Archived decisions

Financial Management Policy

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 reflected in consideration of budget proposals and also matched against priorities in the Community Strategy.

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.

2004/05 Plans submitted to Executive Members in Summer 2004 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.

This is a major consideration in budget planning for 2006/07 and 2007/08 with lower increases in planned public spending than in recent years..

Ensure integration of medium term financial and service planning.

Proposals developed for integrating financial, service and workforce planning for 2006/07 to 2008/09 three year cycle. Integrated approach applied on a test basis to 2005/06 planning process.

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.

2006/07 and 2007/08 indicative budgets approved in February 2005 based on assumptions about the impact of the new schools funding system, on the level of grant.

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 2005/06 budget identifying the need for higher balances in 2005/06 to reflect uncertainty about the achievability of savings targets.

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.

Further contribution made in 2004/05, increasing reserve balance to £4.75m at 31 March 2005.

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 215% to 225% of employees rate in 2004/05. Further stepped increases to be implemented over the next three years following the 2004 actuarial valuation as a result of lower investment returns and increased life expectancy.

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 2004/05.

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 2005/06 of the additional Government Grant of £7.5m announced in December.

Strategy for application of the reserve over the next three to four years agreed as part of 2005/06 budget strategy.

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 2004/05 allocations made prior to the beginning of the year apart from contingency provision for potential increases in pay above 2.5% which was allocated once decisions on pay awards had been made.

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.

Supplementary allocation made to Social Services for market supplements on an exceptional basis in 2004/05.

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 2004/05 Final Accounts.

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

Applied in 2004/05 and 2005/06 budgets. Efficiency improvements of £5.0m built into 2004/05 budget.

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 2004/05 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 2004/05 and 2005/06 set on this basis, with proposals for reviewing charges considered by Executive Members.

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.

Procurement strategy advanced through SAP takes account of these issues, as reflected in £1m saving plan for 2005/06.

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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.

2005/06 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 2004 and new four-year programme approved in February 2005.

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

Programme for 2005/06 to 2008/09 contains £3.0m of additional spending as a result of the review of capital receipts in 2004/05..

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 £5.3m (29%) of their 2004/05 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 awaiting a decision on Government support for South Hampshire Rapid Transit Scheme potentially as a PFI project.

Make full use of Government supported borrowing.

Full use of supported borrowing (£61.3m) made in financing 2004/05's capital payments.

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

£42.1m of capital payments funded by contributions from external partners in 2004/05 including £24.8m 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 £21.1m undertaken in 2004/05 and the approved level is expected to increase to £34.0m by the end of 2006/07.

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 during 2004/05 was specifically designed to provide for devolved financial management and improved management information to customers. Extensive training took place in parallel.

Rigorous annual budgeting and budget monitoring processes.

2004/05 outturn is very close to revised budget as anticipated from regular budget monitoring reports.

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

Implementation of SAP through the Enterprise Project 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. New corporate governance framework (introduced in 2003) consolidated. Grant equalisation reserve retained for reasons of financial prudence.

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. Within this framework, developments in time recording and monitoring of capital spend are specifically designed to enhance the coverage of the core systems. 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. Head of Profession arrangements extended to six units in 2004/05. From 1 April 2005, the last phase of the review of the boundaries of the Treasurer's department following the Best Value Review 2001 was implemented when Education Financial Services staff joined the department.

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, including the new ones for the prudential framework.

Efficient and accessible processing of transactions

Commentary

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

The Government's target 100% is probably not realistic, but at 93% 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.

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

Expected to be achieved during 2005 as set out in the department's IT plan. This will include development of direct debit and electronic 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, having successfully reapplied in Autumn 2004. Charter Mark principles are adopted in the departments "Charter of Service" applicable to all sections, and Blue Badges are to apply in 2005.

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

This was achieved the last time it was fully measured through benchmarking as part of the 2001 Best Value Review. Since then, the "overhead" represented by finance as a proportion of the County Council's total spend has reduced. 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 £250,000 towards this target have been achieved in 2004/05 budget and a second tranche of £250,000 is built into the 2005/06 budget..