Auditors have warned of “significant weaknesses” in Hastings Borough Council’s financial management

The warnings, from external auditor Grant Thornton, are set out in a report due for discussion by the council’s audit committee on Thursday (December 7).

The auditor’s report, which covers the 2021/22 and 2022/23 financial years, highlights several issues with the council’s financial management during this period, going on to make four key recommendations on how the authority can improve.

In the report, a spokesman for Grant Thornton said: “We have identified significant weaknesses arising from funding gaps and unidentified savings and the council’s approach to due diligence when undertaking commercial investments which has resulted in a failure to achieve expected financial returns.

“The council used significant reserves to balance the budget in 2022-23 and an over-reliance on use of reserves has placed the council in a position where urgent and effective action is needed to prevent the council becoming financially unsustainable.

“No structured medium-term savings or income plans sufficient to meet the identified funding gaps have been formulated or considered by members.”

For its part, the council says it has already implemented a number of changes and improvements in the 2023/24 financial year, which are designed to address the same issues raised by the auditors.

Officers say the effect of these measures have not been fully considered as they fall outside of the timeframe covered. These measures include the council’s latest savings proposals, officers said.

Grant Thornton notes this ongoing work in its report, highlighting how the auditor has chosen not to use any of its statutory reporting powers at this time. The auditor says it will reconsider this position once a budget is set in the new year, however.

The report goes on to raise concerns about the council’s approach to commercial investments. These concerns take a particular focus on the authority’s plans to build an 84-bedroom hotel — to be operated by Premier Inn — at the former Cornwallis Street Car Park.Auditors say the council failed to carry out sufficient due diligence or follow procurement rules prior to entering the contract to build a hotel. The auditors say this resulted in the council not having a proper grip on the risks of the project.

For its part, the council says it has reviewed and amended its procurement procedures since this project was approved. It also says it has tightened its control procedures.

The auditors also raised concerns about the council’s governance of the Hastings Housing Company Limited (HHC Ltd) — a limited company set up (and wholly owned by) the council to buy and rent properties.

Auditors said there was “no proper accountability, transparency or scrutiny of the company’s performance”, a responsibility which ultimately fell on the council’s cabinet.

They went on to say that the company — which the council has borrowed more than £5m to finance — did not “appear to be financially sustainable in the long term.”

In all the auditor made four key recommendations for improvement. In brief, they were for the council: to ensure its savings and income targets address funding gaps and incorporate an element of headroom for any slippage; to review its arrangements for appraising investments; to reconsider the depth of its annual internal audit coverage; and to review its governance arrangements in relation to HHC Ltd.

The council says it has already made some progress in addressing these recommendations in the current financial year.

The report’s warnings have been highlighted by Cllr Andy Patmore, leader of the council’s Conservative group. In an open letter seen by the LDRS, Cllr Patmore said: “The Grant Thornton report highlights the fact that the Labour council did not, against advice, balance its books in the past three years without using the town’s precious reserves.

“The Labour council refused to take the necessary decisions which would have left the council in a far better financial position to overcome their temporary accommodation obligations.

“The latest budget proposals to stave off bankruptcy are broadly welcomed. Many of these proposals, including not using reserves to balance the books, have been suggested by the Conservative opposition for the past seven years but have been rejected by Labour every time.

“The Conservative opposition group fear the current budget proposals are too little, too late to save the council from going bankrupt.”