External auditors raise governance concerns over council property sale

External auditors have flagged "significant" weaknesses in control processes relating to Dudley Metropolitan Borough Council's disposal of assets, and have suggested that members were not "seriously considering" officer recommendations concerning the council's finances.

In an 'interim auditor's annual report' issued for September 2024, Grant Thornton also raised concerns over the council's position not to stop all non-essential expenditure, despite the auditor's statutory recommendation to implement the likely steps needed if a section 114 notice were issued.

The auditors said they have found that in at least one instance, there was evidence of weaknesses in the council governance and internal control arrangements over a disposal.

"Our work has also identified additional lines of audit inquiry related to the disposal of council-owned properties," the report added.

It continued: "This includes the involvement of members and corporate management in parts of the process that should be the domain of senior service managers and the extent to which this could impact the effectiveness of arrangements."

The auditor said it will continue to review the matter and report its findings in full in a future report.

In a 'key recommendation', the auditor recommended the council urgently review and approve a newly created protocol for the disposal of its owned properties.

The report added that the protocol should ensure that it establishes "clear guidelines and procedures for the identification of surplus assets, marketing and sale of properties, emphasising transparency, fairness, and compliance with governance and relevant legal requirements and regulatory standards".

It also recommended providing training and awareness programmes to staff involved in the disposals process and to strengthen its control environment in relation to the marketing and sale of council-owned properties.

The auditor also raised concerns over the council's financial sustainability.

The report, which is set to be considered by the audit and standards committee later this month (30 September), highlighted Dudley's plans to service a forecasted £5.5m budget gap for 2024/25 using unallocated general fund reserves, which will leave a balance of £2.2m in the reserve.

It said: "The council is then forecasting to entirely deplete this reserve in 2025/26 and have no more reserves to draw on for the remaining 2025/26 deficit."

Dudley is now pursuing an urgent review of its operating model to avoid exhausting its reserves, but the auditor said it remains concerned "over the scale of risk to the council's financial sustainability over the medium-term position".

The auditor also described the council's aim to deliver £15.6m in savings for 2024/25, having missed its savings target last year by £2.8m, as "ambitious".

"This coupled with low levels of reserves, the consideration of Exceptional Financial Support earlier in 2023/24, members who appear unwilling to make difficult decisions and a transformation programme that is in its infancy leads us to the view that there is significant risks in the council's financial sustainability."

The report suggested that some members are not "seriously considering the recommendations of officers in relation to the financial position" and noted that the council continues to operate trading functions at a deficit.

It also highlighted the local authority's decision not to remove all non-essential expenditure "despite our statutory recommendations asking the council to stop all non-essential spend immediately".

The report made a statutory recommendation calling upon the council to "not underestimate the seriousness" of its financial position and to implement the likely steps it would need to take following a section 114 notice, including stopping all non-essential funding.

Councillor Patrick Harley, leader of Dudley Council, said: "The council acknowledges and accepts the findings of the external auditor’s report and is committed to addressing any concerns raised, so that residents can have confidence in the authority going forward.

"We should note that this report has only assessed progress up until July this year and doesn’t take into account all the work we have been doing in the last couple of months to introduce our new target operating model.

"The model will see us streamline services and make council-wide improvements by reducing duplication, improving processes, maximising digital and technological opportunities, and creating a culture that supports the changes.

"The council’s progress in 2024/25 and 2025/26 will be closely monitored by the auditor and the council is keen to work with the auditor to deliver the improvements that are needed."

Adam Carey