By Richard Johnstone | 25 September 2014
Nearly a quarter of councils (23%) have useable reserves that amount to less than 10% of their spending, according to a report published by the Audit Commission, including more than half (55%) of unitary local authorities.
In its final Interpreting the Accounts report ahead of closure next March, the commission set out a number of key financial ratios for the sector.
Among the other conclusions, the commission found only 9% of town halls had useable reserves greater than 40% of their spending, although 15% of districts had reserves of this level.
Overall, the report found that 16% of all local authorities had a lower level of current assets than liabilities in 2012/13, which rose to more than two-fifths of metropolitan districts.
Analysing changes since 2007/08, the commission said the ratio of assets to liabilities fell for nearly two-thirds (64%) of single-tier and county councils from 2007/08 to 2012/13, due to both a decrease in current assets and an increase in current liabilities. However, the ratio went up for more than half (56%) of district councils.
Publishing the information, which is based on data collected by the commission’s appointed auditors, chair Jeremy Newman said it helped assist in the transparency in local government financial management.
‘With the closure of the commission and inevitably the Financial Ratios tool with it, I very much hope that someone will continue this work. We have, therefore, invited the Local Government Association to incorporate the ratios, and the data we have compiled to date, in its publicly available Local Government Inform benchmarking data service.
‘This would enable local public bodies to compile their own accounts data in future to support continued comparison of the financial ratios in the years ahead.’
He added that the ratios do not indicate good or poor financial performance, as they are the products of a variety of local challenges and decisions, but do allow comparisons to be made between local public bodies and trends to be identified.
‘This makes it a valuable resource for local bodies and, even more so, for members of the public wishing to scrutinise local financial decision-making,’ Newman added.
‘For the government to achieve its aims of promoting greater transparency for public finances, and greater accountability to local taxpayers, there remains a need for tools, like the Financial Ratios tool, that make access to data easier and support “armchair auditors” to make informed comparisons between organisations.’
