External audit reveals Wirral Council’s financial challenges

External finance inspectors have warned Wirral Council about its debt levels and low reserves as ‘significant weaknesses’ remain.

A report of accounting company Grant Thornton’s audit of the local authority was released by the local authority ahead of an audit and risk management committee on 26 March.

The report looks into the different issues facing the council, how it is dealing with them and how well it is managing its finances.

Auditors said the council has taken a number of steps to improve financial management and budget monitoring but added, “There are a number of signs of financial stress that indicate a threat to its financial sustainability in the short and medium term.

“We have therefore concluded that the identified significant weaknesses in the council’s arrangements remains.”

The report covers the period from April 2022 to March 2023 but has only just been reported to the committee. Since then, the independent panel appointed by the government to oversee the council has said its made significant progress and is now looking to stand down.

The report said the “significant use of earmarked reserves and forecast future reserves balance is of major concern” and this may undermine the local authority’s ability to be financially sustainable. This includes the local authority using reserves to balance its budget for 2022/23 as well as forecasts saying the total amount of reserves will reduce to £52.8m by 2027.

The council is also said to be facing other pressures linked to uncertainty around a budget gap for schools funding, rising costs and other pressures for its building and regeneration programme, as well as “high levels of debt and in-year borrowing to balance cash flow pressures.”

Auditors have made a number of recommendations which the council has responded to but the report faced questions from councillors at the audit and risk management committee. The council’s borrowing is expected to increase by more than £9m this current financial year but predicted to decrease in 2025.

When concerns were raised about the council’s levels of debt, Sarah Ironmonger from Grant Thornton said, “It is usual for councils when managing their cash flow to use temporary borrowing in small amounts and in-year borrowing and I think we are just saying that those levels we consider to be reasonably high. We are not saying that we think it’s out of control but we are saying we think they’re quite high.”

The report also said Wirral had the second lowest level of council reserves when compared to a number of other local authorities after it used almost half of its earmarked funds in 2022/23 and used more in 2023-24. A council report has previously said it predicts the local authority will go bankrupt in three years.

Committee chair Cllr Jenny Johnson pointed to the issue, adding, “You’re raising the point that we’re gradually taking down our reserves and over time we are depleting them at a rate that’s now making us really, really poor when we’re benchmarked against other local authorities.”

In response, Ms Ironmonger said the council’s situation had improved as it no longer needed emergency funding to pass its budget, adding, “You are not at the end of your journey because you are still needing to use reserves now

“It’s not a crisis at the moment but if you keep dipping into them, you won’t have them if an unknown crisis appears which is the purpose of having them.”

She added, “You have reserves to help you when something goes wrong so if you need to dip into them, you need to have a strategy about how you’re going to replenish them.”

Concerns were also raised about rules being waived on procuring contracts at short notice, particularly when auditors had raised the issue the previous year. Ms Ironmonger said progress had been made since but added, “The contract waivers is absolutely an issue. Procurement is a sector-wide issue and we recognise management’s comments that getting the right skilled and experienced staff to support you is a challenge.”

Matthew Bennett, the council’s finance director, went further saying the local authority was bringing in an early warning system when contracts were ending as well as new procurement structure because council officers had failed to recognise that contracts were coming to an end.

He said this was to ensure “we are ahead of the game in terms of when contracts are coming to an end and making sure that the correct procedure is followed and that we don’t have to have these waivers on a regular basis.”

As for the nearly £10m gap linked to schools funding which is continuing to grow, officers and auditors said this was a national issue that needed to be resolved but until that decision was made it would continue to be a risk for the council.

Councillors also challenged the local authority’s regeneration director David Hughes on a report detailing the risks faced by the council over its regeneration and housing schemes. Repeatedly during the meeting, it was raised that efforts to lower risks were too optimistic and called for more information and scrutiny going forward.

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