Members were led through the report of the Interim Chief Finance Officer that discussed the main issues affecting the Council’s draft Statement of Accounts 2022/23 and provided a commentary on the core financial statements.  At the current time, the Council’s external auditors, Grant Thornton, were yet to commence their audit of the accounts for 2022/23 but would report on the outcome of their work later in the year in line with the revised national timescales, if possible. The draft accounts included the Annual Governance Statement as amended and approved by the Committee at its meeting in July 2023.

The following salient points were highlighted for Members’ attention:

•     the Code of Practice had required no major changes in the presentation of the accounts for this year;

•     the Movement in Reserves statement showed the movement in the year on the different reserves held by the Council (analysed between ‘usable’ and ‘unusable’). The deficit of £3.014m (£0.680m surplus in 2021/22) on the provision of services line showed the true economic cost of providing the authority’s services;

•     the net change of £1.578m before transfers from Earmarked Reserves line showed the statutory General Fund Balance before any discretionary transfers from Earmarked Reserves was made by the Council to balance the accounts;

•     a review of Earmarked Reserves was also undertaken and £4.0m was transferred from Treasury Investment Earmarked Reserve to the General Fund, to increase its balance to £5.0m and reinforce the long-standing message that the reserves balance should not go below that level;

•     the Balance Sheet showed the balances and reserves at the Council’s disposal, its long-term indebtedness, the net current assets employed in its operations and summarised information on the fixed assets held. The net worth of the Council had increased by £26.909m (increase of £9.376m in 2021/22 accounts restated for Pension Fund revaluation), largely due to a to a £28.525m change in the Pension Fund Liability, which shifted from a £18.051m liability into a £10.474m asset, decrease in the value of investment in property funds (£1.452m), £4m increase to Capital receipts and capital grant reserve and £2.3m decrease in unusable reserves;

•     the Pension Fund liability of £18,0513m shown in the Balance Sheet at the end of 2021/22 had now changed into an asset of £10.474m. This represented a long-term financial assessment of a possible shortfall or surplus based on the current situation and performance and therefore no immediate action was required; and

•     overall, the Collection Fund balance at year end was a deficit of £3.676m (a reduction in deficit by £0.418m from £4.094m the previous year); this balance was made up of both Council Tax and Business Rates.  For Council Tax, the Fund was in surplus by £2.600m, with East Sussex County Council entitled to the majority of this amount.  For Business Rates, the Fund was in deficit of £6.276m with the Government receiving the highest amount followed by this Council. The deficit arose mainly due to the additional rate relief for businesses provided by the Government in 2020/21, due to the COVID-19 pandemic, which at the time halved the amount collectable. That deficit was spread over three financial years and was still part of the 2022/23 accounts, however had been mitigated through the additional Government grants received and accounted for in year through the General Fund.

The Balance Sheet showed that, overall, the financial position of the Authority remained sound with an adequate amount of reserves in place to meet short term needs. However, the impact of high inflation on operational costs and the worsening economic climate had added to the previous financial pressures of the COVID-19 pandemic and the level of Usable Reserves continued to go down in the year, despite efforts to minimise it. The next Medium Term Financial Plan needed to address that through a robust and ambitious plan of achievable savings to stop the trend, reduce the reliance on reserve balances to support the revenue budget and, in time, replenish these reserves.

Members were given the opportunity to ask questions and the following points were noted during the discussions:

•     four objections to the Statement of Accounts had been received, three of which were eligible for further investigation by Grant Thornton.  This would not detract from the timeframe of the audit, but would have cost implications to the Council;

•     the audit would take place between October and December, with the auditor’s opinion due in January 2024;

•     it was important that the Council reverse the trend of using Reserves to balance the budget;

•     the Chair congratulated the Interim Deputy Chief Executive and the Interim Chief Finance Officer on the quality of the narrative within the Statement of Accounts;

•     suggested grammatical changes to the narrative had been emailed to the Interim Chief Financial Officer;

•     the devolution of services had previously underpinned the Financial Stability Programme, a strategy that had not been delivered.  The Council was now moving towards a Financial Resilience Programme to ensure its survival;

•     the Council’s cash balances included funds that did not belong to the Council, for example council tax collected for preceptors; and

•     Members requested that a representative from the East Sussex Pension Fund be invited to a Members’ Briefing session to address their concerns about the sustainability of the Pension Fund and the Council’s impact on the Climate, with a view to divesting from fossil fuels.

RESOLVED: That the Council’s draft 2022/23 Statement of Accounts be noted.

(Councillor Drayson declared a personal interest in this matter as a Member of Bexhill Town Council and in accordance with the Members’ Code of Conduct remained in the room during the consideration thereof.)

(Councillor Thomas declared a personal interest in this matter as Chair of Rother DC Housing Company Ltd, and in accordance with the Members’ Code of Conduct remained in the room during the consideration thereof).