Nottingham City Council has avoided the step of commissioners being called in to run the Labour-run authority - but the Government still has 'great concern' over £15m unlawful payments.
Several financial issues have led the city council to be placed under the watchful eye of a Government improvement board.
The release of the fourth report from the Improvement and Assurance Board, which was introduced to assess what extent improvements were being made to improve its finances and governance, has shown that the authority has avoided the step of commissioners being called in to run the council.
Nottinghamshire Live had reported in December that the Government was reviewing whether to step in and use its powers after £15m of illegitimate payments were uncovered as part of the ongoing scrutiny of finances and governance at the city council.
It came after the council said an inquiry had been launched upon the revelation that ring-fenced cash from the authority’s Housing Revenue Account (HRA) had been incorrectly credited to its General Fund.
The amount totalled £15.86m - and the ring-fenced money had been allocated to the city council's housing stock.
The Housing Revenue Account (HRA) cash is used primarily for the benefit of the council’s own tenants, with the main sources of income for this pot coming from tenants in the form of rent and service charges.
However, the cash was incorrectly credited to the council's general fund - cash from which is used for the running of day-to-day services.
This money must now be credited back to the HRA, a blunder which council leader David Mellen, who represents the Dales ward, has apologised for and has vowed to put right.
The use of the cash breached local government financial law - and the payments began in 2014 and continued until 2019.
Former Government ombudsman, Sir Tony Redmond, is chair of the board and reports back to the Government quarterly on the council’s progress.
His most recent assessment of his findings in November, and the Government’s reply, was made public on Wednesday (March 9).
Though it's not a completely up-to-date picture of the situation, with the minister responding to findings Sir Tony made in November.
Previous Board reports have highlighted concerns about the pace at which the council has addressed its very significant financial challenges.
But in the board's latest report it said that it was "encouraging" to note that the council’s previously reported forecast deficit of £12 million has been reduced to some £2 million.
In a statement, the Government said it remained concerned over the city council's "historic accounting practices".
Kemi Badenoch MP, Minister of State for Equalities and Levelling Up Communities, in response to the November findings, said: "It is clear the council continues to face many challenges as it seeks to address its past failings. The historic unlawful HRA expenditure that came to light last December, which resulted in the council issuing statutory notices, highlights these difficulties.
"Whilst I note your assessment that the council are taking the necessary steps to rectify the situation, and that this issue relates to historic accounting practices, it is still of great concern.
"My expectation is that the review of governance arrangements and historic financial transactions between the council and Nottingham City Homes will be completed expediently and that the Board continues to monitor this issue closely.
"The Board have consistently highlighted that a robust Medium Term Financial Strategy is vital for the Council’s Recovery Plan to be successful.
"I agree with your assessment, and it is disappointing that this has not yet been achieved.
"My expectation is that a comprehensive Medium Term Financial Strategy, which addresses the forecast budget deficit and the misallocation of HRA funds, will be produced for approval by full Council on 7 March.
"The Council should continue to work constructively with the Board to ensure progress does not stall. A failure to do so would be of extreme concern and could lead to a reconsideration of whether a statutory approach might be more suitable to ensure that the Council operates on a sustainable financial footing moving forward."
Cllr David Mellen, leader of Nottingham City Council, said: “It’s important to note that the latest report from the Improvement and Assurance Board covers the period before November last year and that a significant amount of progress has been made since then to improve the council’s financial position both in the short and longer term.
“As the Government has welcomed in its response to the report, the council will set a balanced budget for the coming year without the need for any further support or intervention and has now finalised a Medium Term Financial Plan covering the next four years, a key requirement which had previously been highlighted by the Improvement and Assurance Board.
“This has not been an easy process and has meant some extremely difficult decisions about funding for services. However we have delivered what we said we would do and made the necessary changes to put the council on a solid financial footing for future years.
“The Minister’s response to the IAB Report highlights that we are taking the steps needed to put right the unlawful use of funds in the Housing Revenue Account for General Fund purposes, to ensure that it can’t happen again and to ensure that lessons are learned through an independent investigation which is underway.”
Nottinghamshire Live understands that a portion of the vast £15.8m sum could have been 'unlawfully' spent on tackling homelessness instead of benefiting Nottingham's council tenants.
Meanwhile, the city council has formally approved its 2022/23 budget by making savings to close a starting budget gap of £28m, the plans including the closure of five of the authority's nine children's centres and reducing youth workers.
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