Robust financial planning required, councils told after auditor report

Local councils in Northern Ireland have been told that “robust financial planning is required” in the latest Local Government Auditor’s report.

Northern Ireland’s Local Government Auditor Colette Kane’s audits of local councils during 2020-21 and 2021-22 also uncovered the highest sickness rates among workers following the Covid-19 pandemic.

The report recorded a major impact by the pandemic on council finances.

It found that during the peak years of Covid-19 measures – 2020-21 – total local government income exceeded total expenditure for the first time since the formation of the new council structures in 2015.

This was attributed to being a consequence of the pandemic response, which saw both a reduction in expenditure levels by councils, and significant but short-term additional financial support to councils from central government.

But in the following year – 2021-22 – while expenditure levels remained lower than pre-pandemic, a drop in income meant that the local government sector was again in a position of overall expenditure (£1.07 billion) exceeding income (£1.056 billion).

The report also notes that, during 2020-21 and 2021-22, the value of repayments made by councils against their existing debt was greater than the value of new borrowing.

As a result, the value of outstanding debt across councils fell by £99.3 million (17%) over the two-year period.

While that relates to the overall totals, the report noted “significant variance” between councils in terms of both overall levels of debts and levels of expenditure used to service this debt.

There was also an increase in the value of useable reserves held by councils, from £266 million at the end of 2019-20 to £462.8 million at the end of 2021-22.

The significant change in the economic environment since 2021-22 was also acknowledged, with inflation and the rising cost of living leaving the local government sector facing uncertainty over future funding levels and expenditure pressures.

The report also found a “significant increase” in the value of suspected frauds reported by councils during 2020-21, £92,000 from £5,000 in 2019-20.

This total fell during 2021-22 to £9,400.

Meanwhile the report found that following a “notable reduction” in staff absence levels during 2020-21, in 2021-22 this rose to see councils record their highest average sickness percentage against the previous five years, an average of 15.8 days.

Ms Kane urged the building of financial resilience.

“Councils must always balance the cost of delivering services with the level of income they are able to generate. In the current economic environment, this is difficult,” she said.

“Decisions that have potentially significant medium and long-term implications are having to be made with little clarity about how those implications can or will be managed in future.

“We have already seen several councils raising domestic rates in response to these challenges.

“A clearer picture of councils’ financial position will emerge from the audit of the 2022-23 financial statements and I will have more to say on this in my next report.

“However, it is clear that robust financial planning is more essential than ever.

“I have highlighted a number of important considerations for councils moving forward.

“These include how best to utilise existing reserves to maximise value for ratepayers or, conversely, how to build financial resilience where levels of reserves deplete due to a reduction in income.

“The adaptability and flexibility displayed by the local government sector in responding to the pandemic will continue to be needed if councils are to innovate and embrace change and new opportunities.”