Shropshire Council

Appendix A - Financial Management and Control

In this appendix:


 

A.1 Financial Management Standards

Why is this important?  

A.1.1 All staff and members have a duty to abide by the highest standards of probity in dealing with financial issues. This is achieved in part by ensuring that everyone is clear about the standards to which they are working, and the controls which are in place to ensure that these standards are met.

Key controls  

A.1.2 The key controls for financial management standards are:

  • Their promotion throughout the Council
  • Having in place a monitoring system to review compliance with financial standards, and that regular comparisons of performance indicators and benchmark standards are reported to Cabinet and Full Council.  

Responsibilities of Section 151 Officer

A.1.3 To ensure the proper administration of the financial affairs of the Council.

A.1.4 To set the financial management standards, and to monitor compliance with them.

A.1.5 To ensure proper professional practices are adhered to, and to act as head of profession in relation to the standards, performance and development of finance staff throughout the Council.

A.1 6 To advise on the key strategic controls necessary to secure sound financial management.

A.1.7 To ensure that financial information is available to enable accurate and timely reporting of comparisons of financial performance indicators. 

Responsibilities of Directors and Managers

A.1.8 To promote the financial management standards set by the Section 151 Officer in their service areas and to monitor adherence to those standards and practices.

A.1.9 To promote sound financial practices in relation to the standards performance and development of staff in their service areas.

Key controls

A.2 Managing and controlling spending and income

a) Revenue Budget

Why is this important?

A.2.1 Budget management ensures that resources allocated by members are used for their intended purposes and that these resources are properly accounted for. Budgetary control is a continual process enabling the Council to review and adjust its budget targets during the financial year. It also provides the mechanism to call to account managers responsible for defined elements of the budget.

A.2.2 By identifying and explaining variances against budgetary targets, the Council can identify changes in trends and resource requirements at the earliest opportunity. The Council itself operates within an annual cash limit, approved in setting the overall budget. To ensure that the Council in total does not overspend, each service is required to manage its own expenditure within the cash limited budget allocated to it.

A.2.3 For the purposes of budgetary control by managers, a budget head will normally be a cost centre. However, it may be at a more detailed level in the standard coding structure if this is required by the directors or managers scheme of delegation.

Key controls

A.2.4 The key controls for managing and controlling the revenue budget are:

  • Budget holders should be responsible only for expenditure and income which they can influence.
  • Each “£” of budgeted expenditure is allocated to a named budget holder.
  • Budget holders accept accountability for their budgets and the level of service to be delivered.
  • Budget holders follow an approved certification process for all expenditure.
  • Income and expenditure is properly recorded and accounted for.
  • Performance levels/levels of service are monitored in conjunction with the budget and necessary action taken to align service outputs and budget.

Responsibilities of Section 151 Officer

A.2.5 These responsibilities are carried out through the Finance Officers reporting to the Section 151 Officer. To establish an appropriate framework of budgetary management and control this ensures that:

  • Budget management is exercised within the annual cash limits agreed by Council.
  • Each director and manager has available timely information on income and expenditure on each budget heading, to enable budget holders to fulfil their budgetary responsibilities.
  • Expenditure is committed only against an approved budget.
  • All officers responsible for committing expenditure comply with relevant guidance, including Financial Rules.
  • Each budget has a single named manager, determined by the director and managers. As a general principle, budget responsibility should be aligned as closely as possible to the decision-making which commits expenditure.
  • Significant variances from approved budgets are investigated and reported by managers regularly.
  • Procedures are in place for corrective action to be taken to manage significant variances.

A.2.6 To administer the Council’s scheme of virement.

A.2.7 To submit regular reports to Cabinet and to Council, in consultation with the directors or managers, where a director or manager is unable to balance expenditure and resources within existing approved budgets under his or her control.

A.2.8 To prepare and submit regular budget monitoring reports on the Council’s projected expenditure compared with the budget.

Responsibilities of directors and managers

A.2.9 To maintain budgetary control within the Service, in adherence to the principles in A.2.5 and to ensure that all income and expenditure is properly recorded and accounted for.

A.2.10 To ensure that a single accountable budget officer is identified for each item of expenditure under the control of the director or managers. As a general principle, budget responsibility should be aligned as closely as possible to the decision-making who commits expenditure.

A.2.11 To ensure that spending remains within the service’s overall cash limit, and that individual budgets are not overspent, by monitoring the budget and, where it appears that areas of the budget are likely to be over or underspent, taking appropriate corrective action.

A.2.12 To ensure that a monitoring process is in place to review performance levels/levels of service in conjunction with the budget and that any necessary action is taken.

A.2.13 To prepare and submit to Cabinet reports on the service’s projected expenditure compared with its budget, in consultation with the Section 151 Officer.

A.2.14 To advise the Section 151 Officer immediately where it is clear that they are unable to balance expenditure or income (when a loss of income arises) within existing approved budgets under their control.

A.2.15 To ensure prior approval by the Council for new proposals[4], of whatever amount, which:

  • Creates financial commitments in future years.
  • Initiates new policy or ceases existing policies.
  • Materially extends or reduces the Council’s services.

A.2.16 To ensure compliance with the Council’s scheme of virement.

A.2.17 To consult with the relevant director or managers and Section 151 Officer where it appears that a budget proposal, including a virement proposal, may impact materially on another service, directors or managers level of service activity.

b) Scheme of virement

Why is this important?

A.2.18 The scheme of virement is intended to enable directors, managers and their staff to manage budgets with a degree of flexibility within the overall policy framework determined by the Council, whilst maintaining a corporate system of overview to ensure best use of resources.

Key Controls

A.2.19 Key controls for the scheme of virement are:

  • That it is administered by the Section 151 Officer within guidelines set by Council. Any variation from this scheme requires the approval of Council.
  • That the overall budget is agreed by Cabinet and approved by Council. Directors, managers and budget holders are therefore authorised to incur expenditure in accordance with those estimates. The rules below cover virement that is switching resources between budget heads.  For the purposes of these Rules a budget head is considered to be a line in the Council’s budget book which, as a minimum, is at an equivalent level to the standard service sub-division as defined by CIPFA. The scheme applies equally to a reduction in income as to an increase in expenditure. 

A.2.20 Directors and managers are expected to exercise their discretion in managing their budgets responsibly and prudently. For example, they should avoid supporting recurring expenditure from one-off sources of savings or additional income, or creating future commitments, including full-year effects of decisions made part way through a year, for which they have not identified future resources. Directors and managers must plan to fund such commitments from within their own budgets.

Responsibilities of Section 151 Officer

A.2.21 To prepare jointly with the appropriate manager and/or director a report to the Council where virements in excess of £1,000,000 are proposed. To report to Cabinet where virements:

  • In excess of £500,000 and below £1,000,000 are proposed.
  • From salaries budgets are proposed.

A.2.22 To maintain a register of all virements.

A.2.23 To report all virements over £140,000 and below £500,000 to Cabinet for information.

Responsibilities of directors and all managers

A.2.24 A manager or director, with the approval of the Section 151 Officer, may exercise virements on budgets within or outside of their own area for amounts below £500,000. There shall be full agreement between the manager(s) and, or director(s) with responsibility for the policy area.

A.2.25 No virement relating to a specific financial year should be made after 31 March in that year.

A.2.26 Any virements undertaken in housing must not have any overall effect on the HRA.

A.2.27 No virement should occur from salaries budgets to non-salary budgets without prior approval of the Section 151 Officer and Cabinet.

A.2.28 A school’s governing body may transfer budget provision between heads of expenditure within the delegated schools’ budgets.

A.2.29 Where an approved budget heading is a contingent sum intended for allocation during the year, its allocation will not be treated as a virement, provided that:

  • The amount is used in accordance with the purposes for which it has been established.
  • Cabinet has approved the basis and the terms, including financial limits, on which it will be allocated. Individual allocations in excess of the financial limits should be reported to Cabinet.

c) Treatment of year end balances

Why is this important?

A.2.30 The rules below cover arrangements for the transfer of resources between accounting years i.e. a ‘carry forward’. For the purposes of this scheme a budget heading is a line in the Council’s budget book.

Key controls

A.2.31 Appropriate accounting procedures are in operation to ensure that carried forward totals are correct.

Responsibilities of Section 151 Officer

A.2.32 To approve ‘carry forward’ schemes and administer the scheme of ‘carry forward’ within the guidelines set by Council.

A.2.33 To report the extent of overspending and underspending on service estimates carried forward to Cabinet and to Council.

Responsibilities of directors and managers

A.2.34 Any overspending on service estimates in total on budgets under the control of the director or managers must be carried forward to the following year, unless it falls into an exception category as defined by the Section 151 Officer and will constitute the first call on service estimates in the following year.

A.2.35 Net underspending on service estimates, under the control of the director or managers, may be carried forward, subject to the annual report to Cabinet on the source of underspending or additional income and the proposed application of those resources. For example, if the underspend is a result of a project slipping the funds may be carried forward any general underspend which have no future commitment will be transferred into balances.

A.2.36 All internal business unit surpluses shall be retained for the benefit of the Council and their application shall require the approval of Cabinet (or other locally determined rules).

A.2.37 Schools’ balances shall be available for carry forward to support the expenditure of the school concerned. Any school wishing to operate a licensed deficit shall notify the Council of its intent by 1st February preceding the start of the first financial year to which the deficit would apply.  The Director of Children’s Services, the Head of Finance, Governance and Assurance or their representative will meet with the finance committee of the governing body, to agree the basis of the licensed deficit.

A.2.38 The maximum length over which schools may repay the deficit shall be five years. A school operating a licensed deficit will be required to report to the Head of Finance, Governance and Assurance on an annual basis as to the position in relation to the agreed staging for repaying the deficit.  Failure to keep to the agreed plan, or negotiate variations to it with the Council, may lead to the withdrawal of delegation.

A.3 Accounting policies

Why is this important?

A.3.1 The Section 151 Officer is responsible for the preparation of the Council’s statement of accounts in the format required by the CIPFA Code of Practice on Local Authority Accounting in United Kingdom (a statement of recommended practice), for the financial year ending 31 March.

Key controls

A.3.2 The key controls for accounting policies are:

  • Suitable accounting policies are selected and applied consistently.
  • Judgements are made and estimates prepared which are reasonable and prudent.
  • Statutory and other professional requirements are observed to maintain proper accounting records.
  • All reasonable steps have been taken for the prevention and detection of fraud and other irregularities.

Responsibilities of Section 151 Officer  

A.3.3 To adopt suitable accounting policies and to ensure that they are applied consistently. The accounting policies will be set out in the statement of accounts which is prepared at 31 March each year.

Responsibilities of directors and managers

A.3.4 To adhere to the accounting policies approved by the Section 151 Officer.

A.4 Accounting records and returns

Why is this important?  

A.4.1 Proper accounting records are one of the ways in which the Council discharges its responsibility for stewardship of public resources. The Council has statutory responsibility to prepare its annual accounts to present a true and fair view of the financial position and the Council’s operations during the year.  These are subject to external audit.  This provides assurance that the accounts are properly prepared and proper accounting practices have been followed and that arrangements have been made for securing economy, efficiency and effectiveness in the use of the council’s resource.

Key controls

A.4.2 The key controls for accounting records and returns are:

  • All Cabinet Members, finance staff and budget holders operate within the required accounting standards of the Council.
  • All the council’s transactions, material commitments and contracts and other essential accounting information have been recorded completely, accurately and on a timely basis.
  • Procedures are in place to enable accounting records to be reconstituted in the event of failure.
  • Balances and reconciliation procedures are carried out to ensure transactions are correctly recorded.

Responsibilities of Section 151 Officer  

A.4.3 To determine the accounting procedures and records for the Council. Where these are maintained in a Directorate other than that of the Section 151 Officer, they shall, before making any determination, consult the Director of Adult Services, Children’s Services, Place and Enterprise, Public Health, Legal, HR or IT.

A.4.4 To compile all accounts and accounting records or ensure they are compiled under his direction.

A.4.5 To comply with the following principles when allocating accounting duties:

  • Separating the duties of providing information about sums due to or from the Council and calculating, checking and recording these sums, from the duty of collecting or disbursing them.
  • Employees with the duty of examining or checking the accounts of cash transactions shall not themselves be engaged in these transactions.

A.4.6 To make proper arrangements for the audit of the Council’s accounts in accordance with the Accounts and Audit Regulations.

A.4.7 To prepare and publish the audited accounts of the Council, with no qualifications, for each financial year, and with the requirement for the Council to approve the audited Statement of Accounts and to publish this document in accordance with the statutory timetable.

A.4.8 To administer the Council’s arrangements for under and overspending to be carried forward to the following financial year.

A.4.9 To ensure the proper retention of financial documents. The periods for which documents are to be retained will be specified separately to these financial procedures in the Corporate Retention Schedule.

A.4.10 To complete all statutory financial returns to government departments.

Responsibilities of directors and managers

A.4.11 To consult and obtain the approval of the Section 151 Officer before making any changes to accounting records and procedures.

A.4.12 To comply with the principles outlined in paragraph A4.5 when allocating accounting duties.

A.4.13 To maintain adequate records to provide an audit trail leading from the source of income/expenditure through to the accounting statements.

A.4.14 To supply information required to enable the Statement of Accounts to be completed, in accordance with guidelines issued by the Section 151 Officer.

A.4.15 To observe such accounting instructions as may be made from time to time.

A.4.16 To maintain the corporate register of specific grants supported by detailed records to support claims submitted.

A.4.17 To supply information required to enable all statutory financial returns to be submitted within timescales.

A.5 Format of the accounts

Why is this important?

A.5.1 The format of the budget will determine the level of detail on which financial control and management will be exercised. The format will shape how the rules around virement will operate, the operation of cash limits and set the level at which funds may be re-allocated within budgets.

Key controls

A.5.2 The key controls for the budget format are:

  • The format complies with all legal requirements.
  • The format complies with CIPFA Code of Practice on Local Authority Accounting in the United Kingdom (a statement of recommended practice).
  • The format meets the requirements of Service Reporting Code of Practice issued by CIPFA.

Responsibilities of Section 151 Officer

A.5.3 To advise Council on the format of the budget.

Responsibilities of directors and managers

A.5.4 To comply with accounting guidance provided by the Section 151 Officer.

[4] A report on new proposals should explain the full financial implications, after consultation with the Section 151 Officer. Unless the Council has agreed otherwise, directors and managers must plan to contain the financial implications of such proposals within their cash limit.