Accountants pleased with SIC

The SIC’s accounts have been given a clean bill of health by Audit Scotland for the first time in seven years.

The auditors have issued an unqualified opinion on the 2011/12 accounts, having strongly criticised the poor quality and lateness of the SIC’s financial statements last year.

This year’s papers were submitted ahead of time and described as being of a “high standard”. It is the first time the council has included Shetland Charitable Trust’s accounts within its group financial statements, something Audit Scotland has urged it to do for years.

Council political leader Gary Robinson said he was “delighted” that the long-standing problems leading to the accounts being qualified for the last seven years had been resolved.

“I think this clearly demonstrates that the new approach taken by the leadership of this council towards working with its partners and external organisations is yielding dividends,” he said.

“It marks a significant milestone in Shetland Islands Council’s improvement plan. I’d like to add my thanks to our finance team and everyone who’s worked towards this achievement.”

SIC chief executive Alistair Buchan said it was an “absolutely crucial development for the council’s future success”. He said it highlighted “significant improvements” made in the finance department over the past year and thanked head of finance James Gray and his staff for their efforts.

Meanwhile, the council looks set to scale down its target of making £30 million-worth of spending cuts over the next two years.

A wide-ranging report from Mr Gray, going before councillors tomorrow morning, suggests the savings target for the next financial year will have to be cut from £14.2 million to £11.2 million due to a delay in making some of the cuts to education spending. The local authority is striving to make cuts of around £15 million in 2012/13.

The council recognises that targeted savings of £3 million from shutting schools as part of a “refresh” of its blueprint for education will not now happen in 2013/14.

Even assuming councillors press ahead with deeply contentious plans to shut several junior highs and primary schools, no closures will take place until the summer of 2014.

Instead, Mr Gray anticipates a slightly larger £3.6 million sum will be saved from education in the subsequent three years.

The new figures are contained within a 40-page “medium term financial plan” from 2012 to 2017. It suggests setting a target of maintaining the council’s depleted cash reserves at or above a “tolerable” floor level of £125 million – half the previous minimum.

Since taking up his post earlier this year, the SIC’s most senior accounted has repeatedly warned councillors they must bring spending under control quickly or face the oil reserves vanishing entirely within five years. There is currently a “structural deficit” of some £35 million a year.

There are hints within Mr Gray’s report that things will be improving come the start of the next council in 2017. The income boost from the under-construction Total gas plant is estimated to be £2 million in 2016/17 and as high as £4.5 million by 2017/18.

Mr Gray does stress there is a “certain level of volatility” as to when income from the giant £500 million development will start flowing in. Precisely how much the council will earn also depends on the level of throughput and the future price of gas.

He also estimates the SIC’s harbour account will return to a surplus of £3 million a year by 2017/18 following a few lean years. An £8 million pension liability resulting from the transfer of ex-Shetland Towage employees to the council will take four years to pay off.

Mr Gray’s medium-term assumption, given ongoing global financial uncertainty, is that the oil reserves will only generate £2.5 million a year on the stock market. That is a return of only two per cent, compared to an average of 5.75 per cent in the past 20 years.

In the longer term it is hoped £7.2 million a year can be generated from the reserves to top up council spending on public services.

The plan is based on the new intake of councillors’ priorities, which include a “soundly led and managed council, living within its means” and focused on delivering essential services – particularly those important to children and the elderly.

The education and families committee last week voted to press ahead with a string of school closure consultations.

Aith parents are planning to present a petition opposing the loss of their junior high to Mr Robinson at Lerwick Town Hall prior to tomorrow’s meeting, and some councillors may attempt to revisit last Friday’s decision.

Some members have privately indicated a desire to slash spending in areas such as economic development in order to protect budgets for schools and social care.

Mr Gray’s financial plan sets out an intention to continue investing up to £3 million of loans in local businesses. But that will only be done if the loans generate a rate of return “at least equal to the markets” and with due diligence carried out to ensure there is an “acceptable risk level”.

Councillor Allison Duncan has made face-to-face pleas to Chancellor George Osborne and his second-in-command, Danny Alexander, to write off the council’s £40 million housing debt. But unless those pleas reap dividends, council house rents will have to rise to service and repay the debt.

Assuming the council succeeds in securing Scottish government funding for a new Anderson High School, it will have to make its own contribution to the construction. A figure of £12 million has been set aside from the reserves for that purpose, though the option of borrowing to fund the SIC’s share will be considered.

Much further down the line, the cost of decommissioning the Sella Ness harbour is estimated at £25 million. The council is legally required to restore the site to its original condition once the harbour shuts down, anticipated to be in the late 2030s.

That means all jetties and man-made structures will have to be removed, at a cost of roughly £13 million. In addition the harbour will make an estimated loss of £12 million over its final three years in operation once income from oil tanker arrivals dries up.