'We have made absolutely clear that we are committed to tackling Hackney's problems by focussing on financial management and improving the performance of council services. We are committed to working with the government to achieve this. We have the will and determination to tackle the problems we face; what we lack is the management capacity and the money required to bridge the gap in our budget. We welcome the support already received from government and look forward to continuing to work in partnership with them.'
Hackney LBC managing director Max Caller said:
'When the Audit Commission asked us to comment on their draft report, they said that they were minded to refer the council to the secretary of state for him to consider the appropriate use of the powers vested in him in the Local Government Act 1999 (his best value powers).
'I made clear in my response that the council - both elected members and the senior management team - have demonstrated that they are willing to take the hard decisions which are put before them and therefore I have no doubt that a voluntary agreement can be reached.
'I offered an outline plan on which targets could be based. I am pleased to note that the Audit Commission has accepted my recommendations. The issue for us is not whether we are directed by the secretary of state to do these things, but how we can work together to achieve them. I look forward to developing these ideas further with civil servants and discussing how the government can support us with implementation.
The Audit Commission's report in November 2000 identified fundamental weaknesses and said that we needed substantial ongoing support in turning Hackney LBC into a well-run authority.
Tuesday's statement from the Audit Commission criticises our progress, stating that:
* the council's current financial position is demonstrably worse than anticipated in November 2000 and is not yet under control. The council lacks the ability to achieve control;
* the council has not been able to make sufficiently quick progress in identifying alternative suppliers and securing assistance with improving services
* the council lacks the management capacity to procure services effectively
* the need to sell valuable assets presents a substantial risk to the achievement of financial balance in the near future
The government has supported Hackney LBC in these areas and we have been working together with civil servants and the private sector to identify solutions. A government contractor has procured financial controllers on our behalf. Although this took longer than anticipated, the financial controllers have enabled us to have a much clearer picture of the extent of the financial management and control issues and the long term underlying commitments that will take time to unwind. Unfortunately, this does mean that the financial position is indeed worse than was anticipated in November 2000. Council departments are predicting overspends and need to act now to bring budgets back in line - but by far the most significant issue is what we have found as we have started to tackle the backlog of cases left by the council's former contracted revenues and benefits service provider. Where the contractor paid benefits in error or without going through all the procedures, it is the council that has to foot the bill rather than government.
It is important to recognise, however, that the council's financial situation runs much deeper that controlling current budgets. Hackney's district auditor?s Statutory Report issued on 29 June says:
'We are of the view that a more radical approach needs to be adopted and that the council should seek to agree with its stakeholders, in particular the government, a longer-term viable financial and service strategy that will enable the authority to deliver the service improvements deserved by Hackney residents. Such a strategy should set out the service levels the council can afford in the longer term, include a clear plan of action to reduce or reconfigure current service provision to meet that longer term aim and identify the funding required in the short-term to ensure that the strategy is achieved. It should be jointly owned by the council and all the relevant government departments.
'A government contractor has also been tasked with assisting us with identifying alternative suppliers and procuring their services, looking at financial services, revenues and benefits administration and waste management. The Audit Commission statement released today says 'The council should implement the findings of the review of outsourcing and partnership options already undertaken by DTLR's framework contractors'.'
The Review is not yet complete although we have today received their draft report. We will wish to consider the findings before any decisions on their implementation can be agreed. The emerging evidence from the work undertaken so far is that the out-sourcing solution proposed by the Audit Commission in November will not deliver the savings expected. Although our costs are significantly higher than other boroughs, in a number of areas the private sector will demand more money to take on the risk and other boroughs have not been willing to partner with us, with the exception of the London Pension Fund Authority. We are also locked into various long-term contracts which need to be reviewed in detail now. All of this work will continue to require significant external support and will take time to implement.
It is easy to criticise the budget strategy of relying on asset sales in hindsight. At the time, the government was clear that they wanted us to increase our spending on children's social services and increase schools? budgets. The council spends just£87m on services other than education and social services - which means that it would be impossible to reduce thisby£50m while fulfilling our statutory functions. It is therefore essential that we adopt the approach proposed by the district auditor of agreeing a financial strategy with government.
In his letter to the Audit Commission dated 2 July, Max Caller proposed the following as the basis for a joint action plan to be agreed with government:
An outside forensic appraisal of the underlying financial position to identify the key true areas of high cost which require both long and short term action and to provide reassurance that we have got the full picture.
The procurement from external sources of financial control and administration services in Directorates and in the centre.
The procurement of IT and document management systems initially for revenues and benefits and reviewing the feasibility for and implementation of 24-hour 7-day per week processing which will cut backlogs and improve services.
The development of an effective procurement facility within the council to manage these and other existing contracts linked to a team (or teams) charged with renegotiating contracts to reduce unit costs particularly in social services.
The introduction and establishment of a rigorous performance management system across the council.
The development of realistic options for next year's budget recognising that there will be a 3-5 year period before Hackney can be considered financially stable and implementing the financial consequences of this at government level.
* see LGCnetfor details