'Bankrupt' Birmingham council's IT system cannot show accounts

Birmingham City Council has filed a section 144 notice - with spiralling costs of its IT system partly to blame

Problems with "bankrupt" Birmingham City Council's IT system are so acute staff are unable to produce accounts detailing its financial status.

Council chiefs were told on Friday a financial statement for 2022/23, showing all money coming in and out of the authority, could not be signed off by external auditors as a result.

The council filed a section 114 notice which means it is essentially bankrupt and has halted new spending.

Work to fix the IT issues was ongoing.

A report by the auditors said financial statements for 2020/21 and 2021/22 had also not been signed off due to being "materially misstated" because of the size of equal pay claims facing the council.

The authority needs to settle a £760m bill for the claims, having already paid out more than £1bn in compensation to underpaid, mainly female workers who missed out on bonuses given to staff in traditionally male-dominated roles.

Issues with the IT system and the huge equal pay bill mean the council faces an immediate budget shortfall of £87m this year.

Chief executive Deborah Cadman insisted good progress was being made to fix issues

It has blamed the implementation of its Oracle IT system for its desperate situation. Initially expected to cost £19m, a three-year delay and complications with its implementation mean the cost is now expected to reach £100m.

External auditor Mark Stocks said: "As we sit here today, the council's not able to give an outturn position for 22/23, neither is it able to produce a set of accounts for 22/23.

"I know officers are working hard on both of those but there is no clear timescale for when exactly when that will be completed.

"All of that arises from the Oracle implementation, which we all know didn't work."

He said there had been a "significant level of adaptation" to the system which did not work and caused "a number of difficulties in financial reporting".

Issues included the council being unable to record and allocate cash payments to the right accounts, and instead having to do this manually, he said.

What is the Oracle IT system - and what went wrong?

The Oracle Enterprise Resource Planning (ERP) system is supposed to manage day-to-day business activities and was brought in to overhaul internal functions including payments and HR processes.

Birmingham City Council was meant to change such processes to fit the cloud-based system's requirements.

But rather than adopting the ERP as it was, officers instead sought to customise it - bending it to the existing way the council conducted its business.

Such a shift - which was contrary to a plan approved in 2021 - had "severely impacted upon the council's ability to properly implement" the system, the council said.

It is estimated the final cost to put things right will be in the region of £100m.

No details of where costs will be cut and the council must maintain statutory services like education, adult social care and bin collections, but people have voiced concerns that it could lead to a rise in crime and problems with parks.

In the meantime, Mayor of the West Midlands Andy Street said the region's combined authority could step in to take over some large-scale regeneration projects.

The German Market will still go ahead this year, while the organisers of the 2026 European Athletics championships, to be held at the city's Alexander Stadium, this week insisted they have confidence in Birmingham.

Councillor Fred Grindrod, chair of the audit committee, asked if there was a date when Oracle would be fully operational

During discussions of a separate report on the Oracle system, chief executive Deborah Cadman said three teams had been set up to deal initially with the issues, with staff now focussed on what it "needs to look like and how we achieve that".

She added she was "really pleased to say we are making good progress" in fixing issues, but a few "serious problems" remained that needed to be resolved.

She praised the "phenomenal" efforts of staff in working on "trying to rectify the challenges we saw".

Chair of the committee, Councillor Fred Grindrod, asked if there was an expectation of when the IT system might be "stable" and fully functional.

Ms Cadman said she was "absolutely determined to deliver" it as quickly as possible, and would provide a date in future.