Council’s management of money ‘high risk’ says spending watchdog

Shetland Islands Council is one of the highest risk local authorities in the country when it comes to the management of money, councillors were informed by Scotland’s financial watchdog on Thursday.

Audit Scotland’s Mark Ferris told members of the audit and scrutiny committee that despite progress in some areas, procurement and capital programme spending remained “key strategic risks” for the SIC.

All 22 isles councillors were invited to attend the meeting to hear what Mr Ferris had to say but only six were present in the Town Hall chamber. The hour-long session was a follow-up to Audit Scotland’s report in April warning that councillors had failed to demonstrate their ability to take the kind of tough decisions required to halt runaway spending of the isles’ oil wealth.

Asked by vice-chairman Allison Duncan how the SIC compared to Scotland’s 32 other local authorities, Mr Ferris said: “[The council] has addressed a number of issues, but still a number of high level risks remain. We view this as a high risk audit.”

The SIC’s accounts have yet again been qualified by the auditors because of the council’s continued refusal to group their accounts with those of Shetland Charitable Trust. Head of finance Graham Johnston is now preparing a report to go before the Full Council asking for their views because negotiations with Audit Scotland over the issue remain at an impasse.

In 2008/9, the auditing process cost the SIC £245,420, including fees of £182,820 and a fixed charge of £62,600 to cover all other costs. Councillor Duncan told Mr Ferris that “what you’re charging is astronomical for a small local authority”. But Mr Johnston pointed out that, while the SIC was indeed a small council, it was also extremely complex: “I don’t think we are in any sense being overcharged.”

When Mr Ferris pointed out that Audit Scotland’s fees tend to be commensurate to the level of risk, councillor Iris Hawkins suggested it was in the watchdog’s interest to identify high risks. He replied: “It’s in your interest to minimise the risks.”

Mr Johnston noted that his accountants found it very challenging to meet a deadline of 30th June each year to submit the books when new practices were being brought in, which in his view explained a number of accounting errors identified by Audit Scotland. He believes there may be a case in the future to look at providing additional resources for the finance department.

He said that while things were by no means perfect, they were undoubtedly a big improvement on when he first joined the SIC in 1981. At that time the council had not completed any accounts at all since 1975.

Chief among the criticisms made by Audit Scotland earlier this year was the shambolic nature of prioritising spending on capital projects, which had resulted in the wish list spiralling to the extent that councillors were faced with a funding gap over the next two years of some £37 million – without including the financing of the estimated £49 million new Anderson High School.

Since then, new chief executive David Clark has put in place plans to draw up a five-year capital programme with priority projects totalling £100 million. The list has been narrowed down with a number of major projects likely to be officially put on the back-burner, although a team is still working on a clear list to be presented to councillors for approval.

Audit Scotland also raised scepticism about the council’s ability to maintain its oil reserves at the agreed £250 million floor policy if it did not change the way it went about its business.

The report noted: “Councillors have yet to demonstrate they are able to collectively take the difficult decisions required to reduce the current draw on reserves in line with the agreed financial strategy.”

But a report from Mr Johnston last month showed the SIC’s coffers were in relatively robust health despite the worst recession since the 1930s. By his valuation, the reserves were worth around £280 million at the end of March, higher than expected thanks partly to a significant underspend on capital projects.

• Amid optimism about the UK’s prospects of recovery from the financial crisis, the value of the SIC’s investments in the stock market last week reached their highest point since January. As of last Friday, the investments were worth £231.7 million, although the figure remains some way off the £253.9 million they were valued at back in March 2008.