Auditors for Dudley Council has told leaders that their reduced spending plan to cover the £12m deficit for the next financial year may not be enough.

Despite already proposing £7.7m of savings, the council may have to make further cuts to avoid declaring a section 114 order and becoming, in effect, bankrupt.

An additional £2.5m of savings is required to plug the gap, auditors have recommended. Auditors Grant Thornton, told a meeting of the council cabinet on Thursday, they are considering issuing a statutory recommendation under an act of parliament. The recommendation would force the council to discuss in public within a month how it would find the extra savings.

Councillor Steve Clark, Cabinet member for finance, warned the authority is at risk of having to declare itself bankrupt within the next 12 months. He remained confident the council could set a legal budget for next year in March. The Council has reserves of £26m, however the Labour group who accused the administration of incompetence.

Leader Patrick Harley said there are steps in place to avoid a 114 notice but, "it is not a quick fix".

In the same meeting, Councillors went against the advice of finance officers and voted to override spending controls and press ahead with building a new special educational needs school in Brierley Hill, which will replace Pens Meadow special school where facilities are described as "appalling".