Shropshire Council warned over finances by auditors
Auditors are urging Shropshire Council to find further savings as the government’s planned fair funding formula will have “unknown implications”.
A report by auditors Grant Thornton says the authority saved £3 million less than it planned in 2018-19 and its reserves may be “fully depleted” by 2021 if current policies continue.
The report – due to go before Shropshire Council’s audit committee on Thursday – says the 2019-20 budget is sound but a £12.4 million funding gap will lead to “significant risks to financial stability” the following year, especially as some government grant schemes will cease in April 2020.
In their annual audit letter to the authority, Grant Thornton engagement lead Richard Percival, senior manager Emily Mayne and in-charge auditor Siobhan Barnard write that Shropshire Council underspent by £167,000 in 2018-19.
“There were pressures in adult social care, children’s services and commercial services, with children’s services delivering the greatest overspend at £4.6 million,” they write.
“These overspends were offset by savings elsewhere.
“As part of its 2018-19 budget, the council set a savings target of £15.5 million. It delivered £12.5 million.
“For 2019-20 the council has set an expenditure budget of £593.1 million, identifying a financial gap of £24.6 million between planned expenditure and resources.
“This is being closed by grants of £22.1 million and use of earmarked reserves of £2.5 million.
“The financial gap for 2020-21, after grants of £3.1 million and use of reserves of £19.7m, is £12.4m. This estimated gap assumes that over £20 million of government funding such as Rural Services Delivery Grant, Improved Better Care Funding and Social Care Grant will not continue beyond the current multi-year settlement which ends in 2019-20.
“This coincides with the Government’s stated proposals to implement a new ‘Fair Funding’ methodology from April 2020, the implications of which are unknown.”
Concluding their analysis of “value for money risks”, they write: “The council does not have reserves to address these forecast gaps and so it is critical further saving plans are identified and delivered to ensure reserves are maintained at a financially sustainable level.
“The current financial strategy projects reserves will have been fully depleted by 2020-21.
“We remain concerned the council is using non-recurrent funding from reserves to balance both its 2019-20 and 2020-21 budgets and fund recurrent expenditure.”
They say there are sufficient reserves to cover short-term shortfalls or funding reductions up to March 2020, but “the council’s current financial strategy identifies a potential funding gap of £12.4 million in 2020-21, resulting in significant risks to financial sustainability for 2020-21 and beyond, which the council has already highlighted in its financial strategy.”