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Councils warned to look out for five key ‘financial warning signs’

Councils have been told to watch out for five key ‘warning signs’ of financial pressure, including a rapid decline in reserves, in order to build resilience into all aspects of planning and operations.

The message has been sent by the Chartered Institute for Public Finance and Accountancy (CIPFA) which has released guidance for councils in its new report, ‘Building Financial Resilience’.

Four other warning signs mentioned by CIPFA include a failure to plan and deliver savings in service provision and the shortening of medium-term financial planning.

Councils were also told that firm objectives were missing from savings plans, and a tendency for unplanned overspends should also give prompts to councils that all is not well with their fiscal strategies.

The report laid out a number of key measure councils needed to put in place to ensure their finances were kept in check. This includes ensuring the right financial management systems are working effectively, as well as using benchmarking data such as comparing costs, income and activity levels with similar authorities.

The need for a single consolidated living document that tracks its saving plans and managing reserves effectively was also emphasised by CIPFA.

“In the face of growing demand, tightening funding and an increasingly complex and unpredictable financial environment, councils must be financially resilient; meaning they must remain viable, stable and effective in the medium to long term,” said Sean Nolan, director for local government at CIPFA.

“Austerity has battered the sector for close to a decade, while increased demand and cost pressures have left some councils at the brink.”

Nolan added that other, more positive changes, such as a trend towards greater self-sufficiency and local leadership had allowed some areas to flourish, while others have struggled to reap the benefits of these reforms.

“What we are seeking to do now is to help councils spot the warning signs of financial stress and take the right steps towards resilience,” he concluded.

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