Croydon could be forced to declare bankruptcy again if it were to pay £73m next year due to an ‘accounting problem’ and its finances could go into ‘total free fall’.
The latest financial issue comes as Croydon Council prepares to approve its budget for the 2021/22 financial year.
He was able to balance the books with the help of £25million from the government, the final installment of a four-year loan deal agreed following the council’s bankruptcy in 2020.
Budget documents say the council is in conflict with its auditors over how £73million was recorded in the council’s accounts between 2019 and 2021. If this is proven wrong, the council could risk issuing a further notice under Section 114, declaring effective bankruptcy, according to the report.
The council has been struggling with its finances since declaring bankruptcy in November 2020.
Its budget report stresses “it’s not about missing money”, but relates to accounting issues in the 2019/20 and 2020/21 financial years.
The report explains that a complex arrangement between the council and Croydon Affordable Homes may have led to the incorrect classification of £73million.
Croydon Affordable Homes was set up by the council in 2017 as a way to access money from council homes sold through the ‘right to buy’. This money was used to buy houses which are offered to families in temporary accommodation.
Council auditors Grant Thornton have questioned how Croydon classified £73m spent on council services after securing a deal through an investment firm. If the £73million has not been filed correctly, it will be on the council’s books to be paid in the next financial year.
Opposition Councilor Jason Cummings said: ‘The problem is that the auditors said it was not capital revenue. There is now a debate between the board and auditors Grant Thornton.
“If that happens they can’t get along, at which point the council’s finances go into total freefall. There’s no shortage of money, but one wonders how it was spent.
‘This is another example of the mismanagement of public finances and the desperate measures Croydon Council would take to balance their budget rather than deal with the inherent overspending of the departments.’
As discussions on this issue are expected to continue into the new fiscal year, it does not affect the board’s ability to present a balanced budget for 2022/23, which is a legal requirement.
A council spokesperson said: ‘We are working with our external auditor to resolve any outstanding inheritance issues which may impact the 2019-20 accounts, one of which relates to the historical accounting arrangements for Croydon Affordable. Homes.
“We aim to resolve these issues and close the accounts as soon as possible.”
Croydon was able to balance its budget with the help of £25m from the government after the council declared bankruptcy in November 2020.
A loan of £150m has been agreed in four elements ranging up to £70m in 2020/21, up to £50m in 2021/22, up to £25m for 2022/23 and up to £5m for 2023/24.
Cllr Cummings added: “The budget is balanced but that includes the funding direction. The council still spends £25million more than it receives.
“There are some very disappointing things for the residents of Croydon; reducing housing tax support and increasing municipal rents by 4.1 percent.
“We still see very clearly the people of Croydon paying the price for Labour’s bankruptcy.”
The budget provides that Croydon residents will see a 2.99% council tax increase.
Councilor Hamida Ali, leader of the council, said: “Despite our difficult financial situation and more than a decade of government austerity, this budget keeps all our libraries and children’s centers open, protects fortnightly bin collections, our services for youth and domestic violence and other residents’ priorities.
“By focusing on quality basic services and ensuring that we provide our residents with the best possible value for money, we have been able to protect frontline services and focus on supporting our borough’s recovery from the crisis. pandemic.
Croydon Council is expected to approve the 2022/23 budget at a meeting on Monday.