Agenda item

Assessment of the robustness of the budget process and adequacy of reserves.


The Deputy Chief Executive, Chief Officer, Resources and s151 Officer and the Acting Assistant Head of Finance introduced the Assessment of the Robustness of the Budget Process and Adequacy of Reserves Report.


Referring to each of the recommendations in turn Committee Members were invited to comment and ask questions. 


Recommendation 1:   A Member was pleased to see that reserves levels are positive but asked about school reserves, in particular Chepstow School that has a deficit circa £330,000 with just one other primary school with a deficit budget.  He enquired if there was a robust recovery plan in place for Chepstow School.  It was confirmed that Chepstow School had a robust recovery plan in place and the deficit should reduce further by the end of this year with further reduction planned over the next two years.  The Cabinet Member for Resources and the Cabinet Member for Children and Young People have also sought reassurance about a recovery plan.


The Cabinet Member for Resources commented that use of Capital receipts to bolster the revenue budget for service redesign items will be addressed as this is not a sustainable practice.


The Governance and Audit Committee scrutinised and endorsed the RFO opinion on the robustness of the budget process and adequacy of reserves (appendix 1), and that in turn allows for a verbal update to be provided to Cabinet on 2nd March and Council on 3rd March as required.


Recommendation 2: The Deputy Chief Executive clarified that the forecasted use of reserves in the medium term is based on what is known and as the budget process and medium-term financial planning evolves changes could be expected.  The changes would be reported to Committee for consideration.


The Governance and Audit Committee noted the forecasted usage of reserves for 2022/23 and for future years as summarised in table 1 of this report and detailed in appendix 2.


Recommendation 3:  The Deputy Chief Executive added that, notwithstanding the uplift in school balances, the general pattern of decline in school balances over time still causes an underlying issue of schools operating beyond their means and the Committee should bear this in mind. 


The Governance and Audit Committee noted the extent of forecast improvements in school balances summarised in table 2 and detailed in appendix 3 which is informed and driven by the extent to which significant and unprecedented late grant support provided by Welsh Government to schools at the end of 2020/21 exceeded the impact of school investment plans, and notably further receipt of unbudgeted Welsh Government grant support received at the end of 2021/22.


Recommendation 4:   With no further comments or questions, the Governance and Audit Committee acknowledged the restoration of general and earmarked reserve balances over the administrative term of this Council and that has enabled balances to be stabilised in line with the reserves protocol approved by Cabinet in 2015, albeit in light of risks that remain over the medium term which to the extent that they cannot be mitigated will draw further on limited one-off reserve and useable capital receipt balances.


Recommendation 5:   The Deputy Chief Executive reminded members that the budget strategy for 2022/23 includes a number of material and significant risks relating to homelessness, adult social care, leisure centre income etc.  We must be aware of significant specific grant funding received late in the year from Welsh Government.  With the budget recovery plan, this means the in-year position has moved from deficit to surplus. This has enabled the final budget proposals and anticipated ability to further replenish reserves to cover the known and likely risks thus reducing the potential need for immediate budget recovery action.  The Cabinet Member for Resources drew the attention to the potential for wage bill increases.  Allowance has been built in for what is anticipated but any further unknown increases will have to be managed. 


The Governance and Audit Committee noted the current reserve strategy and approach that looks to ensure that reserve cover is put in place for budgetary risks remaining for 2022/23 and from a forecast under spend for 2021/22.


Recommendation 6: The Governance and Audit Committee noted that the Council Fund balance sits in the middle range of the 4% to 6% indicator and which is considered by the Council’s S151 officer to be at an acceptable and prudent level.


Recommendation 7: The Governance and Audit Committee had regard to declining useable and one-off capital receipt balances that continue to support the Council’s capital maintenance and investment plans, and most recently used to meet revenue costs associated with service reform under WG guidance (appendix 5 and 6).


Recommendation.8:   The Governance and Audit Committee noted that current usage of useful capital receipts is not sustainable and to the extent that balances are depleted Council will need to have recourse to unsupported borrowing to finance its future capital plans and to the extent that other grants and contributions are not available.


Recommendation 9:   The Governance and Audit Committee requested that a review of the reserves policy is undertaken and brought back to Governance & Audit Committee for consideration before being considered for adoption by Cabinet subsequent to 2021/22 outturn and in readiness for the budget strategy and plan for 2023/24 and over the MTFP period. 


Recommendation 10: The Governance and Audit Committee requested that consideration is given to strengthening compliance with CIPFA's Financial Management (FM) Code and over which the committee needs to preside.

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