News / Auditors’ warning about future use of SIC reserves
SHETLAND Islands Council’s financial health has been praised by its auditors – but a warning has been sounded about its “over-reliance” on using money from its reserves.
In a report presented on Wednesday, auditors Deloitte said current draws from reserves has been identified as “unsustainable in the medium to long term”, with a £6.8 million funding gap expected for 2018/19.
And that gap is forecasted to rise to £19.5 million by 2021/22 as costs increase and funding from the Scottish Government is set to decrease.
Draft annual budgets which have been prepared up until 2022 as part of its medium-term financial plan show that in five years’ time the cumulative funding gap could top £52 million if the “key risks to financial sustainability” are not addressed.
The report said that the “council intends to address its over-reliance on reserves by placing more focus on increasing harbour account and investment income, and by continuing to generate efficiencies in service delivery costs”, while it has also increased council tax by three per cent.
It added that the council had a net draw on reserves of £5.751 million in 2016/17, compared to a budgeted draw of £16.329 million. This was due to underspends in revenue and capital.
Finance chief Jonathan Belford told Wednesday’s meeting that Deloitte’s report looking back over the last financial year was “very positive”.
He said it shows that the SIC was “building on the good work that’s happened before” by the previous council, which was forced into becoming more financially prudent.
Figures show that the council’s useable reserves balance increased by £2.196 million over the year to £244.425 million at the end of March 2017.
The report said that 2016/17’s lower than budgeted draw on reserves was “achieved through a combination of reduced service spending, particularly in relation to overall staffing costs, and increased income, in particular from economic development investments and recharges to other council accounts.
“Both the harbour account and the housing revenue accounts also exceeded the budgeted contributions through a combination of reduced spending, particularly in relation to the funding of capital expenditure from revenue and from increased income, an example being additional income received through the Shetland Gas Plant agreement.”
The council’s net expenditure on services over the year was £112.9 million – down six per cent.
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