THE SCHOOL funding crisis is threatening to add to the financial shortcomings in local government, the council’s own auditors have warned.

Graham Liddell, Brighton and Hove City Council’s head of internal audit, said as school balances continued to reduce and head into deficit, extra strain is being placed on the budget of the council which has to step in and bail them out.

Mr Liddell highlighted the problem as one of the biggest financial risks facing the council and called on schools to strengthen their financial governance including improved budget reporting to governors to respond to the crisis.

Earlier this month, The Argus revealed a quarter of the city’s schools ended 2016/17 in debt.

The number of schools in the red has tripled in three years with the most under pressure budgets now up to £380,000 in debt.

Mr Liddell said the funding crisis had created further governance issues, most notably because schools were having to find alternative sources of income.

He recommended improving controls on collecting cash, saying while schools and their staff had the “best intentions”, systems were needed to ensure there was proper recording of money coming in to the school to ensure it was spent in the right way.

He also recommended tightening up controls on the use of debit cards which allowed school staff to make relatively low level purchases.

He said his team had not identified any fraudulent purchasing as yet but suggested the measure as a preventative act.

Earlier this month, education secretary Justine Greening announced £1.3 billion of funding over the next two years to support struggling schools – money taken from elsewhere in the education budget.

Mr Liddell said: “For the challenges in school finances there have been some recent national announcements which may mitigate these but we are not sure yet what their impact will be here.”

Conservative committee member Nick Taylor said there was a “grey area of accountability” and a strange relationship between schools and the local authority.

He questioned officers about what the council’s liability was for schools that run up deficits; whether local authorities were obliged to “pick up the tab” or hold money over the next year which could risk making matters worse further down the road.

He asked, under the new national funding formula scheduled to come into being in 2019/20, where funding will transfer directly from government bodies to schools and not via the council, whether local authorities would continue to have the same obligations to offer financial support.

David Kuenssberg, the council’s executive director for finance, said there would still be some discretion to support schools under the new funding formula.

On the subject to what extent schools would receive financial assistance from the council, he said: “Its a judgement call. Just saying, ‘we’re cutting you off now’, to heads is not practical. Our clear golden rule is to support schools to deliver the services the city wants for pupils.

“But we can’t have our reserves being run down without a plan to return to acceptable levels. We work with schools on a daily basis to ensure problems don’t stack up. We are supportive but challenging. We can’t let problems come to a head.”