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Review highlights executive disagreement

Friday 4 October 2024

A peer review carried out for East Herts District Council has raised concerns about financial planning at the local authority.

The report was written by Andrew Hardingham, the former director of finance at Plymouth City Council, and commissioned by the Local Government Association. The review covers budget reports issued to the council’s Executive in relation to the 2024/25 budget.

In his report, Mr. Hardingham notes a disagreement between chief executive, Richard Cassidy, and the head of strategic finance and property, Steven Linnett, about how financial risks should be presented to councillors.

Concerns were also raised about a budget report provided to councillors, with Mr. Hardingham stating: "The budget report can, at best, be described as a summary. There is no detail and no disclosure or discussion of options."

Whilst recommending that in future a schedule of delegated savings together with a risk schedule be produced and included in the budget report, Mr.Hardingham notes that for the most recent budget "The Chief Executive gave an instruction not to include the schedule with the papers. The schedule was prepared and the Head of Strategic Finance and Property advised it should be published but was overruled."

Background

The review notes that the council had an "ambitious" capital programme under the previous administration, with four major capital projects - two swimming pools and leisure centres, the redevelopment of Old River Lane in Bishop's Stortford, and the Hertford Theatre refurbishment. The two leisure centres used up a significant proportion of the council's capital reserves, whilst the Hertford Theatre refurbishment has seen rising costs from £18 million to £30 million and the council must continue despite the mounting expenses due to the amount of money already committed. 

"The new administration has inherited this situation and there are some limited opportunities for asset sales to raise additional funds. The council is relying on prudential borrowing and asset sales and an independent external review could help validate if the council is making appropriate decisions regarding capital projects, reserves, and asset management. This would support the new administration in making informed decisions going forward.

"Members within the administration feel that information delays have affected the new administration's ability to monitor financial performance and there is no monthly dashboard provided for finances. Without more effective budget monitoring, the council is seeking confidence that the decisions it is making are the most sensible going forward. Significant risk surrounds the ability to deliver the identified 24/25 savings and there are further major challenges to identify a further balanced budget for 25/26.

Conclusion

Mr.Hardingham concludes his report by making a number of observations:

The budget report can at best be described as a summary. There is no detail and no disclosure or discussion of options. Risks associated with the impact of savings are included on the individual savings proposal but there is no disclosure as to delivery risks.

The plan to dispose of in excess of £10m of assets is needed to reduce the cost of debt. Future years budgets are heavily reliant on the success of this strategy as debt costs are forecast to drop from £4.7m to £0.550m per annum in 2026/27 and £0.650m thereafter.

There is no risk analysis concerning the commercialisation of the theatre, but future budgets rely on the income growth.

The Q2 monitoring report was considered by the Executive in January 2024, some four months after the end of the period. If corrective action was need it is too late to undertake anything meaningful. The report lacked substance and just asked members to note the forecast outturn (approx. 4% on net expenditure). Budget variances were described in one of the appendices.

Without a statement of usable reserves, it is impossible to assess the impact of the budget overspend in 2023/24.

I consider the approach to rescheduling the capital programme sensible along with the financing proposals. However, these are heavily predicated on the sale of the assets and realising the full value. The Council has invested heavily in the Hertford Theatre and must now ensure that the commercial approach achieves the income targets needed to meet the budget targets. Relying on income from such a cultural venture could be considered risky.

Chief Executive Richard Cassidy left the council suddenly and without explanation last month and head of strategic finance and property, Steven Linnett is set to retire next month.


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