financial management strategy 2012-2015 1. introduction app... · 2014-12-18 · financial...

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FINANCIAL MANAGEMENT STRATEGY 2012-2015

1. Introduction

1.1 The Council published an outline Financial Management Strategy as part of the Budget report agreed by Council in February 2011. This set out an overview of the approach to making the best use of financial resources to help achieve the Council’s vision and ambitions for the Borough.

1.2 Since then, the economic climate has worsened and the effects of the global recession have been felt right across central and local government, local communities and businesses and service users. The context within which the Council is operating continues to be extremely challenging. Fast paced and significant economic changes nationally and internationally, coupled with national government’s policy changes continue to have a considerable impact on Council activity. The Council has had to respond more swiftly than ever before to these challenges with greater emphasis on strategic financial planning.

1.3 It has been apparent for some time that the starkest impact on the Council would be through a combination of substantially reduced funding together with an increased demand for some services from those residents in need of additional support. The 2012/13 Provisional Local Government Financial Settlement (the Settlement) re-affirmed the council’s Formula Grant allocation announced in 2011/12, a reduction of 7.4% over 2011/12 grant. As yet there is no firm indication of the likely quantum of savings required for 2013/14 and 2014/15. As a direct consequence of the worsening economic climate, the Council needs to be mindful that there may be savings requirements significantly larger that initially modelled.

1.4 These pressures cannot be contained through “efficiency gains” alone. The Council now needs to think clearly and creatively about what is affordable and how it is best delivered.

1.5 An additional challenge has been set by the Council administration that has made a commitment to residents that council tax will be kept as low as possible. In 2011/12 the Government announced a four year Council Tax Freeze Grant award to authorities who did not increase council tax in that year, which the Council accepted.

1.6 The government has offered a second Council Tax freeze grant in 2012/13, but only for one year and it is not built into the funding formula for the council. This adds to the funding risk in the medium term from 2013/14 onwards. Accepting both grants means that the Council will see a dramatic fall in income at the end of each freeze grant, the “cliff edge” and will need a steeper increase in Council Tax, if income streams are to be maintained after each Council Tax freeze period. This is likely to create some tension between the financial strategy and manifesto pledges. In the medium to long term Members would need to agree either a one off large increase or small stepped increases to restore the Council Tax base lost as a result of accepting the council tax freeze grants.

1.7 It was confirmed in the Localism Act 2011 that a maximum increase of 3.5% in Council Tax for 2012/13 would be permitted, above which a referendum will be

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triggered. This threshold can be used as an estimate of the likely position in future years but it could be lower. This will create further constraints on the Councils ability to act to raise Council Tax in order to support future service delivery.

1.8 These funding constraints have redrawn the boundaries within which all investment and operational spend must be contained. This revision of the Council’s strategy reflects the approach to meeting these new challenges.

Strategic Approach to Service and Financial Planning (SFP)

1.9 In view of the further significant budget cuts and the complex context within the Council is working, an enhanced approach to service and financial planning has been in place. This approach has striven to deliver a financial strategy which is focused primarily on ensuring the delivery of the Council’s Corporate Plan and associated outcomes, whilst attempting to mitigate and alleviate the impact on the most vulnerable groups in the community where possible. It has done this by prioritising the areas for reduction against the priorities of the organisation outlined in the Corporate Plan, and using transformation as a tool to release further savings into the medium term rather than applying flat targets.

1.10 As a result the Council has, since the 2010 Spending Review, identified revenue savings across all of its activities amounting to £88.5m over the 4 years to 31 March 2015, which leaves a further forecast of £6.0m of savings to be found through future Service and Financial Planning processes, focusing particularly on how the transformation of services can be used to release these savings.

1.11 The Council is working towards becoming a co-operative council, which is an integral part of the SFP process. The key principles to be considered in the current and future budget proposals are set out below:

Cooperative Council - Key principles

• Principle 1: The council as a strong community leader.

• Principle 2: Providing services at the appropriate level personalised and community based.

• Principle 3: Citizens and communities empowered to design and deliver services and play an active role in their local community.

• Principle 4: Public services enabling residents to engage in civil society through employment opportunities.

• Principle 5: A settlement between public services, the Council’s communities and the citizen (this is what the Council provide, this is what you do for yourself) underpinned by the Council’s desire for justice, fairness and responsibility.

• Principle 6: Taking responsibility for services – regardless of where they are accessed or which agency provides them.

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• Principle 7: Simple, joined up and easy access to services – location and transaction i.e. "one place to do it all", "one form, one time to do it all" – providing visible value for money

2. Summary of the Financial Management strategy

2.1 In this document the Council have set out:

2.1.1 The background financial context for the revised strategy (Section 3)

2.1.2 Outcome and risk frameworks (Section 3) including:

§§§§ The broad focus of the Council’s partnership sustainable community strategy

§§§§ Cooperative Council Priorities and Outcomes

2.1.3 Financial Management strategies to manage the risks and achieve the specified outcomes with additional detail on the Council’s Priority Focus strategies (Section 4)

2.1.4 Financial Management values and principles (Section 5)

2.1.5 Approaches, processes and tools in place to support the planning, delivery and review cycles of both the Revenue and Capital elements of the strategy (Section 6)

2.1.6 A summary of the detailed work already underway to progress the Priority Focus strategies and the associated governance (Section 7)

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3. Context for the Financial Management strategy 2012- 2015

3.1 The context within which the Council is operating continues to be extremely challenging. Fast paced and significant economic changes nationally and internationally, coupled with national government’s policy changes continue to have a considerable impact on Council activity. The Council has had to respond more swiftly than ever before to these challenges with greater emphasis on strategic financial planning.

3.2 The current financial envelope under which the Council is planning its medium term strategy is to find savings of £94.5m during the four year Spending Review period – 2011/12 to 2014/15. Future annual Local Government Finance settlements will result in a reassessment of the requirements

Spending Review 2010

3.3 The Coalition Government’s Spending Review 2010 (“SR2010”) announced in Parliament on 20th October 2010 set the financial envelope for the 4 years from 2011/12 as well as setting out revised approaches to funding distribution. The following key headline changes to Local Government funding were presented:

Local Government Finance Settlement 2012/13

3.4 The 2012/13 Provisional Local Government Financial Settlement (the Settlement) re-affirmed the council’s Formula Grant allocation announced in the Settlement in 2011/12. It comprised reductions in formula grant averaging 7.4% for 2012/13 and reductions in undamped formula grant of 18.4%, leaving the council increasingly dependent on the floor damping mechanism. The Settlement made no allowance for high-need low-tax base floor authorities such as Lambeth, leaving the council to fund increasing demand.

3.5 These reductions translate into a challenging savings target for the Council of £29.2m in 2012/13. While there is no indication as yet what the saving requirement will be for the final two years of the spending review period the Council has a prudent saving target of £12.5m and £15.7m for 2013/14.and 2014/15 respectively. There is no reason to assume that any reduction in the overall savings target profiled for the 4 years of the SR period will be made through future settlements. As a direct consequence, the Council needs to be mindful that there may be savings requirements significantly larger that initially modelled.

3.6 The Government has offered a second council tax freeze grant for 2012/13 but only for one year. This is covered in more detail in paragraph 1.6 of this document.

Housing Revenue Account (HRA) – Self Financing 3.7 Under the Localism Act 2011, the Government has abolished the current HRA

subsidy system and introduced a system of self financing from 1 April 2012. Under the new system rental income will be retained locally and used to meet the costs of service provision.

3.8 The introduction of HRA self-financing will result in the repayment of £164m of PWLB loans by the CLG, reducing PWLB long term borrowing to £437m. The change will

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necessitate the creation of separate HRA and GF loan pools. There will be a further reduction of £22.6m as a result of the LATMOS Large Scale Voluntary Transfer. After taking this into account the opening loans fund balances for 2012/13 will be £248m for the HRA and £166m for the General Fund. Interest payable in both funds will be based on interest rates applicable to loans in each pool, rather than a statutory recharge to the HRA. This will increase the average cost of borrowing from 4.85% to 5.57% in the HRA.

3.9 The Council owns in excess of 25,000 dwellings. In undertaking planned maintenance, major repairs and Decent Homes works, the expenditure must be met from the Capital Investment Programme. The Council has insufficient internal resources to finance these works, which means that the funds must be borrowed to ensure investment in HRA assets is maintained.

3.10 A new 30 year HRA business plan has been produced to enable the impact of the new funding regime to be modelled for Lambeth. Work is being finalised in 2011/12 with the impact of the new model being reflected in the HRA budget setting proposals that will be presented to Cabinet in February 2012 for the financial year 2012/13.

Capital funding

3.11 The Council will be investing £469.3m in improvements to housing schools and transport infrastructure from 2012/13 to 2014/15. In contrast to previous years a smaller proportion of this funding now comes from central government. 33% compared to 75% for the period 2007/08 to 2009/10.

3.12 This is largely due to the last Coalition Government’s Comprehensive Spending Review where it was announced that the support for capital spending will be significantly reduced over the Spending Review period (2011-2015).

3.13 Alongside this, the Coalition Government have moved to issuing capital grants instead of supported borrowing for specific departmental capital programmes. Furthermore the Localism Bill will ratify the implementation of the HRA self financing system and herald the end of the old subsidy system.

3.14 This has required a change to the Council’s financing strategy.

• The capital financing strategy going forward will utilise accumulated balances to internally finance HRA capital investment.

• Projects are only added to the main programme when there is a degree of certainty regarding the financing, e.g. 100% grant funding confirmed by allocation letter. This also applies to capital receipts generated by disposals

• The Pipeline has been successful in targeting investment on the Council’s priorities Pupil Places, Highways and Roads, Decent Homes. (The pipeline currently holds 16 projects totalling £47.6m)

3.15 The Council’s capital programme (Appendix 9) has been constructed to deliver the projects that the Council has already committed to along with its own priorities noted above.

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3.16 Apart from managing resources within the Governments deficit reduction policies for the public sector there are a number of major financial changes planned to be introduced that is likely to impact upon capital funding between now and 2014;

(a) Changes to Academy and Local Education Authority funding (April 2013).

(b) Adoption of the HRA Self financing regime from April 2012.

(c) The implementation of recommendations contained within the James Review

(d) Dwindling capital receipts (however this may be offset by the potential softening of planning rules and extra incentives to council tenants to buy their own homes)

3.17 Some of these changes will require the Council to work differently than before and the Council is already seeing the impact of this with the 30 year business plan for the HRA for example. However the new capital governance arrangement means the Council is in a good position to be able to respond to these changes.

Outcome and Risk frameworks

3.18 Lambeth’s Sustainable Community Strategy (2008–2020) sets out a long-term vision for the borough with a shared partnership focus on worklessness and becoming a cooperative borough.

3.19 The cooperative council Corporate Plan (figure 1) sets out Lambeth’s aspirations for the next three years through the delivery of three key priorities (a caring borough, an aspirational borough and a safe and secure borough). It describes the outcomes to be delivered to meet these aspirations and outlines how the Council will transform its ways of working to improve services and meet the financial challenges facing local authorities by becoming a cooperative council and increasing the focus on preventative and targeted services. The council’s outcomes framework is key. It provides the ‘golden thread’ which delivers on the administration’s manifesto commitments1 and drives all the work of the organisation, including its approach to financial management.

1 The Council’s administration made the following five key manifesto commitments to residents on their re-election in

May 2010: To keep council tax low; To protect front-line services by ensuring better value for money and driving out

cost; To work more closely with communities and service users as a cooperative council to improve service quality for

everyone; To deliver rapid and sustainable improvement in the housing service and To protect the most vulnerable whilst

expanding opportunity for all

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Figure 1 Corporate Plan

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4. Financial management strategy

4.1 This strategy is the approach or course of action the Council is undertaking to achieve the Council’s specified financial management outcomes. The strategies will focus on how the Council responds to the key risks outlined in paragraph 4.4, which shows the major financial challenges it is facing as a result of the general impact of the economic climate, in particular the significant reduction in funding.

4.2 These strategies are as follows:

•••• Funding Strategies: Income

•••• Funding Strategies: Cash management

•••• Spend Strategies

•••• Asset Management Strategies

•••• Financial Planning, Forecasting and Reporting

•••• Governance Risk and Control

•••• Delivering Financial Strategy

4.3 The relationship between the Financial Management Strategy and the cooperative council agenda has been made clear by the ‘Golden Thread’. The Golden Thread provides clear linkages from the outcomes the council aims to achieve for the borough through to council and departmental priorities and on to individual performance review objectives. These links are clearly shown in the plans produced through the service and financial planning process

4.4 The Golden Thread is exemplified below:

The cooperative council priority

The cooperative council outcome

Financial Management Strategy

Work Streams

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4.5 Below are the Financial Management Outcomes and Key Risk Management Issues are outlined below. It is acknowledged that the key risks identified, if they are not properly managed, could undermine the successful achievement of the priorities and outcomes of the cooperative council and the financial management outcomes. As such actions to be taken to mitigate these risks have been identified

‘GOLDEN THREAD’ FINANCIAL

MANAGEMENT

OUTCOME

KEY RISK ISSUES

RISK MITIGATION

The Council can make optimal use of financial resources to maximise sustainable benefits for the people of Lambeth

Likelihood of inadequate resources to meet community needs and political aspirations given:

• Confirmed government funding settlement reductions

• Reduced external funding opportunities

Funding Settlement:

• Both Officer & Members will lobby at all levels to advance the council’s interest in financial settlements & financing regimes (initially, current HRA financing reforms).

Specific grants:

• The Council will place no reliance on continued resourcing of services through specific grants in the SFP. The Council will explicitly reflect the implications on service provision of any further significant reductions in external funds available.

• The Council will record transfer payments received from Central Government for Housing Benefit and schools as “in & out” transactions. The Council will explicitly reflect the immediate implications on service of any further significant reductions in passported funding

Fees and Charges:

• The Council will benchmark the key fees; Charges and levies and seek to bring them into line with levels set by equivalent councils, having due regard to the Council’s social and environmental responsibilities.

The Council will set the pricing to reflect the true cost of providing each service rather than basing levels on historic

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norms

‘GOLDEN THREAD’ FINANCIAL MANAGEMENT

OUTCOME

KEY RISK ISSUES

RISK MITIGATION



• Investment environment and reduced investment income will detrimentally impact service provision and result in reputational damage

Debt:

• The Council will streamline the invoicing and debt collection processes to simplify the customer experience, reduce transaction costs and improve collection efficiency.

• The Council will invest in an extended range of payment options available to residents to help make it even easier to pay.

• The Council will target those residents identified as multiple debtors with poor payment records both to support them directly with financial or benefits advice and to improve collection of the debt.

Payment:

• The Council will maintain the existing payment terms at 30 days (SME 10 days) in recognition of the impact the economic downturn is having on the suppliers.

• The Council will capture additional process efficiencies through more streamlined ownership, increased automation and encouraging efficient behaviour is in the customers (such as electronic invoicing and remittance documentation.)

• The Council will redesign the payment process for small value supplies (under £500) which make up over 50% of the invoice processing burden but represent

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less than 1% of the total annual spend.

Treasury management:

• The Council will manage the cash reserves and investments prudently to continue to ensure the following outcomes in order of priority:

§ Security of the deposits/holdings

§ Liquidity (availability of cash to meet the cash flow needs)

§ Yield (of income earned from the investments)

• The Council will manage the cash balances to meet the cash flow requirements instead of increasing long term borrowing

• The Council will optimise the strength of the balance sheet, by utilising the borrowing to fund Decent Homes and other major works

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OUTCOME

KEY RISK ISSUES

RISK MITIGATION



• Impact of economic downturn on service demand and the Council’s ability to honour Council’s contractual obligations

• Risk of being unable to support expenditure within the 3rd Sector.

Business delivery:

• Core business”: The Council will target its resources to ensure high quality service provision in all statutory, political and community priority areas. The Council will seek to establish alternative models for resourcing non-statutory and lower priority services to maintain a good quality service provision to the Council’s residents.

• Administrative support functions: The Council will reconfigure the Council’s support architecture to capitalise on new technologies, streamline process ownership and responsibilities and capture further efficiencies through innovative delivery models.

• Innovation: The Council will seek innovative, alternative means of financing service delivery including pooling of partnership resources, funding vehicles, joint procurement with other authorities / public agencies and commercial / entrepreneurial opportunities. Staffing productivity:

• The Council will invest to capture technology, process and working practice efficiencies and hence improve productivity and reduce staff establishment requirement.

• The Council will benchmark job descriptions, grades, allowances and post numbers across equivalent functions and comparator authorities, bringing terms and conditions into line with market norms to ensure retained staff are incentivised to make the improvements in

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productivity the Council need.

• The Council will develop principles and mechanisms to share the risks and rewards of productivity improvements with staff teams and individuals.

Shared service provision:

• The Council will actively seek to capture efficiency gains with the LSP partners and other neighbouring authorities through pooling resource capacity, economies of scale and shared best practice in service provision across the partnership and the wider area.

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OUTCOME

KEY RISK ISSUES

RISK MITIGATION



• Impact of economic downturn on service demand and the Council’s ability to honours contractual obligations

• Risk of being unable to support expenditure within the 3rd Sector

Contracts:

• The Council will aggressively challenge the pricing of new or renewal contract terms to derive an increase in value from contracted spend.

• The Council will refocus the Council’s contract management to increase value obtained from existing contracts. Spend with the 3rd Sector:

• The Council will invest in capacity building in the 3rd Sector to help those organisations bring additional funding from alternative sources into the Borough and to work with the Council in co-operative service provision models.

• The Council will target grant/commissioning funding to those 3rd Sector organisations who complement the Council’s own service provision by working to provide residents with the non-statutory or lower priority services which the Council can no longer directly

resource.

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OUTCOME

KEY RISK ISSUES

RISK MITIGATION



• Failure to maintain an appropriate portfolio of assets and infrastructure fit for purpose through sustainable investment limits opportunities to optimise their use

• Lack of a detailed, cohesive Finance strategy across the organisation results in mis-direction of resources away from priorities, inconsistent decision-making and reduced VFM.

Portfolio rationalisation:

• The Council will routinely bring together accurate information on the value and efficiency of assets to support decisions on investment or disinvestment from the asset portfolio. Fit for purpose investment:

• The Council will prioritise investment in retained assets to ensure they are fit for purpose and their use can be optimised. Full utilisation of assets for community benefit:

• The Council will optimise the use of council assets for community benefit including full utilisation outside core council hours, delivery of cross-agency community-based services or asset transfer of surplus assets.

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‘GOLDEN THREAD’

FINANCIAL MANAGEMENT

OUTCOME

KEY RISK ISSUES

RISK MITIGATION



• Failure to maintain an appropriate portfolio of assets and infrastructure fit for purpose through sustainable investment limits opportunities to optimise their use

•

• Lack of a detailed, cohesive Finance strategy across the organisation results in mis-direction of resources away from priorities, inconsistent decision-making and reduced VFM.

“Co-operative” ownership:

• The Council will develop principles and mechanisms for co-operative ownership of assets to enhance and simplify community access and benefits Funding of strategic projects:

• The Council will explore innovative funding solutions including special purpose vehicles or commercial/social enterprise developments to minimise the public sector capital financing burden. Sustainable investment:

• The Council will identify sustainable revenue streams to support both investment and the whole of life costs associated with new and existing assets.

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OUTCOME

KEY RISK ISSUES

RISK MITIGATION

The Council, its partners and stakeholders can understand the Council’s medium-term financial position within the context of the wider, external environment including financial risks and future pressures facing the borough.

• Inadequate analysis of external financial intelligence disadvantages the organisation in its financial planning process

• Lack of understanding of resources available borough-wide (Total Place) means opportunities for innovative service resourcing are lost

• Mis-statement of accounting entries or in draft financial statements means financial records do not represent a true and fair depiction of the financial activity of the council. The organisation will fail to meet statutory requirements and accounting standards.

• Undertake periodic review of external financial intelligence to identify and highlight relevant risks and pressures

• Utilise a comparative data set to place the council’s performance in context

• Model the financial impact of planned activities including joint plans with partners and other stakeholders in a 3 year MTFS model

• Operate a council-wide, consistent process of compiling financial statements to ensure accuracy, reliable supporting evidence and year-on-year integrity

• Prepare external financial reports to IFRS standards with transparency on sustainability and joint partnership financing

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OUTCOME

KEY RISK ISSUES

RISK MITIGATION

The Council can manage its spending within affordable levels without undue reliance on balances and reserves to fund ongoing commitments.

• The financial governance mechanisms are inadequate to ensure that all decisions are in line with the overall financial strategy and ensure transparency, probity and propriety in stewardship of funds

• Inappropriate emphasis in financial monitoring means significant financial risks remain undetected until too late to manage them pro-actively

• Inadequate balance sheet management (provisions, reserves, suspense, reconciliations) undermines understanding of forecast position

• Operate comprehensive financial governance arrangements to ensure transparency, probity and propriety in the stewardship of public monies (including partnership funds) under the control of the s151 Officer

• Operate strong financial controls to manage the risk of errors, mis-management, fraud or corruption arising internally or across partnership working

• Systematically challenge and secure VFM and Use of Resources standards

• Conduct regular in-year progress monitoring of financial performance (including partnerships) to give early notice and manage identified risks, deterioration or improvements in the financial position

• Maintain a corporate capacity through reserves, contingencies and insurance to manage unforeseen risks and cost pressures

• Maintain a strong Balance Sheet position, supporting appropriate financial ratios (such as liquidity, debtor and creditor balances)

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OUTCOME

KEY RISK ISSUES

RISK MITIGATION

The Council can manage its spending within affordable levels without undue reliance on balances and reserves to fund ongoing commitments.

• Lack of alignment between the Financial strategy and the Service strategy distorts decision making

• Inadequate understanding of the cost/activity drivers underpinning the business undermines the effectiveness of financial planning and monitoring

• The structure of the finance function does not allow provision of appropriate support and consistent advice throughout the organisation, leading to errors and inconsistencies in financial management

• Development of revised financial management strategy with priority focus response to key challenges

• Engage the local community in the financial planning process to identify priorities

• Track and model the financial implications of decisions and planned activities including joint plans with partners and other stakeholders in a 4 year MTFS model and aligned capital programme

• Provide financial context & specialist financial advice to Members

• Provide risk context & risk management advice to Members

• Operate a standard methodology for assessment of VFM/cost-effectiveness of service interventions, reflecting environmental and social costs/benefits, contribution to partnership and/or council priorities, financial implications and performance trends

• Maintain a detailed, comparative understanding of unit, transaction, marginal & total costs for key services together with linked activity drivers to identify scope for efficiencies and sensitivity risks to plans and projections

• Agree a Data Quality approach with partners to produce reliable and relevant data

• Specify expected levels of financial competence in staff and resources the training and development opportunities Contribute expert financial advice & technical support to help officers manage the financial aspects of effective service delivery

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5. Financial Management Values and Principles

5.1 There is a strong financial management culture at Lambeth which is built around 4 values:

•••• Ownership: all Officers and Members demonstrate a strong commitment to effective financial management, whatever their day to day level of involvement with financial matters.

•••• Responsibility: all Officers and Members take full responsibility for financial management, each with a clear understanding of their respective roles as set out in the Constitution, standing orders, financial policies and procedures.

•••• Early notice: financial plans, monitoring and reports give sufficient time to respond effectively to new opportunities or potential problems.

•••• No avoidable failure: honest identification and management of business and financial risks underpins routine business-as-usual.

5.2 The following financial management principles are also integral to the Council’s work: •••• Value for money: “Every pound must be spent with care and without

waste” (Cllr Steve Reed, Leader of the Council). The Councils Value for Money strategy sets out its approach to assessing, delivering and demonstrating optimum value to residents from its services.

•••• Financial stability: The Council ensures the organisation can respond flexibly to financial challenges by maintaining a minimum level of general fund balances of £16m (approximately 5% of net revenue expenditure) in line with the London Authority Treasurers benchmark. However, in order to provide a strong foundation for continuous service improvement, manage the risks to income targets and the reductions/uncertainties around specific grants, the Council aims to hold £32m in balances (approximately 10% of net revenue expenditure).

•••• Financial discipline: In order to continue to “live within its means” the Council operates rigorous financial controls and accurately records, reports and forecasts its financial position to allow meaningful and regular review.

•••• Financial innovation: For the first time in a generation there is a considerable shortfall in public sector resources to deliver public sector services. The gap can only be bridged by thinking creatively about what actually constitutes “public sector services” and whether they are best provided with public, private or 3rd sector resources.

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6. Planning and delivering the Financial Management strategy

6.1 The Financial Management Strategy sets out the approach to making the best use of financial resources to help achieve the Council’s vision and ambitions for the borough. It is the key link between the Council’s Corporate Plan (which sets out the aims and ambitions of the Council) and the Medium Term Financial Strategy which sets out the total cost of what the Council is planning to provide. The council uses the financial planning process to turn the broad, strategic objectives into achievable, annual operational plans.

6.2 Lambeth sets its Revenue and Capital Investment budgets over a 4 year planning horizon in line with the Spending Review 2010, updating them through a rigorous planning and review cycle each year. The Housing Revenue Account is currently subject to a shorter 1 year planning and review cycle; however, the potential impact of the significant changes to Housing Finance has recently been modelled in a new 30 year HRA business plan.

6.3 The financial planning process is jointly owned by Cabinet and the Senior Leadership Board (SLB) and fully scrutinised by Members on Scrutiny Committees as well as the Opposition parties. However, responsibility for provision of detailed information and support to the decision-making process is shared by all council officers, co-ordinated primarily by the Finance Strategy Board and the Corporate Finance division.

Revenue

6.4 The key financial planning tool is the 4 year Medium Term Financial Strategy (MTFS) model which is used to explore the budgetary implications of:

•••• resources needs of continued core service provision

•••• projections of changes in service demand from demographic pressures, Central Government initiatives or similar

•••• projected changes in Central Government funding

•••• decisions on resource reallocations to support agreed priorities (required growth and proposed savings)

•••• changes in the macro economic environment that affect items like pay/price inflation and asset values

•••• technical accounting adjustments (such as audit amendments and other prior year adjustments)

6.5 This gives insight into any gap between resource needs and available funding and underpins decisions on changes in local taxation levels needed.

6.6 The annual Service and Financial Planning (SFP) cycle allows the detail of these various issues to be captured and reflected in the MTFS model so that a balanced budget (planned revenue expenditure matched with available resources) can be formally approved by Council each February.

6.7 In-year monitoring of the successful delivery of the strategy is undertaken by SLB using a monthly Finance Monitor and Savings Delivery Tracker which tracks the financial position, the correlating service activities and progress against

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savings proposals. A snapshot is presented to Cabinet for the July and November Finance Review, which allows an opportunity for corrective reallocation of resources in-year if new opportunities or challenges have arisen

Capital

6.8 The Service and Financial Planning cycle captures the whole of life costs associated with asset management and allocates resources in the MTFS and the Capital Investment Programme:

•••• Planning: Service and Financial Planning cycle

•••• Acquisition / enhancement: Capital Investment Programme (CIP)

•••• Operation and maintenance: Medium Term Financial Strategy (MTFS)

•••• Disposal: informs allocation of resources in CIP and MTFS

6.9 This approach fully integrates revenue, capital and asset decisions in the SFP cycle. It reflects a comprehensive and structured approach to the long term management of assets as tools for the efficient and effective delivery of services.

6.10 Integrating asset management with financial planning in this manner helps the authority to determine the level of asset ownership and investment that can be sustained by the available resources.

6.11 The delivery of the capital investment programme is reported through the Finance Monitor. Asset investments are rarely static and some re-scheduling and re-programming will occur over the course of each year. In addition, progress with the disposals programme will inform the level of funding available for capital investment and debt management. The capital investment programme is set in the Budget Report in February and updated in the July Finance Review and the November Finance Review to capture these movements.

6.12 Capital investment proposals are prioritised by considering whether the investment will enhance or acquire assets that increase the council’s ability to:

•••• Protect today (with the highest priority being to ensure that essential operational infrastructure is fit for purpose), and

•••• Prepare for the future (with the highest priority being investment in additional pupil places)

6.13 The evaluation and prioritisation of investment is filtered through the Capital Investment Hierarchy, capital investment principles and associated rules.

Asset Management

6.14 The Council has a particular challenge managing the physical asset base in the short-term with 3 key questions to be answered:

•••• Does it have the right assets both now and for the future? •••• Is it getting the best possible value from them? •••• What level of asset ownership can it afford to sustain?

6.15 The immediate priority focus has therefore been to look again at the asset base

and capital investment programme and identify:

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•••• The essential current spend commitments (e.g. part-completed projects, fit-for-purpose maintenance)

•••• The essential investment requirements to meet identified future needs •••• The opportunities for rescheduling or de-prioritising planned spend and

for disinvestment of assets (through disposal/ transfer) •••• The opportunities for generating additional value from assets (e.g. more

intensive use, partnership initiatives, increased community utilisation, strategic funding solutions and income generating opportunities)

6.16 The Council will take the necessary strategic decisions around the size and make-up of its retained asset portfolio and how best to balance investment between current needs and future priorities to deliver maximum value. In the medium-term the Council will then adopt the following strategies to optimise the benefits from its assets.

6.17 The Capital Investment Hierarchy recognises that a minimum level of investment is required in order to maintain the performance and safety of assets. Without this investment the property assets that are used to deliver the services that protect today would be at risk of closure on health and safety grounds and the failure of ICT infrastructure that enables services would inhibit the operational capability of the organisation

6.18 Transformational investment improves service efficiency and effectiveness by enhancing existing assets or acquiring new ones. The increase in efficiency should be financially quantifiable and so have a monetary payback.

6.19 Aspirational investment increases service capability and capacity by enhancing existing assets or acquiring new ones. External funding is already targeted to deliver service aspirations and should be supplemented by any remaining corporate capital. This is illustrated in Figure 2 below.

Figure 2: Capital Investment Hierarchy

Management of basic infrastructure / Protecting today

Service aspirations / Preparing for tomorrow

Transformational projects

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Principles and rules

6.20 The capital investment hierarchy is supported by a set of rules that reflect the underlying principle that investment decisions need to be prudent, affordable and sustainable. The principles and related rules are set out below.

Principle Associated rules

Prudent, affordable, sustainable investm

ent decisions

Asset investment Schemes within the Capital Investment Programme enhance existing council assets or acquire new council assets to deliver services

Cash is king Cash resources are used to fund the programme

Cash balances are used to finance investment instead of new external debt

Commercial basis Commercial contracts recover the full cost of services, enabling surplus revenue to be reinvested in the assets used to deliver services

Flexibility Operational buildings can easily be adapted to deliver different services

Fully funded Expenditure plans within the Capital Investment Programme must be fully funded

Gateways Funding for all projects of £0.5 million or more is split into two tranches:

• outline business case

• implementation

Each tranche is approved separately to re-validate assumptions about relative priority and cost

Pipeline Projects to which the council has a policy commitment but does not have sufficient funding are included in the project pipeline

Revenue Revenue contributions to capital investment create a sustainable source of funding for continued investment

Sustainability Whole of life costs are incorporated in revenue and capital budgets through the Service and Financial Planning process

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7. Taking forward the Priority Focus strategies

7.1 The Priority Focus strategies are already being taken forward through a variety of approaches including cross-cutting reviews and projects, letting of new contracts as well as an innovative change in Service and Financial Planning methodology which has given increased emphasis to consideration of key financial drivers which impact right across the organisation. The table below summarises these approaches (a key to the abbreviations follows the table):

Strategy Approach Governance

FUNDING STRATEGIES: Income

Government Funding Settlement

• Sustained lobbying of Government departments by all senior staff & Cabinet members

Co-ordinated by EDF&R/ DDCF(F&R)

Fees and charges

• Fees and Charges review project and database

• Implementation of detailed Debt and Income strategy

EDF&R

DDRBCS(F&R)

Specific Grants • Detailed consideration through SFP cycle of increased flexibilities from removal of ring-fencing as well as implications of reduced funding

All EDs and DDRs

FUNDING STRATEGIES: Cash management

Debt • Implementation of detailed Debt and Income strategy

• Excellent Cash management project (I2S funded)

• 2011 Commissioning project

EDF&R/ DDRBCS(F&R)

Payment • 2011 Commissioning project

• Oracle replacement project

• Excellent Cash management project (I2S funded)

• Customer Access project (I2S funded)

EDF&R/ DDRBCS(F&R)

Treasury management

• Policy approach within Treasury Management function (within Corporate Finance)

EDF&R/ DDCF(F&R)

SPEND STRATEGIES

Business delivery • Detailed consideration through SFP cycle of core business focus

• Support Service reconfiguration project

• PPP financing projects including PFI, commercial redevelopment, RDV and ABDV, LEP

All EDs and DDRs

EDHRE EDF&R/EDHRE/ EDCYPS

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Staffing productivity

• Office accommodation strategy

• Project Signal project (I2S funded)

• Oracle replacement project

• LEAN improvement programme (I2S funded)

• HR Review of “job families”

EDF&R

CEO

Spend with the 3rd Sector

• 3rd Sector funding review project EDACS

Shared Services • Oracle replacement project EDF&R

Contracts • Contract savings negotiation plan and projects

• Contract management toolkit

EDF&R

ASSET MANAGEMENT STRATEGIES:

Portfolio rationalisation

• Service asset reviews to identify surplus assets

• Aggressive disposal strategy to meet £100m target over the Council’s years

All DDRs

EDHRE/EDF&R

Full utilisation • Service reviews to increase utilisation of operational buildings

All DDRs

Strategic projects • PPP financing projects including PFI, commercial redevelopment, RDV and ABDV, LEP

EDF&R/EDHRE/ EDCYPS

Fit for purpose investment

• Comprehensive planned maintenance programme across the operational asset portfolio

EDHRE

Co-operative ownership

• Asset transfer policy and due diligence processes

DDR(F&R)/ DDR(HRE)

Sustainable investment

• Revenue streams identified to sustain investment: o Council Tax – programme wide o PPRA – roads and pavements

• Whole of life costing used to evaluate new investment decisions

DDR(F&R)

FINANCIAL PLANNING, FORECASTING & REPORTING:

MTFS • F

All DDRs

Co-ordinated by EDF&R/ DDCF(F&R

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Budget Setting • Budget setting in line with savings and

growth, agreed during the SFP process All DDRs


Financial Monitor

• Budget monitor prepared in line departmental budgets

All DDRs


Statement of Accounts

• Close of Accounts timetable; Disclosure check list; audit deliverables

• Update on all accounting guidance

All DDRs

Co-ordinated by EDF&R/ DDCF(F&R

GOVERNANCE RISK AND CONTROL:

Governance • Timely Internal audit review and

reporting All DDRs


Risk Management

• Regular review and update of risk register

• Robust systems to identify new risks

All DDRs


DELIVERING FINANCIAL STRATEGY

SFP • Timetable and format of SFP process All DDRs


Financial Effectiveness

• VFM reporting All DDRs


Activity Based Costing

• Oracle Replacement Project All DDRs


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KEY TO ABBREVIATIONS AND ACRONYMS:

Abbreviation Title

CEO Chief Executive Officer

CLG Communities and Local Government (previously known as Department for Communities and Lcoal Government DCLG)

DDCF(F&R) Divisional Director Corporate Finance (Finance and Resources department)

DDRBCS(F&R) Divisional Director, Revenues, Benefits and Customer Services (Finance and Resources department)

DDRs Divisional Directors of Resources

EDACS Executive Director, Adult and Community Services department

EDCYPS Executive Director, Children and Young People’s Services department

EDF&R Executive Director, Finance and Resources department

EDHRE Executive Director, Housing, Regeneration and Environment department

EDs Executive Directors

GF

General Fund A fund where all transactions outside the HRA are recorded

HRA

Housing Revenue Account a fund where all transactions relating to the council's landlord function are recorded

IFRS

International Financial Reporting Standards IFRS is the set of accounting standards which must be followed by most public and private sector organisations in the UK; it replaced UK GAAP (Generally Accepted Accounting Practice). 2010/11 was the first year in which local authorities' accounts had to be fully IFRS-compliant.

I2S funded Funded from the Invest to Save funds

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LATMOS

Lambeth Alliance of Tenant Management Organisations LATMOS is formed by tenants and leaseholders to transfer the ownership and management of the housing in three Lambeth estates to a landlord independent from Lambeth council

LSP

Local Strategic Partnership Lambeth First brings together local residents, communities, businesses, public sector, private sector and voluntary groups with the long-term vision of improving the quality of life for the people who live, work, study and play in Lambeth.

MTFS

Medium-Term Financial Strategy The overall financial plan for the organisation to achieve its objectives over a period of 3-10 years

PWLB

Public Works Loans Board A statutory body whose funciton is to lend money from the National Loans Fund to local authorities and other prescribed bodies, and to collect repayments

SFP

Service and Financial Planning The process by which the organisation develops its budgets and MTFS

VfM

Value for Money

VfM is about achieving the right local balance between economy, efficiency and effectiveness, the 3Es - spending less, spending well and spending wisely.

financial management strategy 2012-2015 1. introduction app... · 2014-12-18 · financial...

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