Shropshire Council

Appendix B - Financial Planning

In this appendix:

  1. Strategic Plans
  2. Budgeting:
  3. Use of Reserves

 

B.1 Strategic plans

Why is this important?  

B.1.1 Each local council has a statutory responsibility to publish various strategic plans.

Key controls

B.1.2 The key controls for strategic plans are:

  • To ensure that all relevant plans are produced and that they are consistent with each other;
  • To produce plans in accordance with statutory requirements;
  • To meet the timetables set.

Responsibilities of the Section 151 Officer

  • To advise the Council and supply the financial information that needs to be included in strategic plans in accordance with statutory requirements and agreed timetables;
  • To contribute to the development of corporate and service targets and objectives and performance information.

Responsibilities of the directors and managers

  • To contribute to the development of strategic plans in line with statutory requirements;
  • To contribute to the development of corporate and service targets and objectives and performance information.

B.2 Budgeting

a) Format of the Budget

Why is this important?

B.2.1 The format of the budget determines the level of detail to which financial control and management will be exercised. The format shapes how the rules around virement operate, the operation of cash limits and sets the level at which funds may be reallocated within budgets.

Key controls

B.2.2 The key controls for the budget format are:

  • The format complies with all legal requirements;
  • The format complies with CIPFA’s “Reporting Code of Practice”;
  • The format reflects the accountabilities of service delivery.

Responsibilities of Section 151 Officer

B.2.3 To advise Cabinet on the format of the budget that is approved by the Full Council. 

Responsibilities of directors, managers and budget holders

B.2.4 To comply with accounting guidance provided by the Section 151 Officer.

b) Revenue Budget Preparation, Monitoring and Control

Why is this important

B.2.5 Budget management ensures that once the budget has been approved by the Full Council, resources allocated are used for their intended purposes and are properly accounted for. Budgetary control is a continuous process, enabling the council to review and adjust its budget targets during the financial year.  It also provides the mechanism that calls to account managers responsible for defined elements of the budget.

B.2.6 By continuously 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 when 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.

B.2.7 For the purposes of budgetary control by managers, a budget will normally be the planned income and expenditure for a service area or cost centre. However, budgetary control may take place at a more detailed level if this is required.

Key controls

B.2.8 The key controls for managing and controlling the revenue budget are:

  • Budget holders should be responsible only for income and expenditure that they can influence.
  • There is a nominated Budget holder for each cost centre heading.
  • Budget holders accept accountability for their budgets and the level of service to be delivered and understand their financial responsibilities.
  • Budget holders shall order in accordance with these Financial Rules and Contract Procedure Rules.
  • Budget holders follow an approved certification process for all expenditure.
  • Income and expenditure are properly recorded and accounted for.
  • Performance levels and levels of service are monitored in conjunction with the budget and necessary action is taken to align service outputs and budget.

Responsibilities of Section 151 Officer  

B.2.9 To establish an appropriate framework of budgetary management and control to ensure that:

  • Budget management is exercised within annual cash limits unless the Full Council agrees otherwise.
  • Each director or manager has available timely information on receipts and payments on each budget which is sufficiently detailed to enable managers to fulfil their budgetary responsibilities.
  • Expenditure is committed only against an approved budget head.
  • All officers responsible for committing expenditure comply with relevant guidance, and the Financial Rules.
  • Each cost centre has a single named manager, determined by the relevant director or manager. As a general principle, budget responsibility should be aligned as closely as possible to the decision-making processes that commits expenditure.
  • Significant variances from approved budgets are investigated and reported by budget holders regularly.

B.2.10 To administer the council’s scheme of virement.

B.2.11 To submit reports to Cabinet and to the Full Council, in consultation with the relevant director or managers, where a director or manager is unable to balance expenditure and resources within existing approved budgets under his or her control.

B.2.12 To prepare and submit reports on the council’s projected income and expenditure compared with the budget on a quarterly basis to Cabinet.

Responsibilities of Directors and Managers  

B.2.13 To maintain budgetary control within their Service Area in adherence to the principles in B2.9 and to ensure that all income and expenditure are properly recorded and accounted for.

B.2.14 To ensure that an accountable budget holder is identified for each item of income and expenditure under the control of the director or managers (grouped together in a series of cost centres). As a general principle, budget responsibilities should be aligned as closely as possible to the decision-making that commits expenditure.

B.2.15 To use accredited suppliers in the purchase of goods, supplies and services.

B.2.16 To ensure that spending remains within the service’s overall cash limit, and that individual budget heads are not overspent, by monitoring the budget and taking appropriate corrective action where significant variations from the approved budget are forecast.

B.2.17 To ensure that a monitoring process is in place to review performance levels and levels of service in conjunction with the budget and is operating effectively.

B.2.18 To prepare and submit to Cabinet reports on the service’s projected expenditure compared with its budget, in consultation with the Section 151 Officer.

B.2.19 To ensure prior approval by the Full Council or Cabinet (as appropriate) for new proposals of whatever amount, that:

  • Create financial commitments in future years.
  • Change existing policies, initiate new policies or cease existing policies.
  • Materially extend or reduce the council’s services.

B.2.20 To ensure compliance with the scheme of virement.

B.2.21 To agree with the relevant director or manager where it appears that a budget proposal, including a virement proposal, may impact materially on another service area.

c) Resource Allocation

Why is this important?

B.2.22 A report on new proposals should explain the full financial implications, following consultation with the Section 151 Officer. Unless the Full Council or Cabinet has agreed otherwise, director and managers must plan to contain the financial implications of such proposals within their cash limit.

B.2.23 A mismatch often exists between available resources and required resources.

B.2.24 A common scenario is that available resources are not adequate to fulfil need and desire. It is therefore imperative that resource allocation is carefully prioritised and that resources are fairly allocated, in order to fulfil all legal responsibilities. Resources may include staff, money, equipment, goods and materials.

Key controls

B.2.25 The key controls for resource allocation are:

  • Budget holders obtain appropriate resources for the specified level of service delivery.
  • Resources are acquired using an approved authorisation process.
  • Resources are only used for the purpose intended by the Council, to achieve the approved policies and objectives, and are properly accounted for.
  • Resources are secured for use when required.
  • Resources are used with the minimum level of waste, inefficiency or loss for other reasons.

Responsibilities of Section 151 Officer  

B.2.26 To advise on methods available for the funding of resources, such as grants from central government and borrowing requirements.

B.2.27 To prepare a Financial Strategy which is reviewed annually to identify new service pressures, developments and likely levels of resource available. To assist in the allocation of resources to managers.

Responsibilities of directors, managers and budget holders 

B.2.28 To work within budget limits and to utilise resources allocated and further allocate resources in the most efficient, effective and economic way.

B.2.29 To identify opportunities to minimise or eliminate resource requirement or consumption without a detrimental effect on service delivery.

d) Capital Programmes

Why is this important?  

B.2.30 Capital expenditure involves acquiring or enhancing fixed assets with a long-term value to the council, such as land, buildings and major items of plant and equipment or vehicles. Capital assets shape the way services are delivered for the long-term and create financial commitments for the future in the form of financing costs and revenue running costs.  They may also generate income.

B.2.31 The Government places strict controls on the financing capacity of the Council. This means that capital expenditure should form part of an investment strategy and should be carefully prioritised in order to maximise the benefit of scarce resources.

B.2.32 The Council wishes to minimise prudential borrowing unless it is self-funding and maximise its capital receipts.

Key controls

B.2.33 The key controls for capital programmes are:

  • Specific approval by the Full Council for the programme of capital expenditure and its funding streams.
  • Expenditure on capital schemes is subject to the approval of the Section 151 Officer.
  • A scheme appraisal, including project plan, progress targets and associated revenue expenditure is prepared for each capital project, for approval by Cabinet.
  • Proposals for improvements and alterations to buildings must be approved by the appropriate director or managers
  • Schedules for individual schemes within the overall budget approved by the Full Council must be submitted to Cabinet for approval (for example, minor works), or under other arrangements approved by the Full Council.
  • The development and implementation of asset management plans.
  • Accountability for each proposal is accepted by a named manager.
  • Monitoring of progress in conjunction with expenditure and comparison with approved budget.

Responsibilities of Section 151 Officer  

B.2.34 To prepare capital estimates jointly with directors and managers and to report them to Cabinet for approval at the same time as the revenue budget is agreed and approved. Cabinet will make recommendations on the capital estimates and on any associated financing requirements to the Council. Cabinet Member approval is required where a director or manager proposes to bid for or exercise additional borrowing approval not anticipated in the capital programme. This is because the extra borrowing may create future commitments to financing costs.

B.2.35 To prepare and submit reports to the Council on the projected expenditure and resources compared with the approved estimates.

B.2.36 To issue guidance concerning capital schemes and controls for example on project appraisal techniques. The definition of ‘capital’ will be determined by the Section 151 Officer, having regard to Government rules and accounting requirements.

B.2.37 To obtain authorisation by Cabinet for individual schemes where the proposed expenditure exceeds the capital programme provision by more than 5% of the scheme budget or £5,000 whichever is the greater.

B.2.38 To prepare and submit monthly monitoring reports to Cabinet comparing expenditure to estimates, clearly identifying variances plus or minus, with explanations for the variances and recommendations for any actions to be taken.

B.2.39 To report to Cabinet on capital expenditure compared to estimates, including all contracts where the final expenditure exceeds the approved estimate by more than the prescribed amount of 5% of the scheme budget or £5,000 whichever is the greater.

B.2.40 The Chief Officers’ Capital Steering Group has overall responsibility for monitoring the capital programme in conjunction with Council Management Team. The Section 151 Officer is responsible for agreeing and approving variations up to £500,000 and jointly with the appropriate director or manager reporting; variations in excess of £500,000 and below £1,000,000 to Cabinet for approval; variations in excess of £1,000,000 to Full Council for approval.

B.2.41 To maintain a register of all virements and report all those over £140,000 and below £500,000 to Cabinet for information.

Responsibilities of directors, managers and budget holders

B.2.42 To comply with guidance concerning capital schemes and controls issued by the Section 151 Officer.

B.2.43 To ensure that all capital proposals have undergone a project appraisal in accordance with guidance issued by the Section 151 Officer.

B.2.44 To prepare regular reports reviewing the capital programme provisions for their services and to prepare a monthly return of estimated final cost of schemes in the approved capital programme for submission to the Section 151 Officer.

B.2.45 To ensure that adequate records are maintained in respect of all capital contracts.

B.2.46 To proceed with projects only when there is adequate provision in the capital programme, and with the agreement of the Section 151 Officer where required.

B.2.47 To ensure that any variation that results in a revenue increase has a funding source identified and is approved by the Section 151 Officer and Cabinet.

B.2.48 A manager or director, with the approval of the Section 151 Officer, may approve variations on the capital programme within or outside of their own area for amounts up to and including £500,000 on any one project area during the year where they have agreed the variation with the other manager(s) or director(s) with responsibility for the area to be impacted upon.

B.2.49 To prepare and submit monthly monitoring reports, jointly with the Section 151 Officer, to Cabinet and of any variation in contract costs greater than the approved limits. Cabinet will consider all variations in excess of 5% of the current scheme budget or £5,000, whichever is greater.

B.2.50 To prepare and submit reports, jointly with the Section 151 Officer, to Cabinet, on completion of all contracts where the final expenditure exceeds the approved contract sum by more than 5% of the current scheme budget of £5,000, whichever is the greater.

B.2.51 To ensure that they do not enter into credit arrangements, such as leasing agreements, without the prior approval of the Section 151 Officer and, if applicable, approval of the scheme through the capital programme.

B.2.52 To consult with the Section 151 Officer and to seek Cabinet approval where the director or managers proposes to bid for additional borrowing approvals to be issued by Government departments to support expenditure which has not been included in the current year’s capital programme.

e) Preparing revenue budgets and medium term planning

Why is this important?

B.2.53 The Council is a complex organisation responsible for delivering a wide variety of services. It needs to plan effectively and to develop systems to enable scarce resources to be allocated in accordance with carefully weighed priorities.  The budget is the financial expression of the Council’s plans and policies.

B.2.54 The revenue budget must be constructed so as to ensure that resource allocation properly reflects the spending plans and priorities of the Council. Budgets (spending plans), are needed so that the Council can plan, authorise, monitor and control the way money is allocated and spent.

B.2.55 Medium term planning (or a three to five year planning system) involves a planning cycle in which each manager develops their own plans. As each year passes, another future year will be added to the medium term plan. Medium term planning ensures that the Council is always preparing for events in advance.

Key controls

B.2.56 The key controls for budget preparation are:

  • Specific budget approval for all expenditure.
  • Budget holders accept accountability within delegations set by Cabinet for their budgets and the level of service to be delivered.
  • A monitoring process is in place to review regularly the effectiveness and operation of budget preparation and that any corrective action is taken.
  • Proper accounting practices and policies are adhered to.

Responsibilities of Section 151 Officer  

B.2.57 To prepare and submit reports and provide advice on budget strategy for Cabinet, including base budget build up and resource constraints set by the Government. Reports should take account of medium term prospects, where appropriate.

B.2.58 To determine the detailed form of revenue estimates, consistent with the general directions of the Council, and after consultation with Cabinet and Directors and Managers.

B.2.59 To prepare and submit reports to Cabinet on the aggregate spending plans of Directorates and on the resources available to fund them, identifying, where appropriate, the implications for the level of Council Tax to be levied.

B.2.60 To advise on the medium term implications of Government statements on public spending and distribution of central government resources.

B.2.61 To encourage best use of resources and value for money by working with directors and managers to identify opportunities to improve economy, efficiency and effectiveness, and by encouraging good practice in conducting financial appraisals of development or savings options, and in developing financial aspects of service planning.

B.2.62 To advise Council on Cabinet proposals in accordance with his or her responsibilities under Section 151 of the Local Government Act 1972.

Responsibilities of directors, managers and budget holders

B.2.63 To prepare estimates of income and expenditure, in consultation with the Section 151 Officer, to be submitted to Cabinet.

B.2.64 To prepare budgets which are consistent with any relevant cash limits, with the Council’s annual budget cycle and with guidelines issued by Cabinet. The format should be prescribed by the Section 151 Officer in accordance with the Council’s general directions.

B.2.65 To integrate financial and budget plans into service planning, so that budget plans can be supported by financial and non-financial performance measures.

B.2.66 To consult with Cabinet Members and relevant directors and managers, where it appears that a budget proposal is likely to impact on another service or level of service activity.

B.2.67 In consultation with the Section 151 Officer and in accordance with the laid down guidance and timetable to prepare detailed draft revenue and capital budgets for consideration by Cabinet and Full Council.

B.2.68 To have regard to:

  • Spending patterns and pressures revealed through the budget monitoring process.
  • Legal requirements.
  • Policy requirements as defined by the Council.
  • Initiatives already underway when drawing up draft budget requirements.

B.3 Use of Reserves

Why is this important?

B.3.1 Reserves are maintained as a matter of prudence.

Key controls

B.3.2 To maintain reserves on a risk basis over a three year period and in accordance with the CIPFA Code of Practice on Local Authority Accounting in the United Kingdom and agreed accounting policies.

Responsibilities of Section 151 Officer

B.3.3 To advise on prudent levels of reserves for the Council, and to act on the advice of external audit in this matter.