Treasury managers are increasingly out of the loop when it comes to crucial decisions on council commercialisation, delegates at Room151’s treasury conference have heard.
Speaking to the 2017 Local Authority Treasurers Investment Forum (LAITF), Department for Communities and Local Government permanent secretary Melanie Dawes said that her department stood behind councils who raise revenue from commercial activities.
But during a separate session, two leading figures in local government finance told delegates that such moves are creating growing issues over the governance of council finances.
Danny Mather corporate finance manager at Warrington Borough Council said: “Treasury managers just manage their revenue account and don’t manage the balance sheets. As we enter the world of commercialism if you don’t manage and study your balance sheets organisations could get into a lot of trouble.”
He added that councillors now face a much bigger task in scrutinising finances due to decisions taken at a corporate level on capital investment intended to raise revenue.
Mather welcomed a proposal included in CIPFA’s consultation on changes to the Prudential Code, which would introduce a requirement to report on capital strategies to full council in order to demonstrate that the authority takes capital expenditure and investment decisions in line with service objectives. It is also intended to show that a council takes proper account of stewardship, value for money, prudence, sustainability and affordability.
But he added: “My one concern is how are members going to scrutinise the capital strategy given that most of us would say our members struggle to scrutinise the treasury management strategy.
“I find that a challenge and I don’t quite know how we are going to get across to members the commercial arrangements that the council wants to enter into, or already has entered into, and how they work together as part of the balance sheet. It is a much bigger scope to scrutinise than just treasury management and debt.”
Tim Seagrave, capital & treasury management finance lead at Manchester City Council, welcomed CIPFA’s proposal, saying: “Anything that improves the transparency has to be supported.”
But he added that it remained to be seen whether councillors would have enough incentive to scrutinise the new documents effectively.
He said: “Members will naturally look at the revenue budget. That is where pressure is now, upfront. That is what they have to defend to council tax payers.
“But when you are working in the treasury world, and particularly the capital world, the decisions you make today are going to affect that revenue position for the next 10, 15, 20 years.
“By having the treasury management as a separate report — as almost an afterthought — you are running the risk of not presenting to members the full risks of the decisions they are making.”
Mather also said that councils need to ensure that their due diligence processes are capable of coping with the new commercial landscape.
He said: “If councils are going into solar farms, property, energy companies, you need to do professional due diligence. And you need to widen it.
“What is happening at the moment is that you tend to go to your treasury advisers who have expertise in treasury management, but they are not experts in these areas.
“If you are considering anything new there is a massive risk that the local authority won’t due proper due diligence.”