External auditors issue statutory recommendation in light of section 114 risk

In a report to be considered by the council's Audit and Governance Committee at a meeting today (27 November), Grant Thornton said the financial issues could put the local authority in an unlawful financial position.

The report said Shropshire faces "acute and immediate" sustainability challenges, following an overspend of £34m in 2014/25 and a "significant deterioration" in its overspend position over the current financial year.

Shropshire could reach an overspend of £47m halfway into the 2025/26 financial year, the report said.

"Delivering an overspend of this level would leave the Council with a negative General Fund reserves balance, potentially placing the Council in an unlawful financial position," it warned.

"The Council also faces financial sustainability challenges over the medium-term with unaddressed MTFS budget gaps and a lack of clear plan on how the Council will not become reliant on Exceptional Financial Support."

On governance, the report found weakness in budget monitoring and reporting that "contributed" to the deterioration in 2024/25.

It also noted that the council had been given an annual opinion of "Limited Assurance" for the sixth consecutive year.

"This is indicative of a significant weakness in the Council's arrangements for securing value for money because a lack of urgency to address issues raised by Internal Audit has contributed to failings that have impacted on the financial sustainability of the Council, therefore we have raised a key recommendation."

However, the report also said the council continues to have "robust" governance around decisions and has made significant progress in addressing the concerns raised in 2023/24 around the governance of the North West Relief Road project.

The statutory recommendation called on the council to carry out an immediate review of all services, both statutory and non-statutory, and identify the cost of minimum viable service provision to deliver its statutory responsibilities.

This action should give the council an understanding of immediate decisions and savings that can be delivered, replicating actions that would be taken were the council to issue a Section 114 Notice, according to the report.

It also recommended a review of all estimates and modelling that feed into the development of the budget and MTFS to reduce or eliminate optimism bias.

In addition, the council should develop a "realistic and deliverable" plan over the medium term as to how exceptional financial support (EFS) will support the increase in financial resilience, and how the council will reduce reliance on this support to reach a financially sustainable position.

The final leg of the recommendation called on the council to immediately action the recommendations raised in the Internal Audit review with regard to the budget monitoring and reporting issues that contributed to the significant deterioration in the 2024/25 outturn position.

The auditors then issued the following key recommendations:

• The council should review all savings programmes to scrutinise deliverability; ensure that, when setting the budget for 2026/27 the savings programmes included are deliverable and achievable, and scenario plan for any slippage to support the financial position; and review the outputs from the PwC transformation work and identify initiatives that can be implemented at pace to support savings delivery.
• The council should continue to drive forward activity that seeks to mitigate the growth of the DSG deficit whilst continuing to engage through the Schools Forum on the management plan in place; and regularly reporting on the impact of mitigations should be made through the Schools Forum whilst also being reported to Cabinet as part of the overall financial monitoring reporting.
• The council should immediately create an action plan as to how to address the pervasive issues across the council that are contributing to the "Limited Assurance" opinion from the Head of Policy and Governance (Internal Audit); the plan should be approved by the Audit and Governance Committee and there should be regular reporting to Audit and Governance Committee on progress against the plan; and appoint a lead officer to drive this improvement.

Cllr Roger Evans, Shropshire Council's Cabinet member for finance, said that the council had already taken some of the actions in the report to address the financial issues.

He added: "These actions have previously been listed and include setting up an independently chaired Improvement Board and a soon to be updated and realistic Improvement Plan. As detailed in Cabinet reports, other boards have also been set up and given powers to act immediately to address the requested actions, as highlighted in this Auditor's report.

"Some problems will take time to resolve; changes are needed but some will take a little time to put in place. To allow this we are and have been making requests to the government for permission to borrow sufficient funds to meet both this year's overspend and give us the necessary time next year for these actions to be put in place."

He added that living within the council's new financial limits would involve "a number of hard decisions", adding: "Some of these will, by law, involve carrying out consultations and asking for views on a range of possible alternatives." 

Adam Carey