Value for Money Unit Local Government Audit Service Financial ...

1,028 views
813 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,028
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
13
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Value for Money Unit Local Government Audit Service Financial ...

  1. 1. Value for Money Unit Local Government Audit Service Financial Management Reporting in Local Authorities Report No. 24 September 2007
  2. 2. Local Government Audit Service The Local Government Audit Service (LGAS), incorporating the Value for Money (VFM) Unit, being an external audit service, provides independent scrutiny of the financial stewardship of local authorities. The sectoral goals of the LGAS are to: • carry out the audits of local authorities and other bodies in accordance with the Code of Local Government Audit Practice thereby fostering the highest standards of financial stewardship and public accountability • promote the achievement of value for money in local authorities by undertaking Value for Money audits and publishing reports thereon. It is the responsibility of local authority management to ensure that value for money is achieved by establishing and maintaining sound arrangements including procedures for planning, appraisal, authorisation and control of resources.
  3. 3. Value for Money Unit Local Government Audit Service Financial Management Reporting in Local Authorities Department of the Environment, Heritage and Local Government
  4. 4. © Government of Ireland 2007 BAILE ÁTHA CLIATH ARNA FHOILSIÚ AG OIFIG AN tSOLÁTHAIR Le ceannach díreach ón OIFIG DHÍOLTA FOILSEACHÁN RIALTAIS TEACH SUN ALLIANCE, SRÁID THEACH LAIGHEAN, BAILE ÁTHA CLIATH 2, nó tríd an bpost ó FOILSEACHÁIN RIALTAIS, AN RANNÓG POST-TRÁCHTA, 51 FAICHE STIABHNA, BAILE ÁTHA CLIATH 2, (Teil: 01 - 6476834/35/36/37; Fax: 01 - 6476843) nó trí aon díoltóir leabhar. ___________ DUBLIN PUBLISHED BY THE STATIONERY OFFICE To be purchased directly from the GOVERNMENT PUBLICATIONS SALE OFFICE SUN ALLIANCE HOUSE, MOLESWORTH STREET, DUBLIN 2, or by mail order from GOVERNMENT PUBLICATIONS, POSTAL TRADE SECTION, 51 ST. STEPHEN’S GREEN, DUBLIN 2, (Tel: 01 - 6476834/35/36/37; Fax: 01 - 6476843) or through any bookseller. ____________ €10 September, 2007 Prn. A7/1408
  5. 5. Contents PAGE MINISTER’S FOREWORD 3 EXECUTIVE SUMMARY 5 1. INTRODUCTION 9 2. FINANCIAL PROCESSES 10 2.1 Financial Governance Framework 2.2 Budgetary Process 2.3 Annual Financial Statement 2.4 Financial Reporting to Councillors 3. SURVEY AND FINDINGS 12 3.1 Survey of Local Authorities 3.2 Findings from Survey 4. CURRENT DEVELOPMENTS 13 4.1 Indecon Review of Local Government Financing 4.2 Costing Model 4.3 Standard Reporting Templates 4.4 Capital Expenditure and Project Management 5. RECOMMENDATIONS 15 5.1 Management Responsibility/Accountability 5.2 Financial Reporting for Management 5.3 Financial Management within Divisions 5.4 Financial Reporting for Councillors 5.5 Annual Financial Review 5.6 Capital Project Management 5.7 Enhanced Financial Monitoring 5.8 Financial Planning 5.9 Financial Reporting Protocols 5.10 Training 6. IMPLEMENTATION OF RECOMMENDATIONS 21 7. ACKNOWLEDGEMENT 22 _____________________________________________________________________ Local Government Audit Service, VFM Unit
  6. 6. Appendices PAGE APPENDIX 1 23 Survey of Local Authorities APPENDIX 2 24 Legislative Framework APPENDIX 3 26 Head of Finance Corporate Report _____________________________________________________________________ Local Government Audit Service, VFM Unit
  7. 7. Minister’s Foreword Financial reporting is an essential component in the efficient and effective operation of any private or public sector organisation. In 2007, some €9.5 billion will be spent by the local government sector on the development of infrastructure and in providing services to its customers. It is vital that there is transparency, accountability and value for money for this expenditure and also that these core principles continue to be embedded in everyday corporate thinking. Within this framework, systems and procedures must be in place to deliver high quality, clear and timely financial reporting. This report, which has been prepared by the Value for Money Unit of the Local Government Audit Service, is timely as it seeks to build on the significant modernisation programme, including the development of accounting systems, that has been underway in the local government sector in recent years. The report includes a wide range of recommendations, which draw on best practice in terms of the nature, content and frequency of financial reporting. It also emphasises the importance of financial management throughout each local authority and calls for a review, by each local authority, of training needs in the area of financial management and for the taking of appropriate action to address requirements. I would strongly encourage local authorities to examine the recommendations in this report and to take the measures necessary to address any gaps which may exist, having regard to the levels of financial reporting currently in place. Finally, I have asked the Value for Money Unit of the 3 Local Government Audit Service to monitor implementation of the report’s recommendations in the context of the timeframes set out in the report. John Gormley, T.D., Minister for the Environment, Heritage & Local Government. September 2007 _____________________________________________________________________ Local Government Audit Service, VFM Unit
  8. 8. 4 _____________________________________________________________________ Local Government Audit Service, VFM Unit
  9. 9. Executive Summary Overview Financial management is a primary management function affecting corporate decision-making and service delivery. It is about managing performance and achieving strategic objectives as much as about managing money. It is not just the responsibility of the Finance Director/Head of Finance, but is something that all managers within an organisation are responsible for, individually and collectively. To run an organisation efficiently and effectively management needs appropriate financial information on a timely basis. It should be presented in a form that is tailored to the organisation’s needs, is easy to understand and highlights key financial issues of which management need to be aware. For its part, management needs to provide timely and accurate financial information to its various stakeholders. In a rapidly changing operational environment, local authorities should continuously assess and up-date their financial management procedures and reporting protocols. Study The Value for Money Unit (VFMU) of the Local Government Audit Service undertook a study on 5 financial management reporting currently in place in local authorities. The study included: • Visits to seven local authorities including consultation with appropriate management personnel. • A survey of the current financial management reporting documentation and arrangements within the authorities visited. • A review of best practice in the area of financial management reporting and identification of opportunities where these could be applied to local authorities. Changes in Local Authority Accounting Local government has undergone significant change and modernisation over the past decade under the Better Local Government programme, including modernisation of the finance function. There is now considerable delegation of responsibility to Heads of Divisions for their respective areas of operation including accountability for the financial affairs of their respective divisions. Up-dated legislation and regulations incorporated a move from cash to an accruals based system of accounting. An Accounting Code of Practice incorporating a new format for the Annual Financial Statement (AFS) was adopted. To support these changes, new financial management systems have been introduced in most local authorities. These systems have enhanced financial management reporting capability. _____________________________________________________________________ Local Government Audit Service, VFM Unit
  10. 10. At present, under the auspices of the Department of the Environment, Heritage and Local Government (the Department), a costing model for local authorities is being developed for use within the framework of the 2008 budgetary process. In addition, the Finance and Business Sub- Committee of the Local Government Computer Services Board is currently rolling out to local authorities a suite of standard financial reporting templates across all local authority services. Survey of Local Authorities The following is a summary of the findings from the survey: • All the authorities operate on a twelve month budgetary cycle and have devolved responsibility and accountability for budgetary control down through the organisation. • Financial reports for management personnel are produced in four authorities on a monthly basis and in two authorities on a quarterly basis. The reports vary in scope and content. • In one authority the Head of Finance produces a comprehensive monthly corporate financial report for the senior management team. 6 • One authority has set up finance units headed by qualified accountants in each of its divisions, while another authority appointed senior executive officers to similar positions. A third authority has set up a finance unit in its roads division. • All authorities surveyed include a financial review as part of their AFS, however, there is scope to enhance the quality and content of these reviews. • Four authorities report on financial matters to Councillors on a formal basis through various sub-committees. These reports vary in scope and content. In two authorities, financial reports are made to a full Council meeting as considered necessary. • Three authorities have formal written procedures in respect of financial reporting protocols. • One authority has a formal training programme in place dealing with financial management for both finance and non-finance staff. Three authorities have ongoing informal financial training for all staff. • There is no formal training in financial management for Councillors. _____________________________________________________________________ Local Government Audit Service, VFM Unit
  11. 11. Recommendations The following is a summary of the recommendations contained in the body of the report: • Members of the Management Team and Heads of Divisions should have individual and collective responsibility for the overall use of resources and general financial standing of the Council. • The Head of Finance should advise senior management in exercising their responsibilities in financial matters. He or she should also have overall responsibility for the development and maintenance of appropriate accounting systems and internal financial controls throughout the organisation. • The Head of Finance should provide a corporate financial report to the management team, either on a monthly or quarterly basis, as considered appropriate. This report should include information drawn from divisional financial reports, and be linked to the Council’s budget and medium term financial plans. • Effective financial management structures should be developed within the various divisions of the Council. Where appropriate, suitably trained specialist personnel should 7 be available to provide the necessary expertise to support the finance function at that level. • Divisional financial management reports covering both revenue and capital should be produced either monthly or quarterly. These should include key performance indicators focusing on delivery of service as well as financial performance, including achievement of budgetary targets and accountability for significant variances. There should be in-depth reviews of the financial reports within each division and plans put in place to address identified problems. Financial management reporting at divisional level should dovetail with the Head of Finance’s corporate financial report to the management team. • To support Councillors in their financial governance role in local authorities, financial management reports should be provided to the elected Council on a regular basis, at least quarterly. These reports should be in a format with appropriate commentary sufficient to enable the Councillors to monitor financial performance, service and project delivery, as well as financial treasury management. Such reports could be channelled through the authorities’ Corporate Policy Groups to full Council meetings. _____________________________________________________________________ Local Government Audit Service, VFM Unit
  12. 12. • The financial review incorporated into the AFS should provide an objective and clear assessment of the Council’s results for the year, including explanations for significant variances between budget and revenue/capital account outturns. The review should also provide an overview of the financial standing of the authority and its financial capability to implement corporate plans. • Project managers appointed to major capital projects have responsibility for delivery of projects on time and to budget. Regular reporting to senior management should include commentary on project delivery and associated funding issues, and should provide sufficient information to support the authority’s compliance with the Department of Finance Guidelines for the Appraisal and Management of Capital Expenditure Proposals in the Public Sector. • An analysis of actual expenditure and income by type (i.e. account element classification) is currently being provided in the appendices to the AFS. Local authorities should provide financial information in this format as part of the budget. This will enable comparisons to be made between budgets and outturns and significant variances under these headings to be identified and reported on. This will enhance the financial monitoring process as well as contributing to greater transparency and accountability. 8 • In addition to the annual budget, local authorities should introduce three year rolling revenue financial plans, which allow for annual adjustments, and that are co-ordinated with the provision of services and monitoring of financial performance. The budget and medium term revenue financial plan should reflect the authorities strategic priorities and objectives. This will facilitate the identification of future demands and putting in place strategies to deal with them. It will also enable authorities to see the impact of trends over a number of years and support medium term decision making. • Due to the movement and turnover of personnel in local authorities and in the interests of continuity in financial control, written formal procedures should be drawn up in respect of the roles, responsibilities and financial reporting protocols at all levels across the organisation. • An ongoing training programme should be in place to ensure that all local authority personnel, relative to their position within the organisation, are appropriately skilled in the authority’s financial system and are made aware of their respective responsibilities in relation to financial management and control. • Appropriate training in relation to financial management should be made available to Councillors and should form an integral part of training programmes (including induction courses) provided to them. _____________________________________________________________________ Local Government Audit Service, VFM Unit
  13. 13. 1. Introduction The Value for Money Unit (VFMU) of the Local Government Audit Service undertook a study on financial management reporting currently in place in local authorities. The study included: • Visits to seven local authorities including consultation with appropriate management personnel (Appendix 1). • A survey of the current financial management reporting documentation and arrangements within the authorities visited. • A review of best practice in the area of financial management reporting and identification of opportunities where these could be applied to local authorities. As part of the study, the VFMU researched relevant material published by organisations such as The Chartered Institute of Public Finance and Accountancy, The United Kingdom National Audit Office and The Institute of Public Administration. Visits were also made to The Institute of Public Administration, Mentec (Computer Financial Software Specialists), The Local Government Computer Services Board and Belfast City Council. 9 _____________________________________________________________________ Local Government Audit Service, VFM Unit
  14. 14. 2. Financial Processes 2.1 Financial Governance Framework The governance framework in relation to financial management and reporting in local authorities is contained within the Local Government Act, 2001 and the Local Government (Financial Procedures and Audit) Regulations 2002. The relevant requirements in relation to budgets, the Annual Financial Statement (AFS), as well as financial reporting are set out in Appendix 2. 2.2 Budgetary Process Having consulted the authority’s Corporate Policy Group1 in the preparation of the draft budget, the Manager submits a comprehensive report with the draft annual budget to a formal meeting of the Council’s elected representatives. While the budget relates to the day to day running of the Council’s affairs including the collection of revenues and delivery of services, the report provides Councillors with information on the main financial issues that will be faced by the Council in the coming year. Both the budget and Manager’s report are considered at Council meetings before the budget is adopted, with or without amendment. Local authority Managers are also required under Section 135 of the Local Government Act, 2001 to submit to the elected Council a report indicating proposed capital projects for the following three years. This report must be submitted before the commencement of each local financial year and should have regard to the availability of resources. The Councillors at local authority budget 10 meetings or at another meeting as decided by resolution of the Council considers this report. This allows for a realistic assessment of the position as well as consideration of the measures proposed by the local authority to finance the various capital projects. 2.3 Annual Financial Statement (AFS) Section 108 of the Local Government Act, 2001 requires every local authority or joint body to prepare an AFS. Significant improvements were introduced in recent years in the way that local authorities report on their financial affairs. These included the introduction of an accruals based system of accounting and an Accounting Code of Practice incorporating a new format for the AFS. The latter includes the following: • Financial Review • Certificate of Manager and Head of Finance/Town Clerk • Audit Opinion • Statement of Accounting Policies • Income and Expenditure Account • Balance Sheet • Notes on and forming part of the Accounts • Supplementary Appendices. 1 Section 133 (4)(a) of the Local Government Act, 2001 requires the Manager to consult with the Corporate Policy Group in the preparation of the local authority’s draft budget _____________________________________________________________________ Local Government Audit Service, VFM Unit
  15. 15. The foregoing provides more precise and accurate information in respect of local authority financial transactions than was available previously, as well as greater disclosure as to the local authority’s fixed assets, net current assets (liabilities), work in progress, reserves and long-term liabilities. 2.4 Financial Reporting to Councillors In addition to the annual budget and the AFS, there is provision in section 105 of the Local Government Act, 2001 for the submission to Councillors of statements on the financial position of a local authority containing such detail and at such intervals, as specified in a resolution of the Council or as required by the Corporate Policy Group. In practice the Manager, by way of regular reporting, keeps the Councillors informed of the authority’s activities. Most local authorities have installed new financial management information systems. In addition to aiding the production of the AFS, these systems also provide the capability to produce enhanced financial management information and reports. 11 _____________________________________________________________________ Local Government Audit Service, VFM Unit
  16. 16. 3. Survey and Findings 3.1 Survey of Local Authorities A survey was undertaken at seven representative local authorities. The authorities surveyed ranged in size by budgeted revenue expenditure as follows: Budgeted Revenue Expenditure No. of Authorities €700m - €800m 1 €200m -€300m 2 €50m-€150m 2 less than €50m 2 3.2 Findings from Survey The following is a summary of the findings from the survey: • All the authorities operate on a twelve month budgetary cycle and have devolved responsibility and accountability for budgetary control down through the organisation. • Financial reports for management personnel are produced in four authorities on a monthly basis and in two authorities on a quarterly basis. The reports vary in scope and content. • In one authority the Head of Finance produces a comprehensive monthly corporate 12 financial report for the senior management team. • One authority has set up finance units headed by qualified accountants in each of its divisions, while another authority appointed senior executive officers to similar positions. A third authority has set up a finance unit in its roads division. • All authorities surveyed include a financial review as part of their AFS, however, there is scope to enhance the quality and content of these reviews. • Four authorities report on financial matters to Councillors on a formal basis through various sub-committees. These reports vary in scope and content. In two authorities, financial reports are made to a full Council meeting as considered necessary. • Three authorities have formal written procedures in respect of financial reporting protocols. • One authority has a formal training programme in place dealing with financial management for both finance and non-finance staff. Three authorities have ongoing informal financial training for all staff. • There is no formal training in financial management for Councillors. _____________________________________________________________________ Local Government Audit Service, VFM Unit
  17. 17. 4. Current Developments 4.1 Indecon Review of Local Government Financing The Indecon report published in March 2006 was an independent review of local government funding, commissioned by the Minister for the Environment, Heritage and Local Government. The report, inter alia, identified that local authorities needed to improve their financial management reporting systems. In that regard, the following are extracts from the report: • There is a need to implement changes to assist policy makers at local and central government in achieving their policy objectives and in securing expenditure efficiencies. This, at a minimum would include details on the costs of services by delivery mechanisms and by local authority. Information on the costs of delivering services would provide the necessary benchmarking information to help in deciding on the most cost effective delivery option. We understand that a costing system is being developed. We would recommend that this be introduced as a priority.2 • The current system includes detailed expenditure on a programme basis, but there is a lack of detail on expenditure broken into, for example, pay and non- pay. We believe that changes could be made to provide a more detailed breakdown of the types of expenditure incurred.3 • Local authorities need clearer incentives and improved information to secure additional efficiencies. This could involve the roll out of multi-annual budgeting with provision to ensure that under- spends in any year can be carried forward.4 Savings could be ring-fenced and be used to fund on- 13 going service improvements. We understand that this happens to some extent at present in areas such as housing and roads. However, we believe that there is a need for a greater focus on this and that these reforms should be implemented alongside attempts to identify a culture at all levels of local government of giving high priority to achieving cost efficiencies. 4.2 Costing Model At present, under the auspices of the Department of the Environment, Heritage and Local Government (the Department), a costing model for local authorities is being developed for use within the framework of the 2008 budgetary process. This costing model will replace the current programme groups model, currently used in local authority accounting, with a service structure, which will: • Reclassify services • Develop rules and guidance to provide consistency in charging direct costs to services • Reallocate and apportion central costs as the services use them and provide unit costs as appropriate. 2 See section 4.2 of this report 3 See section 5.7 of this report 4 See section 5.5 of this report _____________________________________________________________________ Local Government Audit Service, VFM Unit
  18. 18. The Steering Group for the project recently agreed to proceed with roll out of the costing model with a view to its use within the framework of the 2008 budgetary process. When the model is implemented it will enhance the costing information available, allow comparisons to be made across a range of services and aid local authorities in achieving value for money by providing financial performance indicators. It will also provide information on the full cost of services, which can, as appropriate, be compared with the charges levied in respect of them. 4.3 Standard Reporting Templates The Finance and Business Committee of the Local Government Computer Services Board established a working group to produce a suite of standard financial reporting templates for all local authorities. These templates have recently been finalised and are currently being rolled out to local authorities . The agreed standard templates include: • Revenue Expenditure/Income • Capital Expenditure/Income • Service Indicators • Commercial Collection Accounts 14 • Commercial Collection Performance • Non-National Roads Monthly Expenditure • Debtors Summary Report for all Income Departments. It is envisaged that the working group will produce further standard templates. This initiative will enhance the consistency and quality of financial management reporting in local authorities. 4.4 Capital Expenditure and Project Management The Department engaged consultants to carry out a review of capital expenditure in local authorities and related grant recoupment from the Department in respect of grant-aided projects. The review has been completed and the consultant’s report has been published. In 2005, the Department of Finance published Guidelines for the Appraisal and Management of Capital Expenditure Proposals in the Public Sector5. The Department is currently preparing an overview of all guidelines in operation for the appraisal and approval of capital programmes. It is expected that a full overview set of guidelines will be issued to local authorities in 2007. This will bring a more explicit and sharper focus on the achievement of value for money. 5 Web site: http://www.finance.gov.ie/documents/publications/other/capappguide05.pdf _____________________________________________________________________ Local Government Audit Service, VFM Unit
  19. 19. 5. Recommendations 5.1 Management Responsibility/Accountability One of the outcomes of the introduction of Better Local Government was the delegation by the Manager6 of responsibility for the delivery of programmes and functions to Heads of Divisions (i.e. Director of Service or Head of Function) within their respective local authorities. In order for this system to work effectively it is necessary that: • Members of the management team and Heads of Divisions should have individual and collective responsibility for the overall use of resources and general financial standing of the Council. • Each Head of Division has individual responsibility for the use of resources within his/her division and for reporting on such use. • The Head of Finance should advise senior management in exercising their responsibilities in financial matters. He or she should also have overall responsibility for the development and maintenance of appropriate accounting systems and internal financial controls throughout the organisation. 5.2 Financial Reporting for Management One of the key responsibilities of the Head of Finance is to ensure the highest standards of financial management within the local authority and to provide financial management 15 information to the management team that is timely, relevant and accurate. This information should be tailored to the needs of the users and enable them to make financially informed decisions. As well as receiving high-level financial information, members of senior management should be proficient in using the financial management systems. The Head of Finance should provide a corporate financial report to the management team, either on a monthly or quarterly basis, as considered appropriate. This report should include information drawn from divisional financial reports7 and be linked to the delivery of targets as reflected in the budgets and medium term financial plans of the authority. Included in Appendix 3 is a list of the types of information that could be provided in this report. This recommendation should be implemented across local authorities not later than January 2008. 6 As Chief Executive, the Manager retains the ultimate responsibility for ensuring the efficient and effective overall operation of the local authority and the carrying into effect of the policy decisions of the elected Council. 7 See section 5.3 of this report _____________________________________________________________________ Local Government Audit Service, VFM Unit
  20. 20. 5.3 Financial Management within Divisions The implementation of devolved financial management responsibility requires the development of effective financial management structures within the various divisions of the Council. Where appropriate, suitably trained specialist staff should be available to provide the necessary expertise to support the finance function at that level. Divisional financial management reports covering both revenue and capital should be produced either monthly or quarterly. These should include key performance indicators focusing on delivery of service as well as financial performance, including achievement of budgetary targets and accountability for significant variances. There should be in-depth reviews of the financial reports within each division and plans put in place to address identified problems. Financial management reporting at divisional level should dovetail with the Head of Finance report to the management team. The above recommendations should be implemented across local authorities from January 2008. 5.4 Financial Reporting for Councillors As stated in paragraph 2.4 of this report, Section 105 of the Local Government Act, 2001 provides 16 for the preparation and submission to Council Members of statements of the financial position of a local authority. A statement submitted shall contain such detail and shall be prepared at such intervals as specified in a resolution of the Council or at the requirement of the Council’s Corporate Policy Group. It is clear from the authorities surveyed that there is variation in the content and regularity of interim financial reporting to Councillors. To support Councillors in their financial governance role in local authorities, financial management reports should be provided to the elected Council on a regular basis, at least quarterly. These reports should be in a format with appropriate commentary sufficient to enable the Councillors to monitor financial performance, service and project delivery, as well as financial treasury management. Such reports could be channelled through the authorities’ Corporate Policy Groups to full Council meetings. This recommendation should be implemented across local authorities not later than January 2008. _____________________________________________________________________ Local Government Audit Service, VFM Unit
  21. 21. 5.5 Annual Financial Review The AFS forms part of a Council’s accountability for its business. Local authorities are obliged under section 108 of the Local Government Act, 2001 to include a financial review as part of their AFS. However, it has been left to each local authority to determine the content of the review. As a result, there is a significant variation in the style and content of such financial reviews. It is important that the financial review should provide an objective and clear assessment of the Council’s results for the year and financial position at the close of the year, as reflected in the AFS. The financial review should contain the following, as a minimum: • Introduction • Review of financial performance • Review of year-end financial position • Explanations of significant variances between budget and revenue/capital account outturns • Overview of the financial standing of the authority and its financial capability to implement corporate plans • Progress reports on funding arrangements for capital projects. This recommendation should be implemented across local authorities 17 and be applied to the 2007 AFS 5.6 Capital Project Management As stated in section 2.2 of this report, Section 135 of the Local Government Act, 2001, sets out the requirement for the submission of reports on the programme of capital projects proposed by the local authority for the forthcoming and the following two financial years having regard to the availability of resources. In practice, these reports should be guided by the level of resources likely to be available for capital programmes, including as advised by Government Departments in the context of the National Development Plan. The funding of capital projects has significant implications for treasury and financial management. Project managers appointed to major capital projects have responsibility for delivery of projects on time and to budget. Regular reporting to senior management should include reporting on project delivery and associated funding issues, and should provide sufficient information to support the authority’s compliance with the Department of Finance Guidelines for the Appraisal and Management of Capital Expenditure Proposals in the Public Sector. This requires protocols for: • Initial project /financial appraisal/approval • Detailed planning/tendering/contract placement • Project management _____________________________________________________________________ Local Government Audit Service, VFM Unit
  22. 22. • Financial/budgetary control • Grant/loan draw downs • Post project completion review The above recommendations should be implemented across local authorities not later than January 2008. 5.7 Enhanced Financial Monitoring When the Council adopts its budget for the year, a monitoring process is established to control and compare performance against it during the year. This is vital to ensure that the Council meets its strategic objectives. Any departure from the budget can have significant implications for the organisation. A proper monitoring and forecasting system should enable the Council to take early corrective action, where necessary. The annual budget, financial statements and various financial management reports are currently prepared and presented on a detailed programme, business unit and job level, although this is expected to change under the proposed new costing model.8 An analysis of actual expenditure and income by type (i.e. account element classification) is currently being provided in the 18 appendices to the AFS. Local authorities should provide financial information in this format as part of the annual budget. This will enable comparisons to be made between budgets and outturns and significant variances under these headings to be identified and reported on. This will enhance the financial monitoring process as well as contributing to greater transparency and accountability. This recommendation should be implemented across local authorities not later than January 2009. 5.8 Financial Planning In local authorities the annual revenue budgetary process dominates the financial cycle. It consumes a significant amount of time and resources in both the finance and line divisions. The primary focus is on short term financial planning. However, consideration should be given to their financial strategies over the medium term. In addition to the annual budget, local authorities should introduce three-year rolling revenue financial plans, which allow for annual adjustments that are co-ordinated with the provision of services and the monitoring of financial performance. The budget and medium-term financial plan should reflect the authorities strategic priorities and 8 See section 4.2 of this report _____________________________________________________________________ Local Government Audit Service, VFM Unit
  23. 23. objectives. This will facilitate the identification of future demands and put in place strategies to deal with them. It will also enable authorities to see the impact of trends over a number of years and support medium-term decision making. This recommendation should be implemented across local authorities during 2009. 5.9 Financial Reporting Protocols While there are written procedures for the operation of the financial systems in local authorities, in many instances there are no written procedures in relation to the financial reporting protocols in place. Due to the movement and turnover of personnel in local authorities and in the interests of continuity in financial control, written procedures should be drawn up in respect of financial reporting across the organisation. These should incorporate the following: • Reporting to Councillors • Reporting to policy and area committees • Role and responsibilities of the Manager • Role and responsibilities of Head of Finance • Role and responsibilities of the finance division 19 • Role and responsibilities of Heads of Divisions • Type of reports to be produced • Time scale and content of reports • Follow up and review procedures • Divisional meetings • Management team meetings This recommendation should be implemented across local authorities not later than January 2009. 5.10 Training The training needs of each local authority in the area of financial management should be reviewed and action taken to address requirements. Local Authority Personnel In relation to the systems specific to each local authority: • A training programme should be in place for all personnel responsible for the maintenance and operation of the financial management systems • Ongoing support should be provided to all system users. _____________________________________________________________________ Local Government Audit Service, VFM Unit
  24. 24. In relation to finance management: An ongoing training programme should be provided to ensure that all personnel, relative to their role within the organisation, are skilled appropriately in the authority’s financial systems, and are made fully aware of their responsibilities in relation to financial management and control. Such training programmes should include coverage of the following: • Role of finance division in the organisation • Role of the budget holder in the organisation • Corporate governance • Financial systems • Internal financial control • Revenue and capital budgetary process • Financial statements • Financial management • Project management • Financial reporting. Councillors Appropriate training in relation to financial management should be made available to Councillors and should form an integral part of training programmes (including induction courses) provided 20 to them. The above recommendations should be implemented across local authorities not later than January 2009. _____________________________________________________________________ Local Government Audit Service, VFM Unit
  25. 25. 6. Implementation of Recommendations The task of conforming to a more enhanced financial management reporting regime, as envisaged by the recommendations in this report will vary from Council to Council, depending inter alia on size and the level of financial reporting procedures currently in place.9 The VFMU will, in due course, review the actions taken by local authority management in implementing the recommendations in Section 5 of this report. 21 9 It was noted from the survey carried out for this study that a number of Councils have already developed enhanced levels of financial management reporting. _____________________________________________________________________ Local Government Audit Service, VFM Unit
  26. 26. 7. Acknowledgement The LGAS would like to thank the following for their co-operation and advice during the course of the VFM study: • The Councils visited and the personnel consulted • The other organisations visited and personnel consulted • The VFM Advisory Committee • The VFM Consultative Committee. 22 _____________________________________________________________________ Local Government Audit Service, VFM Unit
  27. 27. Appendix 1 Survey of Local Authorities The following authorities were visited during the course of the study: Dublin City Council Cork County Council South Dublin County Council Kilkenny County Council Kerry County Council Longford County Council Naas Town Council During the visits interviews were carried out with management personnel at the following levels: County Manager Assistant City Manager Director/Head of Finance Directors of Services County Engineer 23 Town Clerk Financial Accountant _____________________________________________________________________ Local Government Audit Service, VFM Unit
  28. 28. Appendix 2 Legislative Framework 1. Local Government Act 2001 • Section 102 provides for the preparation of the draft local authority budget for each local financial year setting out both the estimated expenditure necessary to carry out its functions and the income estimated to accrue to it • Section 103 sets out the procedures and responsibilities of the Manager and the Council in adopting the annual budget and determining the annual rate on valuation • Section 104 sets out the responsibilities of the Council for the authorising of additional expenditure - the spending of money or the incurring of a liability not provided for in a local authority budget • Section 105 sets out the requirement for the preparation and submission to the Council of statements of the financial position of the local authority – the statement submitted shall contain such detail and shall be prepared at such intervals as specified in a resolution of the local authority or at the requirement of the corporate policy group • Sections 107 and 108 set out the requirements for the submission of an Annual Financial Statement and its consideration by the Council and gives legal effect to the accounting code of practice 24 • Section 111 states that the Minister may make regulations covering inter alia the form of accounts to be kept, the format of the local authority budget and such other matters as the Minister may consider appropriate in relation to financial management and procedures – regulations under this section may make provision in respect of any matter by reference to an accounting code of practice issued under section 107 • Section 131 sets out details in relation to reserved functions of the local authority and how these should be exercised by a local authority • Section 135 sets out the requirement for the submission of reports on the programme of capital projects proposed by the local authority for the forthcoming and the following two financial years having regard to the availability of resources. 2. Local Government (Financial Procedures and Audit) Regulations 2002 • These regulations and the Code of Practice and Accounting Regulations issued under section 107 of the Local Government Act, 2001 shall be read together and construed as one • The draft local authority budget shall be prepared in the format specified in appendix G to the accounting code of practice • There is a prescribed period for the holding of budget meetings, between November of the previous financial year and January of the financial year in question _____________________________________________________________________ Local Government Audit Service, VFM Unit
  29. 29. • These regulations also include the following prescribed forms: Form 1 County Charge; estimate of cost of town services by a county council on a town council Form 2 Demand; by a town council on a county council Form 3 Demand; by a joint body of estimate of expenses on a local authority Form 4 Notice by Auditor of commencement of audit Form 5 Notice by local authority publishing commencement of audit Form 6 Appeal against surcharge, charge or allowance. 3. Code of Practice and Accounting Regulations The Code of Practice and Accounting Regulations sets out the following criteria for the Annual Budget and the Annual Financial Statement (AFS): • The accounting standards and concepts to be adopted • The accounting bases and policies on which the AFS is to be produced • Annual Financial Statement: - Purpose of the AFS - The accounting year will end on the 31st December 25 - The AFS should be prepared by 1st April and published by 1st July - Details are given on the structure and content of the AFS - Format of Annual Budget: * Details of the format of the annual budget and the statutory tables are given in Appendix G * Table A - Expenditure and Income for the local financial year * Table B – Calculation of the annual rate on valuation * Table C – Calculation of the annual rate for town charges and certificate of adoption. _____________________________________________________________________ Local Government Audit Service, VFM Unit
  30. 30. Appendix 3 Head of Finance Corporate Report The Head of Finance’s corporate report could include some or all of the following: • Revenue Expenditure • Revenue Income • Current net revenue position • Major variances – details of adverse variances • Central management charge analysis • Payroll – salaries, wages pensions and overtime analysis • Other transaction types/account elements • Capital financial position • Capital projects claims outstanding • Significant debit balances on capital projects • Public private partnership • Development levies – income and debtors • Application and spend of development levies • Revenue collection analysis • Local authority debtors – with aged analysis 26 • Government department debtors • Brief outline of the current financial position, cash flow and investment statements • Detailed commentary on reserves and revenue provisions • Future expenditure demands. _____________________________________________________________________ Local Government Audit Service, VFM Unit
  31. 31. Printed on recycled paper containing a minimum of 75% post-consumer waste

×