Agenda item

Section 114 Notice

To receive an overview of the recently served Section 114 Notice.

Reporting Person: Brendan Arnold


Brendan Arnold, Interim Director of Finance and Section 151 Officer summarised the Section 114 Notice and activity since it had been issued to the Council.

The Committee discussed with the Section 151 Officer the steps that led to the issuing of the Section 114 Notice.  Advice from several specialists, including the Chartered Institute of Public Finance and Accountancy (CIPFA) and Peter Worth, had informed the work undertaken to understand the Council’s financial position.

Action was still being taken to complete the final audit opinions for all accounts from 2018/19 onwards with BDO, the external auditor up to the 2022/23 accounts.  BDO had requested the Council review its Minimum Revenue Position (MRP) to provide the final opinions.  Officers could not foresee anything that would prevent BDO from then being able to provide final opinions.  The Council was engaged with the public sector audit regulator to help move the position forward and with the Department for Levelling Up, Housing and Communities (DLUHC) to consider if another auditor would be required.  It was considered that the delay to finalising the 2018/19 accounts onwards would have had no impact on the amount of debt accrued by the Council.

Brendan Arnold considered it not appropriate to predetermine the position of Government, in terms of the ability to provide sufficient funding, but officials at DLUHC had shown understanding towards the position of the Council.  It was not known what would happen to the loans provided by the Public Works Loans Board if the Government did not intervene with financial support.

Restatements for previous years’ accounts had been made over the past several months.  The Section 151 Officer considered that understatement of the MRP had started in a small way in 2007/8 but accelerated rapidly from 2016/17 onwards.  The Officer noted that loans had been used for revenue purposes at Council companies throughout the history of the investment model.  It was not known to what extent due to sub-optimal record keeping and as such was only stated from 2022/23 onwards.  This contributed to the £1.2 billion deficit and its being estimated.  The larger share of the deficit was borne of the impairment of assets to which loans had been used to fund, valuations of which had only recently become available, thus necessitating accounting as a revenue charge immediately.

A discussion was held on the Council’s previous approach to the MRP and the view of the Interim Director of Finance was that the approach had not been prudent.  Brendan Arnold shared that common return on investment for such assets had been funded by the Council would not yield the necessary return to recover the impairment.

Brendan Arnold noted that Woking Borough Council had historically set aside 0.2% of its funding for the MRP.  Contemporaneously, neighbouring Districts and Boroughs had set aside 2% for MRP.

A Value-for-Money (VfM) review had been started that would include consideration of whether the investments, had been worthwhile.  Grant Thornton had been engaged to conduct the VfM review and it had been discussed at the recent Standards and Audit Committee held on 6 July 2023.  A Terms of Reference for the review had been written and, it was anticipated, would be shared with Members.

It was anticipated that the VfM review would provide clarity on the extent to which the costs accrued for, among other investments, Victoria Place and ThamesWey were commensurate with their ultimate values.

The Section 151 Officer confirmed that there was no further ongoing funding to Council companies as these had been suspended since April.

It was confirmed that there would be a reduction in resources at the Council.

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