By PAUL RIDDELL
Councillors in Shetland have failed to show that they are able to take the tough decisions required to halt runaway spending of the isles’ oil wealth, according to Scotland’s financial watchdog.
In a new report due to go before members shortly, but already seen by The Shetland Times, Audit Scotland warns that if they do not cut back sharply on the use of the reserves for spending on services and capital projects, many council policies will simply not be achieved.
Although it notes that the council is cutting back on the amount of money drawn from the funds for service provision, the study highlights a likely bill of £4 million for the single status agreement designed to equalise pay between male and female council employees, as well as spending commitments imposed by the Scottish Government for free school meals and reducing class sizes.
The study also points to a list of projects on the capital programme in the next four years worth more than £112 million. In the next two years alone, councillors have indicated they wish to spend nearly £70 million when the amount of funding available stands at £33.2 million – a gap, the report’s authors note, of almost £37 million.
None of these figures take account of the new Anderson High School, which will cost £49 million. There is an ongoing debate as to whether this should be paid for by the Shetland Charitable Trust and leased back to the council at, say, £5 million a year, or paid for directly out of the council’s reserves.
All this is against the background of a deep recession that the report predicts is likely to mean less generous financial settlements from the Scottish Government in the next few years.
SIC head of finance Graham Johnston said the report, Shetland Islands Council: Strategic Audit Risk Analysis 2008/09, raised a “number of important issues”.
“In some areas their emphasis is a welcome stimulus to further progress within [the council],” he said. The report will be discussed at the next meeting of the audit and scrutiny committee at the beginning of May.
Beyond that, Mr Johnston is working on a major report to go before councillors in July that will serve as the definitive annual statement on the council’s reserves.
According to weekly statements given to councillors, the reserves have fallen below the £250 million “floor” beyond which official policy states no more can be spent, but Mr Johnston was quick to point out this week that these figures do not take account of all factors, for example the £45 million invested internally for the council’s housing revenue account.
He said: “This [the July report] will be an all-encompassing event not framed on weekly values but an annual balance sheet with external plus internal investments both at cost [what the council paid for them]. This will lay the foundations for future policy.”
The Audit Scotland report states: “Elected members face a number of difficult decisions to ensure the council remain[s] within [its] current financial strategy.
“For the council to maintain its reserves at £250 million, whilst ensuring sustainability and quality of services, a comprehensive policy led approach to budgeting is required. This would demonstrate which of the council’s objectives could be delivered within the resources available each year.”
The report goes on: “Although there has been some improvement in the council’s budget setting processes, there continues to be a risk that budgets are incremental and budget savings are identified by top slicing without a review of overall priorities and spending needs.”
In a direct attack on councillors, the report’s authors also observe: “As elected representatives, councillors have a clear legitimacy to be the voice for their area, both individually at ward level and collectively to advance its well-being. Ultimately they are responsible and democratically accountable to the local electorate for the overall performance of the council.
“Councillors have yet to demonstrate they are able to collectively take the difficult decisions required to reduce the current draw on reserves in line with the agreed financial strategy. There is a risk elected members do not addres the difficult financial choices required to ensure continued service delivery and progress on the capital programme within the agreed financial strategy. This may result in the council not delivering its corporate plan.”
The study cites a report to the audit and scrutiny committee in October last year that criticised unclear project briefs and delays in approving capital projects. Often that had resulted in building being delayed.
“There has been additional expenditure incurred on these projects because no clear scope was reached at an earlier stage,” that report stated.
In a further report by Mr Johnston last November, councillors were told they must be fully involved in decision-making at all key stages of a project to avoid slippage – policy formulation, project definition, project planning, project implementation, project monitoring and review.
The Audit Scotland report states: “Going forward members should recognise that changing course after a project is substantially under way is a costly thing to do, and must only be considered when there is a compelling evidence-based case for making such a change.”
Mr Johnston said he was drafting a report for next month’s audit and scrutiny committee that would draw together the best practice for this sort of clear decision-making chain.
Audit Scotland also raised concerns about the ability of the charitable trust to pay for its ongoing spending commitments.
“Given the current financial climate there is a significant risk that the trust may no longer be able to provide the same level of services in the future,” the report stated. “The council may have to consider whether it will provide funding to the trust, or whether services will need to be transferred back under the council’s control. If this is required, the council will need to review its future spending plans.”
The watchdog also continues to assert that the trust should groups its accounts together with those of the council. Recently, the council wrote to the trust asking that this be done, but it is understood that the request has again been rejected by the trust.