Wirral Council writes off £11 million of bad debt by using £millions of financial reserves

Reading these two articles, Wirral Council social services in £27m ‘toxic debt’ shock (Wirral Globe) and Wirral council failed to collect £10m of debts (Daily Post) you may be a little confused about what the true financial situation is at Wirral Council.

I’ll deal first with the Wirral Globe article, the figure of £27 million for DASS (Department of Adult Social Services debt) seems to be incorrect. According to page 2 of the independent report and this table here, the figure for outstanding DASS debt was £24.7 million (not £27 million) on New Years Eve 2012 (the figure as of last month is £11.8 million).

This explains why the figures quoted in the article (14.8 million and “more than £10m” (which is £10.9 million) don’t add up to £27 million, but £25.7 million. There is also a discrepancy of a million pounds between this figure and the £24.7 million in the independent report as the figures for collectable debt (£14.8 million) and debt to be written off (£10.9 million) don’t add up to the figure given in the report (£24.7 million) but £25.7 million.

The independent report itself dated 15th March 2013 (ten days after the 2013/2014 Budget was agreed) states “The recent review concluded that only £14.8 million is collectable and recommended writing off £10.9 million of debt of which £4.8 million is already provided for in the financial accounts.” This reads to me that the 2013/14 Budget had a provision for writing off £4.8 million of debt which needs to be increased to £10.9 million (an increase of £6.1 million which would need to be found either from reserves and/or cuts to services).

However this report going to the same Cabinet meeting written by the Interim Director of Finance Peter Timmins states at 9.4 “There is a Bad Debt provision of £4.8m, against estimated bad debts of £10.9m. The further write-off of £6.1m was built into the 2013-14 budget, as part of the exceptional items that featured in the 2013-14 budget process.”

Now, seemingly they can’t both be right as they’re saying different things. How would a £10.9 million bad debt provision (which appeared in a report dated ten days after the Budget for 2013/2014 was agreed) be “built into the 2013-14 budget)? Of course it is possible that Wirral Council received earlier drafts of the report prior to March 5th hence why the report is entitled “Final report”.

So what figure was used for bad debt when this year’s budget was agreed?

This report to Budget Council entitled “Budget 2013/16 – Chief Officer Financial Statement” states at 7.3 in table 3 “Review of outstanding debts – potential write-off” “To be funded from reserves per the Revenue Monitoring report to Cabinet 24 January”.

This report, which was later revised does give a figure (both reports give the same figure) of £6.55 million of “unachieved income” in the Department of Adult Social Services. The report recommends using the £7.941 million in the “Debt Restructuring Fund” reserve to cover the shortfall in income. At the same meeting the Chief Executive estimates the bad debts to be £10 million, that their current provision for bad debts is £4 million, with the impact on the 2013/14 Budget as being £6 million. Interestingly he also states “Mr Sullivan had indicated that he would complete the investigation by mid February and his report would be available initially to the Cabinet and publicly shortly afterwards”. Mr. Sullivan’s final report is dated mid March and as to “his report would be available … publicly shortly afterwards”, a whole two months have passed between the date on his report and its publication in mid-May.