Controversial EY report highlights key ‘weaknesses’ in council finances

Nottingham City Council has finally published a controversial report into its finances from accountancy giant EY.

The report outlines several “weaknesses” in the authority’s financial management and describes issues such a parking enforcement and licensing as “cash cows”, which staff, when interviewed by EY, thought could end up being used illegally – in other words “as a means of meeting organisational budget pressures”.

EY’s report says: “Income targets (rather than prudent forecasts) may reflect this reality. Reserves used for purposes other than those defined in the relevant legislation is illegal.”

Other issues highlighted in the report include questions about how the authority used charity money from the Bridges Trust, of which it is the sole trustee.

EY’s report shows that during the last financial year (2022/23), more cash was transferred to the council than the surplus the charity generated – something which the accountancy firm attributes to the transfer of endowment funds.

The report says: “The restrictions around these endowments would need to be explored to understand whether these are compliant or not.”

The move could leave the stricken authority, which issued a Section 114 Order, in trouble with the Charity Commission.

Replying to the publication of EY’s full report, the council said: “As part of the council’s Finance Improvement Plan, an external assessment was commissioned to look at historic compliance with accounting controls for ring fenced funding over three financial years from 2019/20 to 2021/22. The assessment identified significant weaknesses that needed to be addressed to provide the necessary level of assurance, including a weak control environment, ineffective systems and a culture which was not focused upon compliance. A report taken to the council’s Audit Committee provided a comprehensive summary of the issues raised by the assessment and the urgent action needed to make the necessary improvements.

“It is important to be clear there is nothing specifically identified within the samples tested in the assessment that suggests any allocated funds have been misspent or funding has not been used for its overall intended purpose.

“The council took the view that the full assessment report was of a technical nature designed to support the work of professional officers. The Information Commissioner made clear that the council had legitimate concerns around the disclosure of the full report and that it had engaged the exemption not to publish correctly. However they decided that on balance, the public interest outweighed the exemption in this case.

“The council has been open about the nature and seriousness of the assessment’s findings. Good progress has been made to address the issues raised and through the council’s Finance Improvement Plan, reported at every Audit Committee, to ensure the necessary controls are in place.”

The report was commissioned by the city council itself after it was found that cash which was meant to be used on housing stock was being siphoned off to other areas of the authority.

Just before Christmas, the council voted to approve all but essential spending on services until March 2025.

And the move comes after the council’s finance bosses imposed a Section 114 order to try and bridge a £23m gap in its funds for the rest of the financial year.

The publication of EY’s report comes at a time when Government said it could send commissioners in to take over the day-to-day running of the City Council.

Click here to sign up to receive our new South West business news...