function that is fit for purpose; improvements in internal audit; properly functioning procurement and contract management functions.
SBC must agree, within six months, action plans to the Commissioners’ satisfaction to address any functional shortcomings and undertake any actions to avoid further incidents of poor governance or financial mismanagement.
Other measures include:
- Devising and implementing a programme of cultural change to rebuild trust between officers and members within six months
- Following the review of council companies, within six months consider the roles and case for ongoing operation of each subsidiary company (except Slough Children First)
- Taking steps to enable better and evidence-based decision making, including enhancing data and insight functions
Mr Taylor's review recommends moving to a four-yearly election cycle as soon as possible as "stability" in political leadership is essential "without the distraction of an annual election cycle which is currently in place."
A series of measures have been recommended by CIPFA that SBC should implement, including reviewing its risk management, setting “strict limits” on future borrowing, and making detailed plans for closing its short and long term budget gaps.
SBC’s governance and oversight must be strengthened by briefing councillors on the financial challenge and strengthening controls.
Cllr Swindlehurst said the council ‘accepts’ the reports’ findings, the recommendations, and the government intervention.
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