Letter dated 26 July 2024 to the RBWM Audit Committee – Financial Sustainability and Governance
\nMeeting 9\/9\/2024 Item 6 – For the Committee to receive a letter [reproduced below] from Grant Thornton on financial sustainability and governance.<\/p>\n
Dear Stephen Background<\/strong> Our responsibilities<\/strong> Initial Findings<\/strong> 3. The Council has not produced a full bank reconciliation since March 2021. This fundamentally 5. We have identified concerns about the governance, efficiency and effectiveness of the 7. The Council is now in a position where it is dependent on securing EFS from Government in Next Steps<\/strong> END OF LETTER<\/p>\n
\nRoyal Borough of Windsor and Maidenhead \u2013 Financial Sustainability and Governance<\/strong>
\nGrant Thornton UK LLP was appointed as your external auditors for the five-year period commencing
\n2023\/24.
\nAs the appointed auditor our responsibilities include to give an opinion on the financial statements and
\nassess the arrangements for Value for Money (VFM) – securing economy, efficiency and effectiveness in
\nthe Council’s use of resources.\u00a0 We also have additional powers and duties under the Local Audit and Accountability Act 2014. These include powers to issue a public interest report, make statutory recommendations and to apply to the
\nCourt for a declaration that an item of account is contrary to law. This letter is an informal communication
\nahead of a more formal consideration of the use of these powers and reflects the serious emerging<\/strong><\/span>
\nissues<\/strong><\/span> arising from our 2023\/24 VFM audit.
\nWhilst our VFM work is ongoing, the work to date has identified a number of serious concerns about the<\/strong><\/span>
\nfinancial challenges<\/strong><\/span> that the Council is facing and the risks to the Council\u2019s financial sustainability and effective governance in the short and medium-term. In raising these concerns, I want to acknowledge the open and transparent approach that both you and Elizabeth Griffiths (S151 Officer) have taken in
\ndiscussing the Council\u2019s challenges and some of the historical issues which impact on the Council with us as your newly appointed auditors.<\/p>\n
\nThe Council is aware that it faces significant challenges to its financial sustainability. On 22 May 2024 a
\nfinancial update informed the Cabinet that the Council was to approach Government to seek Exceptional
\nFinancial Support (EFS). This support sought to provide financial capacity to enable the Council to
\naddress historic problems including the need to transform services and address the current underlying
\ndeficit.
\nThe Council\u2019s General Reserves are estimated to have fallen below \u00a34 million and recent reviews of
\nearmarked reserves have left very limited opportunities to re-prioritise these reserves to support the
\nGeneral Fund. This situation, together with ongoing spending pressures, capacity challenges and
\ngovernance weaknesses significantly increases the level of risk the Council faces. Further detail on this
\nis set out below.<\/p>\n
\nAs part of our VFM responsibilities we are required to satisfy ourselves that the Council has made
\nproper arrangements for securing economy, efficiency and effectiveness in its use of resources.
\nThe Code of Audit Practice requires that where auditors identify significant weaknesses in arrangements
\nto secure value for money, recommendations are made setting out the actions that should be taken by
\nthe Council. The Code expects where auditors identify significant weaknesses in arrangements as part
\nof their work, they raise them promptly with those charged with governance.
\nWhilst we have not yet completed our Value for Money work for 2023\/24, the findings to date indicate a<\/span><\/strong>
\nlarge number of significant concerns that are set out in more detail below:<\/span><\/strong><\/p>\n
\n1. The Council has not yet published a draft outturn for 2023\/24 but reported at Month 11 that
\nservice expenditure was projected to exceed the budget by \u00a310.392 million which would require
\nthe use of \u00a36.755 million of General Fund reserves to balance the budget. The 2022\/23 outturn
\nreported the forecast balance of General Fund reserves at \u00a310.213 million and the Section 25
\nreport considered as part of the 2024\/25 budget expected the General Fund reserves position
\nto fall below \u00a34 million at the end of 2023\/24.
\n2. You have informed us that current year (2024\/25) financial monitoring projects an overspend of
\n\u00a36.293 million in 2024\/25. There continues to be a large overspend in relation to Adult Social
\nCare which is currently provided through Optalis, your jointly-owned company with Wokingham
\nBorough Council. Service overspending in Adults Services was significant in 2022\/23 due, in
\nthe main, to rising demand and costs, but underspending elsewhere compensated for this. The
\n2023\/24 financial monitoring report in April 2024 projected a \u00a37.038 million overspend in Adults
\nand Health. Both Optalis and Achieving for Children (AfC) provide statutory services for the
\nCouncil which are subject to demographic and market pressures and the Council\u2019s contractual
\nrelationship with both of these companies should have been set up and maintained on an
\nappropriate and clearly understood approach to sharing risk. The Council\u2019s base budget for
\nAdults Services does not reflect the current level of demand and contractual arrangements and
\nas a consequence, the overspending is being perpetuated.<\/span><\/strong> There is therefore a risk that the
\nCouncil will not be able to recover the position in 2024\/25. Furthermore, the Council has not
\npreviously been able to demonstrate that it can successfully achieve this level of in-year
\nsavings.<\/p>\n
\nundermines the integrity of both external and internal financial reporting and the financial
\ninformation on which decisions are made. Ongoing work to reconcile differences has the
\npotential to further detrimentally impact on the Council\u2019s financial position. Specifically, potential
\nerrors have been identified in the amount of income attributed to national non-domestic rates in
\n2022\/23 and 2023\/24. You have also informed us of errors in debt control processes relating to
\nadult social care invoices which were not paid.
\n4. External financial reporting and the timely audit of the financial statements is integral to
\nensuring the Council is accountable for its stewardship of public funds. The Council\u2019s 2020\/21
\nfinancial statement were not signed off by our predecessors until April 2024. The 2020\/21
\nopinion included a limitation of scope in respect of the collection fund in respect of business
\nrates. The 2021\/22 and 2022\/23 financial statements remain unaudited. Historic capacity
\nissues within the finance team combined with the ongoing bank reconciliation issues mean that
\nat the time of drafting this letter the 2023\/24 financial statement have not been produced and
\npresented for audit, the national deadline for their production being 31 May 2024. The inability<\/strong><\/span>
\nof the Council to produce complete, accurate and timely financial statements and subsequently<\/strong><\/span>
\ncomplete the audit raises significant concerns over the governance arrangements at the<\/span><\/strong><\/span>
\nCouncil and undermines the ability of decision makers to have confidence that decisions are<\/span><\/strong>
\nbeing taken based on a true financial position.<\/span><\/strong><\/p>\n
\nCouncil\u2019s wholly-owned property company which is currently the subject of an external review.
\nThe company provides services to the Council which include carrying out valuations, asset
\nmanagement, acquisitions and disposals. The company also plays a critical role in bringing
\nforward the development of a golf course owned by the Council which represents a potential
\nfuture capital receipt originally estimated at \u00a3200 million. The Council\u2019s borrowing decisions in
\nrecent years have been taken in the context of realizing this capital receipt and the possibility of
\nachieving a lower value because of suggestions that a lower density of development should be
\npursued represents a significant risk to the Council\u2019s future financial sustainability as a
\nconsequence of its high level of debt.
\n6. You have shared with us concerns about the historic impact of eight years of council tax cuts
\nand freezes which have significantly eroded the Council\u2019s income levels in comparison with
\nsimilar authorities. The consequence of this has been felt most significantly in the staffing
\nresource available to ensure that the Council is administered professionally and effectively. We
\nhave noted that there are significant gaps in the Council\u2019s capacity and these are exemplified
\nby current vacancy levels within the finance team and insufficient capacity in dealing with legal
\nand procurement issues. These gaps in capacity are impacting on your ability to complete the
\nwork to identify errors and take appropriate action.<\/p>\n
\norder to provide the resources and time required to i) dispose of capital assets to underpin the
\nCouncil\u2019s financial position in the short term ii) continue to deliver budgeted savings iii)
\nimplement a transformation strategy which successfully reduces costs and brings the Council\u2019s
\nservice expenditure back within budget iv) secure the capacity it needs to ensure the Council is
\neffectively managed, particularly in respect of finance and other core functions. Delivery of the transformation programme and building essential capacity in the organization will require
\ninvestment of resources in the short-term. Asset sales will also have an impact on the Council\u2019s
\nshort-term financial position through loss of income.
\nThese initial findings set out an extremely challenging situation, particularly because of the low level of
\nreserves available and the risk that the Council\u2019s reserves will be fully depleted.<\/p>\n
\nWhilst we are yet to conclude our 2023\/24 VFM work and reach our final judgements, the concerns
\nraised above will result in our reporting a number of significant weaknesses in arrangements. Our initial
\nreporting timeline was a draft VFM report by the end of September 2024. We will now await the outcome
\nof the other ongoing reviews referred to above and reflect on what, if any, additional work may be
\nnecessary to conclude our VFM judgements for 2023\/24. Should any additional work be required we will
\nfirst discuss this with the S151 Officer and agree a revised timetable taking into account our obligation to
\nreport in a timely way.
\nWe recognise that the Council is aware of its situation and is in discussions with Government about EFS
\nwhich, if secured, would help to address the financial risks that it faces. We also acknowledge that action
\nis being taken across all the areas set out above and that external support is being utilised as part of this
\nprocess.
\nSpecifically. the Council has proactively sought independent advice and support from CIPFA. The
\nCouncil is also considering utilizing consultants to assist with the underlying rising costs in adult social
\ncare that would involve significant up-front costs but ultimately will generate significant revenue savings.
\nOnce again this will put further pressure on the already depleted levels of reserves and balances.
\nWe are also mindful that the recent General Election has also resulted in some uncertainty about the
\ntimescales in which a resolution to your request for EFS can be found.\u00a0 The Council should continue to act with urgency to put in place a credible recovery plan, recognizing that
\nsufficient capacity within its finance function is an essential requirement which needs immediate
\nattention. The Council\u2019s Statutory Officers should also continue to give careful consideration to the
\nduties the law places on them.
\nWe request that this letter is shared with all members at the earliest opportunity. This letter, and
\nmanagement\u2019s response, should also be included within the September 2024 Audit and Governance
\nCommittee\u2019s papers.
\nYours sincerely<\/p>\n