Agenda item

For Members to receive, consider and comment on the Croydon Finance Review – Phase 1 report and action plan.

The item was introduced by the Finance Consultant who apologised for the length of the report. This was explained as being caused by the report being based on best practice in local authority finance and therefore was necessarily very detailed. The CIPFA financial management code was cited as the framework used with the resulting work broken into phases in order to make this accessible.  The first of these prioritised the areas most relevant to the Council’s financial situation; financial planning, budget setting, budget monitoring.

It was explained that the financial management issues had been recognised in April 2020 at which point the decision had been taken to conduct a root and branch review. This was recognised in setting up the Financial Review Panel and commissioning the Financial Consultant who had an extensive background as a Section 151 officer.

The review acknowledged that the management of finances had clearly not been as effective as it needed to be. This was demonstrated by the magnitude of the overspend. This was explained as having been caused by process, culture and governance. The report made 75 recommendations related to the areas of financial planning, budget setting, budget monitoring. It was explained that Members would be given a further opportunity to ask questions on the report. It had been thought important to bring the report to the meeting to demonstrate the work being undertaken and to show that urgent action was being taken to address the issues identified. It was described how a new budget process had been put in place over the summer. This included increasing budget monitoring to make it a monthly activity rather than quarterly. Medium term financial planning was being put in place as this had last been refreshed in 2018.

In response to a question from a Member regarding Best Practice Recommendation 23, the Financial Consultant gave reassurance that capital investment decisions had been made correctly as these had been agreed by full Council as required. The best practice recommendation referred to the quality of advice provided to Members when taking decisions.  It had been set out in the financial regulations that the Growth Board was the internal vehicle to enable proper discussion about capital decisions. This was to allow all information to be tested before going forward to Members for decision. However, the Growth Board fell into disuse after it had been considered not to be working effectively. It had been the intention that this be replaced with part of its function being fulfilled by the Asset Board. It was explained that it did not mean discussion did not happen or that the decisions were wrong but that the Growth Board did not function which was in breach of the financial regulations. There had been an intention to change financial regulations but this had been overlooked.

In response to a further question from a Member regarding Best Practice Recommendation 46, the Financial Consultant provided additional information regarding how the correct level of reserves should be determined. It was described how this needed to take into consideration an assessment of risk, based on what was known about the future as set out in the MTFS. This needed to be determined by the Section 151 Officer. It was highlighted that this was explicitly not about affordability but had to be focused on the Council’s ability to manage financial risk. It was highlighted that the MTFS had not been reviewed since 2018 at which point the decision had been made to set the target reserves at 5% nett of the General Fund figure.  Whilst this target level was commonly used by local authorities, the level of risk had changed (the Council was experiencing exceptional times). It was therefore appropriate to review the level of reserves which was being undertaken as part of the budget setting process for 2021/22. The risk being faced would be reviewed and a view would need to be taken on the level of reserves required as a result.  A £5m contribution would be made in the 2020/21 financial year to reserves which demonstrated the commitment to addressing the Council’s reserve position. However, it was anticipated that this would be required to be increase considerably.

A Member asked the Financial Consultant to provide his observations on the statement in the Executive Summary regarding the Council’s financial governance being inadequate and any correlation between this and the role of the Cabinet and political leadership.  In response, the Financial Consultant described how the Council’s governance arrangements were intended to ensure Members were properly informed of the implications of every decision. This included being provided with the appropriate financial information. Whilst it was clear that Members had been supplied with information, it had been established that some of the data used to inform those decisions had been out of date. The example of information on the establishment not being reconciled with staffing budgets was given. It was explained that this made it difficult for Members to gain an accurate picture and therefore for them to understand the implications of decisions. As a result, the decision-making process was not robust. This was further illustrated by decisions regarding the capital programme. The information provided as the basis for decision-making had not be robustly tested with no audit trail available to demonstrate that the appropriate work had been undertaken. It was not the process at a democratic level that had been ineffective but rather the information provided to support decision-making which had not been up to the required standard.

The Member sought clarification on whether failure in the decision-making process had been recognised and if so, what steps had been taken for it to be addressed. The Financial Consultant described how this had been recognised since April 2020 which was demonstrated by the Financial Review being set-up. It was noted that the Finance Review Panel comprised two Cabinet Members who were supporting the process through their participation.

In response to a Member question regarding the specific decision-making process used for the purchase of the Croydon Park Hotel and the Colonnades, the Financial Consultant confirmed that that this decision had been taken through the Asset Board.

The meeting was reminded that there would be a further opportunity to consider the Croydon Finance Review – Phase 1 report and to question the Financial Consultant on the recommendations made.