Financial Management Policy Appendix 9

Overall purpose : seek to ensure a high standard in the management of public finances in the best interests of the people of Hampshire.

Key policies designed to achieve this are to maintain and seek continuous improvement in both Financial Planning and the provision of Financial Services. In doing so, the Council has aimed to maintain its score of three (equivalent to the maximum score of four under the previous framework) for the financial aspects of the Comprehensive Performance Assessment, and aim to achieve the new level four by 2008.

A Financial Planning

Overall financial planning and budget strategy

Commentary

Budget strategy related to corporate priorities, as reflected in corporate strategy, local public service agreement, improvement plan and four member priorities.

Linkages to corporate priorities identified in considering budget proposals with specific funding earmarked for local public service agreement and local area agreement pump priming.

Growth and saving plans to be submitted to the appropriate executive member, identifying planned outcomes and performance improvements for budget growth and mechanisms for achieving any significant savings.

2005/06 plans submitted to Executive Members in Summer 2005 as a basis for subsequent monitoring.

Ensure that the long-term level of revenue commitments does not exceed long-term funding likely to be available including reasonable expected levels of future grant settlement and council tax.

Provisional budget limits set for 2007/08 based on two year grant settlement and basis for support of capital programme to be reviewed during the course of the year in the context of being an authority below the grant floor for the foreseeable future.

Ensure integration of medium term financial and service planning.

Links between workforce and financial planning enhanced in planning for 2006/07. New corporate strategy and early budget guidelines will enable further improvements in the coming cycle.

Maintain three-year budget projections based where necessary on alternative scenarios to reflect uncertainty of spending and resource assumptions in order to set the likely context for making final resource allocation decisions on an annual basis.

Provisional budget limits set for 2007/08 based on the provisional grant settlement and an overall budget ceiling set for 2008/09, based on assumptions about the operation of the grant floor and the capping regime.

Minimise levels of non-earmarked reserves, with a target of 0.6% of net expenditure, subject to risk assessment, in order to maximise use of available funds on service provision.

Risk assessment included in 2006/07 budget identifying the need for higher balances in 2006/07 of £10.8m to reflect uncertainty about the achievability of savings targets and other specific risks.

Review the rationale and adequacy of earmarked reserves on at least an annual basis.

Reviewed twice-yearly in conjunction with approval of budget and final accounts.

Build up an earmarked reserve in recognition of the transitional costs of implementing Pay and Benefits proposals and create a new modernisation, restructuring and efficiency plan reserve.

Further contribution to Pay and Benefits transitional cost reserve made in 2005/06 to provide funding of £10m for back pay costs. Contribution of £3.5m made to modernisation, restructuring and efficiency plan reserve.

Seek to minimise the degree of instability in the employers' contribution to the Hampshire Pension fund, subject to objective of securing 100% funding in the long-term.

Employers rate increased from 220% to 250% of employees rate in 2005/06, in accordance with the stepped increase agreed following the 2004 actuarial valuation.

Continue policy of increasing budgets for Schools and Social Services in line with increases in the County Council's related Formula Spending shares - providing that to do so does not have an unacceptable impact on the quality of other services or the level of the council tax.

Policy continued to be applied in 2005/06.

Manage the application of the grant equalisation reserve in order to protect services and limit the council tax impact of the loss of transitional Education funding and, if confirmed, the loss in 2006/07 of the additional Government Grant made available on a one-off basis in both 2004/05 and 2005/06.

Strategy for application of the reserve amended to reflect further substantial loss of grant from the 2006/07 review of the formula grant methodology expected to take effect from 2008/09.

In order to allow services to operate within firm cash limits, allocate provision for inflation to services at the start of the financial year and require excess inflation to be absorbed.

All 2005/06 inflation allocations relating to cash limited budgets made prior to the beginning of the year.

Services expected to contain spending within the approved cash limit, with no supplementary allocations being available other than in exceptional circumstances unless a specific contingency provision made within the budget.

Non recurring allocations of £900k agreed in June 2005 funded by underspendings in 2004/05. No other supplementary allocations agreed during 2005/06.

Services expected to carry forward 100% of any overspending against the overall service cash limit, but are allowed to retain up to 100% of any planned underspendings identified prior to the approval of the following year's budget. 50% of any unplanned underspendings can automatically be carried forward.

Proposed that policy be applied in making decisions on 2005/06 Final Accounts, but recognizing that it would not be practical to carry forward the 2005/06 Adult services overspending for recovery in 2006/07.

Value for Money

Commentary

Require the continuing identification of efficiencies by expecting services to absorb any net cost arising from the annual cost of salary increments.

Applied in 2005/06 and 2006/07 budgets. 2005/06 budget required savings of £4.1m to be made to absorb the cost of increments

Encourage service chief officers to submit applications for specific grants/partnership funding designed to maximise the resources available to the County Council, by allowing capital and revenue cash limits to be adjusted to reflect changes in grant levels.

Policy applied in setting cash limits for 2005/06 and in adjusting them for variations in grants during the year.

Require services to review the level of fees and charges at least annually and set budget limits on the assumption that the level of charges will be increased in line with assumed inflation on gross expenditure.

Budgets for 2005/06 and 2006/07 set on this basis, with proposals for reviewing charges considered by Executive Members.

Seek to deliver efficiency gains as required by the Spending Review 2004, drawing on the Gershon report.

Appendix 7 of this report contains the County Council's draft 2005/06 backward look Annual efficiency statement identifying efficiency improvements in 2005/06 in excess of the Gershon target

Seek best value in spending, bearing in mind that considerations of quality, risk, sustainability, environmental impact, local economic development and equalities may all be relevant in addition to price.

Corporate procurement strategy achieved savings assessed at £1m in 2005/06 on non schools budgets.

Seek to retain relatively low council taxes in Hampshire, with the aim of setting a tax in the lowest quartile of County Council council taxes.

2006/07 council tax in lower quartile of those County Councils without fire funding responsibilities.

Capital programming

Commentary

Review capital strategy on an annual basis and prepare four year capital programme in accordance with the strategy.

Strategy reviewed in July 2005 and new four-year programme approved in February 2006.

Seek to maintain the level of the locally-resourced capital programme by continued recycling of surplus assets to generate capital receipts.

Programme for 2006/07 to 2009/10 contains £23m of additional spending as a result of the review of capital receipts during 2005/06.

Allow services to retain at least 25% of the value of their capital receipts and where necessary to finance investment in replacement assets, up to 100%.

Proposed that services retain £3.2m (30%) of their 2005/06 capital receipts.

Adopt a Public Private Partnership (PPP) approach, including the use of the Private Finance Initiative (PFI), where this provides best value for the Council.

County Council has submitted an expression of interest in a Street Lighting replacement PFI project, based on the Government's decision to channel support for major street lighting projects through PFI credits

Make full use of Government supported borrowing.

Full use of supported borrowing (£40.9m) made in financing 2005/06's capital payments.

Seek to maximise capital resources by developing capital schemes in conjunction with external partners where appropriate.

£38.6m of capital payments funded by contributions from external partners in 2005/06, including £24.5m from the NHS in respect of ENHANCE.

Approve the use of unsupported borrowing within the framework of the County Council's prudential code

    - business unit investment where the financing costs will be funded by charges made to customers

    - `invest to save' projects generating savings which will enable the financing costs to be funded, capital receipts which will enable borrowing to be repaid, or alternative costs to be avoided.

Unsupported borrowing of £12.9m undertaken in 2005/06 offset by a repayment of £2.25m, bringing the level of unsupported borrowing to £35.1m at the end of 2005/06, and it is expected to increase by a further £10m in 2006/07.

B Provision of Financial Services

Effective management of budgets

Commentary

Devolution of financial management to service departments combined with appropriate financial training, provision of appropriate systems to generate management information and a framework of sound internal controls including Financial Regulations and procedures.

Roll-out of SAP was specifically designed to provide for devolved financial management and improved management information to customers. Extensive training continues to support this.

Rigorous annual budgeting and budget monitoring processes.

2005/06 overspend was exceptional due to Adult Services pressures, but the risks were anticipated corporately and much of that overspend has now been dealt with.

Maintain integrated accounting and budgeting systems and set a consistent overall financial framework across the authority, including for schools.

Implementation of SAP is designed to extend the scope of existing integration. Schools are fundamental to this process.

Ensuring good practice and probity

Commentary

Recognise the statutory and corporate finance roles of the County Treasurer in ensuring lawful and financially prudent decision-making through his membership of the Corporate Management Team.

No breaches of compliance..

Report internal audit's strategy to the Governance Committee.

Reported to the March meeting of the Governance Committee.

Provide annual internal audit assessments for each department together with an assurance statement on corporate governance and the internal control framework to accompany the final accounts.

Assessments provided accordingly.

Develop IT systems designed to enhance the provision of financial management information to users.

SAP and Swift are designed to achieve this, though there were initial difficulties with the interface between these in 2005/06, and were supplemented by implementation of . time recording in 2005/06.. There will be an increasing emphasis on self-service in such areas as Payroll and Pensions information and local budget management.

Maintain Head of Profession arrangements whereby the head of each devolved finance unit has defined responsibilities for ensuring that both corporate and departmental needs are met.

The framework remains in place and is working well, with six Heads of Profession, now aligned to departments as set up following the Children Act .

Maintain and work with Chief Officers to apply Financial Regulations and associated financial procedures in support of good practice in financial administration and corporate governance.

Part of the annual audit report and assurance statement refers specifically to the compliance with financial regulations and other procedures which comprise the control framework.

Maintain an effective and efficient internal audit function which works co-operatively with the Council's external auditor.

The Audit Commission continues to rely on the work of internal audit and to comment favourably on quality and professional standards achieved in the annual management letter.

Comply with the CIPFA Code of Practice for treasury management.

Code complied with, as confirmed by external audit.

Comply with accounting and audit standards contained in the relevant Codes of Practice and CIPFA guidance.

All standards complied with.

Efficient and accessible processing of transactions

Commentary

Best practice in relationships with local contractors and suppliers, including paying of bills in line with Government prompt payment targets.

The Government's target of 100% is probably not realistic, but at 94% the County is one of the better performers for this indicator.

An emphasis on continuous improvement driven by a customer focus as the best way to deliver good financial services.

The Quality Review carried out in Autumn 2004 continued this focus, and informed the County Treasurer's service plan for 2005/06, along with an emphasis on electronic transactions and making the most of the Council's web presence.

All services to be available electronically in line with government timescales, including moves towards employee self service.

Achieved during 2005 as set out in the department's IT plan: this includes availability of on-line payment facilities.

Obtain the Charter Mark for services dealing directly with the public, and seek to apply a similar approach to internal customers.

Pensions Services and Student Support currently hold the Charter Mark. Blue Badges are to apply in 2006.

Keep transaction costs within the lowest 25% of costs among county councils.

Benchmarking continues to show good results. The "overhead" represented by finance as a proportion of the County Council's total spend continues to reduce, mainly due to the Benefit Realisation plan following SAP implementation is expected to reduce the costs of the finance function by £1.2m per year. Initial reductions of £0.5m towards this target had been achieved by 2005/06.