RBWM Systems, Processes and the CIPFA 2020 Review - a commentary

How did RBWM get into this situation? 

It’s clear things went wrong in the past in RBWM – and unsurprisingly there have been calls for reports, enquiries and investigations. Understandably residents want accountability.

It is insightful to look back at the Chartered Institute of Public Finance and Accountancy (CIPFA) report from June 2020. 

Commissioned in July 2019, the report initially looked at governance over the Clewer & Dedworth neighbourhood improvement scheme.

The report found the scheme had circumvented normal approval processes and CIPFA concluded there was “a lack of transparency around the financial implementation of capital schemes.” 

Issues from this review “highlighted further concerns about financial monitoring in RBWM as well as the effectiveness of financial governance and the role of the finance function in overseeing the financial governance of RBWM.”

So CIPFA were flagging up back in 2020 that both governance and the finance function were weak.

A detailed review was undertaken as a second phase, during which the former leader of the council resigned. 

A large range of issues were found in this review, detailed in the 36 page report, and 38 specific issues were identified - some of the most notable comments are:

“1.7 Our overall concern that the lack of financial transparency and Medium-Term Financial Planning over a number of years has masked the financial problems that RBWM were facing and that, potentially, could have been avoided. For example, Council Tax was either reduced or frozen over a number of years. It is difficult to be precise over the exact basis of decision making but it was apparent that there had been a poor officer culture and lack of physical capacity and capability coupled with dominant members. This led to no appropriate challenge or recognition that challenge is a good thing.”

The reference to “dominant members” in the written words of such a professional and matter-of-fact organisation as CIPFA is both revealing and alarming. 

1.8 Warns of the risk of entering S114 unless urgent actions are taken to improve the financial position.

“1.10 There appeared to be little differentiation between officer and senior member roles and responsibilities, who appeared to be treated as senior executives rather than elected members. There was no recognition of the problems in governance this would likely create.”

Again, CIPFA writing that senior members were acting as senior executives is alarming. 

“2.6 The Revenue Budget for 2019/20, approved by RBWM in February 2019, did not comply with the requirements of the Local Government Act 2003. More specifically the RBWM budget reports for 2017/18, 2018/19 and 2019/20, approved by RBWM, failed to include a statement from the CFO on the robustness of estimates. Although the reports do refer to the level of reserves they state only that reserves are above the level required and that RBWM is in a strong position to deal with the risks it faces for the forthcoming year.”

This suggests a very superficial approach with no consideration of the details and a possible reluctance for the S151 officer to sign off on estimates. 

Then there was a calculation error for the amount of council tax, where the adult social care precept was omitted – this meant a 2.77% increase was applied rather than 2.99% leading to  £150k less revenue that year and EVERY YEAR subsequent.

The 19/20 budget had no “provision for the possible slippage or non-delivery of savings and there was little assessment of the level of reserves required to sustain future budget deficits.”

Comments from CIPFA continue… “budgets were unrealistic”, “were sustained by one off underspends”, “savings were abandoned very early in the financial year”, “bad debt provisions were inadequate”. And so on. All this meaning the finances and operations were already being stretched to beyond the limit. 

2.25 refers to “by far the lowest council tax outside of London”, adding “This matched Members’ objectives but budget reports did not highlight the risks of pursuing this.”

Suggesting that low tax was prioritised over everything else. 

And “It appeared that RBWM was just managing its finances on a year to year basis”.  

Note this is in stark contrast to this administration’s work to prepare a robust Medium Term Financial Strategy, however tough that might be, with full transparency of both good and less good.

CIPFA continued - Budget Monitoring was criticised; the July 2018 Budget Monitoring Report “described reserves as being in a healthy position at £8.7m”, before adding “this position appears hard to justify, particularly as overspends of £8m were being identified at this point although not being reported.”

This was replicated in 2019 when the Budget Monitoring Report at September 2019 cabinet showed a £0.5m overspend “ignoring known overspends in departments and, following a review requested by the MD and undertaken by CIPFA, was increased to £4.2m. Officers and Members appeared to be reluctant to report the correct position”.

In a nutshell, the budget monitoring reports were misleading and plain wrong. 

CIPFA then explicitly states “Officers appeared overly sensitive in providing bad news about RBWM’s financial position and the poor publicity that it would being to RBWM.”

Why would that be? 

Moving on to Treasury Management, among the howlers are: no explanation of how the council would finance £341m of planned capital spending in the short term, no assessment of the risk of interest rates rising above 1% (!), a spreadsheet error underestimated interest by £700k in 20/21, no reference to the affordability of capital plans in the 20/21 budget report and that the “ambitious investment and regeneration plans” would be financed by £425m of capital receipts and grants – described as “wildly optimistic” and not covered in the Capital Strategy approved by members. Again, surprisingly strong words from the professional accounting body. 

The section on the Clewer & Dedworth Capital schemes refers to a ward member (a Conservative member, for clarity) proposing capital with no business case, and “members were able to circumvent RBWM’s approved policy framework without appropriate challenge from officers.” Finally, the icing on the cake is that “some members believed that this is how council business should be conducted”. 

It continues – lack of a comprehensive business case - questioning £36m on a new leisure centre - not all spending accompanied by purchase orders – still the case now. 

The report at 4.11 explicitly refers to charging costs that should have gone to revenue budgets, to capital. 4.12 describes the reduction of the capital budget for improvements to roads, bridges and buildings was cut from £1.6m in 2015/16 to zero in 2018/19 “to achieve savings”. That could pay for the Old Court roof to be repaired quite a few times over, but once the money was taken out of the budget, it’s gone, and it’s extremely difficult to reinstate…

This was a comprehensive review - CIPFA also looked at partnership arrangements – Optalis and Achieving for Children – and notes they were “ put in place quickly without appropriate consideration of value for money.” And with unclear governance arrangements. 

They add that there needs to be more clarity over financial arrangements in AfC and how financial information is reported, noting also the service overspent significantly and savings were not delivered. 

The Property Company and Internal Audit are also flagged as needing to be reviewed – were they? It doesn’t look like it. 

The report also highlights that there were issues with control account reconciliations, including unreconciled balances of over £1m relating to bank and housing that go back a number of years. There is a clear recommendation that a further review of bank reconciliations and control accounts needs to be undertaken to ensure they are regularly balanced and there is independent verification and assurance that they do. 

This is as clear a recommendation as it is possibly to get in the accounting world – so why did the Conservatives not implement it? 

Finally, the report notes the lack of clarity between members and officers – adding it is essential that this clarity exists to enable RBWM to operate effectively. 

From the LGA guidance – councillors provide the democratic leadership, representing residents, providing leadership and direction and scrutinising service delivery. Officers (the employed staff) implement the policies, organise and deliver services and provide unbiased, professional advice to support councillors. 

The LGA also notes Councillors and Officers have a collective corporate responsibility for the council. They must act together to provide democratic governance. 

So, in light of the comments about the officer member relationship, it is clear that the council was seriously dysfunctional in the period under review and most likely for some years before. And we are counting the cost of that now, and digging ourselves out of a very deep hole.

What’s the position now, what has this administration done? 

The CIPFA reports commissioned by the council’s Section 151 officer in mid 2024 highlight that many of the weaknesses in systems and processes previously identified were not fixed in the lifetime of the previous administration. 

So, the previous administration were told, but why didn’t they do anything about it? 

A number of actions were referenced in the 2020 report, describing better processes starting, but it is clear now that nothing substantial improved in a sustainable manner – Covid grants bought them a bit of time, then it seems they simply stumbled towards May 2023 probably wishing the clock ran faster. What they did do was carry on with the spin… 

Don’t forget, we came in being told the Borough was in good shape and had £10m of reserves. That was the line taken by the previous leader and Cabinet.  The first task was to discover the truth. 

Also remember, we had a new CEO as of April 2023, and needed to recruit a new Section 151 officer as the previous had left in early 2023, immediately after the 23/24 budget was approved. On 26 May 2023, three weeks after taking office, an appointment panel met and agreed to appoint Elizabeth Griffiths, who started in September 2023. Her first task was to prepare a budget. Off the back of a ‘fake’ or fantasy budget, with (as we now know) very unreliable underlying data based on manual systems prone to material error. Clearly despite best efforts and intentions, and severe income constraints, this was always going to be tough. 

Once the budget was prepared as best we could and approved, attention turned in April 2024 to the Accounts – and then the three-year gap of balance sheet reconciliations emerged. It became clear that nothing had improved in over four years. 

CIPFA 2020 reported a backlog of balance sheet reconciliations, issues with the capitalisation of revenue spend and unreconciled amounts – all with a finance function that was inadequate to serve an organisation of RBWM’s size and complexity. And it was still the case.

So the Council WERE told – it is clear the responsibility lies with the former administration from the quotes above – but the former administration chose to ignore the recommendations and did not act to improve the financial position of the council in reality. 

Coming to the recent Audit committee, and the Deloitte recommendation for a report to be prepared by officers to be presented to the audit committee describing assurances over the estimates and judgements in the accounts, it is very clear that any assurance is going to be very low as we know there were errors in some of the estimates and judgements. It may be that the Section 151 officer can prepare a report covering this but the value of such a report is very limited. 

Where from here? 

This administration has set up a framework for reporting the implementation of CIPFA recommendations – starting with the 2020 report and including the recommendations from the 2024 reports. We are not hiding from tough decisions and the need for transformation in the council – we are getting on with it and reporting and tracking progress to make sure the essential changes happen. 

We have the Financial Improvement and Sustainability Plan, prepared and approved in late 2024, off the back of the CIPFA Financial Resilience Review, which formed a key part of our discussions with national government. This is, in essence, our plan to fix the mess. 

Further, the CIPFA report on Financial Systems and Processes completed in the second half of last year reveals so many fundamental issues that is it very clearly commercially sensitive – we will publish extracts and issues once they are resolved but to publish now would simply reveal the major process weaknesses that could allow the unscrupulous to defraud the council. 

So, to conclude, since taking control of the Council, we have worked relentlessly to uncover the issues and problems we inherited. Have we reached the bottom yet? Quoting the Section 151 officer’s comments recently - “we cannot say for certain that we have” - however we do know we are in a far better place and have a far better understanding of the issues the council faces than any of the previous four administrations. The diagnosis stage is substantially complete and the restoration underway. 

We have a detailed plan – we will bring together the FISP, the transformation programme and the recommendations from all the CIPFA reports into a long to do list which we will report back on regularly, potentially as part of the Quarterly Assurance Report. We are operating much more transparently – which reveals all – the good and the challenges – and allows residents to see more clearly what is progressing in the Council. It appeared to get worse over the last two years but it was simply a revealing of the true situation that was there all the time. It is our clear intention, and we give a strong commitment to work in the very best interests of residents to improve the council’s finances, operations and services. 

Links:

CIPFA 2020 Report 

Microsoft Word - CIPFA REVIEW COVER REPORT JUNE 2020 Cabinet4.docx

Cabinet June 2020

Agenda for Cabinet on Thursday 25 June 2020, 6.15 pm

CIPFA 2024 Financial Resilience Report and FISP

(Public Pack)CIPFA resilience review final report and RBWM Financial Sustainability Agenda Supplement for Council, 20/11/2024 19:00