ICAEW.com works better with JavaScript enabled.

Slough Council ‘bankruptcy’ shows consequences of delays

Author: ICAEW Insights

Published: 12 Jul 2021

The issuing of Slough Council’s section 114 ‘bankruptcy’ notice after delays to 2018-19 audited accounts mean the significance of financial weaknesses have only recently been uncovered.

Slough Council’s Chief Finance and Section 151 Officer, Steven Mair, has issued a report under section 114 of the Local Government Finance Act 1988, banning any new non-essential expenditure. Section 151 Officers are required under the Act to issue such a notice when they conclude that expenditure in a financial year will exceed the available resources.

Slough had already successfully applied for emergency funding of £15.2m for the 2021-22 year from the Ministry of Housing, Communities and Local Government (MHCLG) through a capitalisation direction. However, following the discovery of further significant issues since the Council approved the budget in March 2021, Steven Mair concluded this amount would be insufficient and now estimates that the council will have a budget deficit of £40m in 2021-22 even allowing for the emergency funding.

This significant movement is a direct result of the fact that the Council does not have recent, externally assured financial numbers to use in preparing its budget. It has not published audited accounts for 2018-19 nor 2019-20 because the audits are ongoing, despite the 31 July 2019 and 30 November 2020 statutory deadlines.

ICAEW reported in May this year that Slough’s auditor, Grant Thornton, had issued statutory recommendations after finding significant financial management issues and unsustainably low reserves. Grant Thornton’s recommendations report highlights that Slough had to reduce their forecast of the general fund reserves balance as at 31 March 2021 by £7.6m to £550k because of the identification of an error in the 2018-19 accounts. The Council now estimates the general funds reserve balance to be minus £56m at 31 March 2021.

Had the Council produced more accurate accounts and better supporting working papers that would likely have allowed Grant Thornton to complete the 2018-19 audit on time, it is likely that many of these issues could have been identified earlier and addressed. In the section 114 report, Steven Mair notes that a number of issues relate to previous years and states that “the financial position the Council finds itself in should have been addressed in previous years”.

The section 114 notice will have a real impact on the residents of Slough as it prevents the Council entering into any new spending except for absolutely essential services like social care and waste collection. Following the issue of the notice, the Council has 21 days to produce an alternative balanced budget, meaning there is likely to be significant spending cuts and asset sales.

Slough Council is not the only local authority to fail to meet the statutory deadline for publishing audited accounts. The NAO reported that 55% of local authorities missed the 30 November 2020 deadline for publishing audited 2019-20 accounts, while other councils have also still not published 2018-19 audited accounts including Eastbourne and Luton. Both these councils have also been granted capitalisation directions from MHCLG demonstrating that audit delays and financial sustainability issues are often closely linked.

In contrast to the penalties for missing filing deadlines for private companies and their directors, there are no penalties in legislation for local authorities that miss statutory deadlines nor is there an equivalent of the Charities Commission register of charities which allows users to search for those charities which have published their audited accounts late.

Oliver Simms, Manager, Public Sector Audit and Assurance, at ICAEW commented:

“Much has been written about delays to local authority audits and accounts but it can be difficult for residents to understand if it matters that their authority has missed the deadline. In the case of Slough Council, the lack of audited accounts since 2017-18 has resulted in a lack of understanding of its difficult financial position and several years of unaffordable budgets. Residents will now feel the consequences of several years of inevitable spending cuts and asset sales required to balance the books.”

Simms continued: “The causes of delays to local authority accounts are many and varied but MHCLG should examine the causes and consider how they can support councils to meet the statutory deadlines to prevent others deprioritising timely and accurate accounts and ending up in a similar situation to Slough.”