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Local government is in a very challenging financial situation. The impact of austerity, the Covid-19 pandemic, high inflation and the cost-of-living crisis have all contributed to a spike in both the demand for and the cost of services, which is very difficult to manage.
Recent surveys suggest most councils will need to draw down on their reserves in 2023-24 to balance their budgets and will also have to consider using them in 2024-25 and beyond. This brings the role of the statutory officers into sharp focus, the so-called “golden triangle” of the Head of Paid Service, the Monitoring Officer and the Section 151 Officer – which we’re going to focus on here.
In many ways, the statutory function of the Section 151 Officer is straightforward: they must advise the council of the key risks in setting the annual budget in their Section 25 report, and they must issue a Section 114 notice if, at any time, they believe the council is not going to be able to set or maintain a balanced budget or incur unlawful expenditure, including taking the usable reserves position to an untenable level.
In reality, the role of the Section 151 Officer is fraught with complexity and difficult judgements.
In some cases, where the Section 151 Officer has either been too new to the role, been sidelined or ignored, and has not been able to persuade the council to act more swiftly in tackling financial distress, we have seen a council fail.
The working relationship with the other statutory officers is therefore key. Both the Section 151 Officer and the Monitoring Officer have a very similar and clear goal of making sure the law is upheld and so there’s an opportunity for the two roles to work closely together.
By working more collaboratively, they should be able to persuade most chief executives, or indeed council leaders, of the folly of a particular course of action that would be ruinous to council finances or expose them to excessive risk.
The Section 151 Officer also has a key role to play in ensuring a positive relationship with both internal and external audit.
Where these relationships are well managed, the Section 151 Officer can leverage them to provide critical friend support and independent perspectives on the council’s key financial and governance risks, consider benchmarking and learning from other councils and, most importantly, provide an independent and rigorous assessment of the council’s financial position.
Finance and accounting in local government is very complicated, especially when novel transactions are embarked upon that involve large scale borrowing and lending, council companies and flexible use of capital receipts.
Many of the skills needed to deal with these transactions are not normally found within local government finance departments which are resourced with the skills and capacity required to address “business as usual” activity.
It’s therefore very important to ensure that for novel or contentious schemes, councils are taking the appropriate external advice on due diligence and accounting arrangements over the full lifecycle of a scheme, including the impact on Minimum Revenue Provision and the Capital Financing Requirement.
On too many occasions, there have been poor arrangements in this aspect of a major transaction which have caused those councils severe problems and led to the risk of a Section 114.
Our recent report, Preventing Failure in Local Government, found that the majority of Section 151 Officers display great skill, acumen and rigour in exercising their statutory function, often while under severe personal pressure.
However, on occasions, there have been examples where the officer performing the role has not exercised their statutory functions effectively and have either initiated, acquiesced or ignored proposed financial decisions that come with a high degree of risk to the council. As it stands, we have not seen many examples where action has then been taken by professional or regulatory bodies to prevent repeat behaviour by these individuals at other authorities.
Our report shows that the circumstances that can lead to failure, around poor governance and culture, can often be avoided.
Looking ahead, the sector is operating in increasingly challenging times. The role of the Section 151 Officer, and other statutory officers, will therefore become even more important as local authorities are required to make increasingly difficult decisions on how to manage such an uncertain and high cost economic environment, while continuing to provide the necessary services for their communities.
