Council emergency cash reserves could run out

Thursday January 31st 2019

Midlothian Council

Written by Local Democracy Reporter, Marie Sharp

Emergency cash reserves held by Midlothian Council could run out completely over the next financial year, experts have warned.

The local authority’s General Reserves Fund, which has been used to cover budget shortfalls in recent years, has fallen below a level considered “prudent”.

An internal auditor’s report on the council’s finances has warned that the reserves could run out completely as soon as March next year.

It blames both elected councillors and officers for the reduction in reserves over the last three years.

And it criticised recent budgets set by the council for being “unrealistic”.

The report by the council’s chief internal auditor Jill Stacey, which looked at how its budgets were set and monitored said councillors approved the use of £11million from reserves over the last three years while officers overspent an additional £3.435m.

The report said: “General fund reserves have fallen sharply and £3.984m remains uncommitted as at 31 March 2018 which is just below the minimum prudent level.

“Unless drastic action is taken the predicted financial position beyond 2019 can only be expected to deteriorate and Midlothian Council could potentially completely deplete its general fund reserves before 31 March, 2020.”

The council’s finance chief Gary Fairley warned members this week that the estimated shortfall on funds for the coming year’s budget is likely to be £11.9m.

And he revealed that a report into local authorities across Scotland had found many relying on their reserves as Scottish Government funding continued to be cut.

At that meeting members were told work was already being undertaken to address some of the concerns raised in the auditor’s report about future budgets.

Among recommendations from the auditor was a call for future budgets to be “realistic and self-sustaining”.

It said: “Undue reliance should not be placed on further rounds of cost-cutting unless imposed by the Corporate Management Team.

“The budget must also reflect the outcomes of a radical rethink of what services the council provides and how those services are provided.”

The council is due to set its budget for the coming year on February 12.

Council leader Councillor Derek Milligan said among changes already underway were plans to reduce senior management costs by £200,000 – a move also carried out this year – with a further review.

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