To note and comment on the external auditors update report for Herefordshire Council.

The Committee considered a progress report from the external auditors on how they were discharging their responsibilities and on relevant emerging national issues and developments.

Mr P Jones presented the report.  He highlighted the following sections:

-     (page 50 of the agenda papers)  - progress at 27 February 2014

-     (page 51) – Audit Commission research – Tough Times 2013

-     (page 52) – Local Audit and Accountability Act – noting the provision for local authorities to choose their own external auditors from 2016/17 or potentially from 2019/20 if all the current contracts were extended.

-     (page 53) – the Better Care Fund

-     (page 54) – the challenging final local government finance settlement 2014/15 with a further cut in spending power for local authorities.

-     (page 55) – “2016 tipping point? Challenging the current”, the third report by Grant Thornton in an annual series assessing whether local authorities had the arrangements in place to ensure their sustainable financial future.

-     (page 56) – alternative delivery models in local government – are you making the most of them?

-     (page 57) the first impressions of the impact of welfare reform

-     (page 61) Business Rate appeal provisions – noting that a successful appeal in one part of the country could have implications for others.

-     (page 59) Private Finance Initiative (PFI) accounting – whilst not a significant issue, work was being carried out to ensure that the Council was accounting properly for the costs of its few PFI schemes.  Mr Tobin commented that discussions had taken place with accounting officers and a training day had been arranged.

In discussion the following principal points were made:

·         The “2016 tipping point” report was discussed.  The Chief Financial Officer noted that the report considered the concept of tipping point scenarios such as decision paralysis where authorities failed to make the decisions necessary to manage financial and other challenges.  Another scenario was where balancing the budget might mean that statutory duties could not be met, noting for example the potential pressure on adult social care expenditure, or matters that arose outside the Council’s control. His view of the council’s financial position was that some tough decisions had been made.  There was a three year financial plan in place. This plan would deliver services for 2014/15 and provide for some replenishment of the Council’s reserves.  By 2016/17 there was, however, the possibility that if something major were to occur issues over the Authority’s resilience could arise.

·         The Solicitor to the Council commented that the current legal position was that a lack of resources was no defence against a failure to meet a council’s statutory duties. However, the Courts were becoming more understanding of the difficult financial position facing local authorities in determining judicial reviews of service reductions.

·         In response to a question about the Council’s own “tipping point” the External Auditor commented that unitary authorities as a whole were underfunded compared with metropolitan authorities and the stresses they faced as a result of a reduction in Government grants were therefore more severe.  The Chief Financial Officer had informed the Committee that the next two years could be funded.  However, the longer term would be very challenging for local authorities and it was likely that consideration would need to be given to structural changes including mergers and, potentially, the relationship between health and local authority structures.

·         The Chief Financial Officer confirmed that the Council did have a register of assets and the auditors assessed its accuracy because the assets appeared on the Council’s balance sheet.  It was noted that there was the possibility of a number of community asset transfers and that these had the potential to give rise to accounting errors.  The external auditors’ stated that their previously expressed concerns about the asset register had reduced.

RESOLVED:

That    (a)        the report be noted; and

            (b)        a report on the implications of the “2016 tipping point report” by Grant Thornton be made to the Committee.