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Cash-strapped Northamptonshire warned budget proposals may be breaking the law

Auditors at KPMG have issued an advisory notice to the struggling Northamptonshire County Council warning that it should not sign off its proposed budget because it may be unlawful.

The notice cautions that the proposals set out by the council are likely to cause a loss or deficiency, and will be in breach of the Local Audit and Accountability Act 2014.

It comes shortly after the county council suggested that becoming a unitary authority could be the last solution to its debt-ridden finances. It recently became the first council in 20 years to issue a section 114 spending ban, prohibiting almost all new expenditure and making it clear that the authority faced a financial situation “of a serious nature.”

Each year KPMG is required to reach a conclusion as to whether the authority has made proper arrangements to secure economy, efficiency and effectiveness in its use of resources. In this instance, it concluded that Northamptonshire, which faced an overspend of £21.1m for 2017-18, did not have adequate arrangements in place.

Furthermore, since reached this conclusion, the council’s financial situation has “significantly deteriorated.”

If no action is taken, KPMG warned that the council is in danger of ending the financial year with a negative general fund balance, which is a breach of legislation.

The council’s proposed 2018-19 budget is based upon it meeting its budgeted net revenue outturn of £416.8m this year, but demand-led services like adult social care have had an overspend of £13m, and the authority has struggled to meet its planned savings target of £57.8m.

These factors mean that the council can only achieve its budgeted revenue outturn for the year if it is able to use £35.6m of expenditure on transformational projects under the Capital Flexibilities Discretion issued by the communities and local government secretary in March 2015.

However, this is dependent on the lawful sale and leaseback of One Angel Square, its head office.

Auditors also found that the council has relied heavily on one-off measures, such as a reduction of £13.9m in schools reserves.

KPMG has criticised Northamptonshire’s financial rigour, with no evidence of transparent plans to address the £27m savings gap for 2017-18 as the end of the financial year fast approaches.

A spokesperson for Northamptonshire County Council said: “The section 114 notice issued earlier this month shows that as a council we recognise the very real risk we face in balancing the expenditure demanded of us in terms of our statutory duties and the resources available to us to pay for them.

“We have also been clear that we do not believe our funding position is sustainable. We have been clear that there are risks in our budget proposals for 2018-19 given this funding position and the o-going demand pressures we face.”

Given the severity of the financial position, the council is having to “maximise the use of capital receipts as encouraged by the government” to enable it to “transform and protect statutory services,” the spokesperson added.

“We have worked hard to ensure that the budget proposals being put forward for next year are accurate and realistic,” they concluded.

The full council will meet tomorrow to discuss the section 114 notice and debate KPMG’s advisory notice.

The local authority will no longer be able to vote on the budget due to the notice, therefore a final meeting will be held on 28 February to debate and vote on the final budget proposals.

Top image: yevtony

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