value for money unit local government audit service financial

Value for Money UnitLocal Government Audit Service

Financial Management Reportingin Local Authorities

Report No. 24 September 2007

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.

Value for Money UnitLocal Government Audit Service

Financial Management Reportingin Local Authorities

Department of the Environment,Heritage and Local Government

© Government of Ireland 2007

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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

Contents

_____________________________________________________________________Local Government Audit Service, VFM Unit

PAGE

APPENDIX 1 23

Survey of Local Authorities

APPENDIX 2 24

Legislative Framework

APPENDIX 3 26

Head of Finance Corporate Report

Appendices


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

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

Minister’s Foreword


3


4

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

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.


5

Executive Summary

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.


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.

• 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.


6

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

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.


7

• 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.

• 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.


8

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.

1. Introduction


9

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

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.

2. Financial Processes


10

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

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

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

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.

3. Survey and Findings


12

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-

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.

4. Current Developments


13

2 See section 4.2 of this report3 See section 5.7 of this report4 See section 5.5 of this report

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

• 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.


14

5 Web site: http://www.finance.gov.ie/documents/publications/other/capappguide05.pdf

5.1 Management Responsibility/AccountabilityOne of the outcomes of the introduction of Better Local Government was the delegation by theManager6 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 forthis system to work effectively it is necessary that:

• Members of the management team and Heads of Divisions should have individual andcollective responsibility for the overall use of resources and general financial standing ofthe Council.

• Each Head of Division has individual responsibility for the use of resources withinhis/her division and for reporting on such use.

• The Head of Finance should advise senior management in exercising their responsibilitiesin financial matters. He or she should also have overall responsibility for the developmentand maintenance of appropriate accounting systems and internal financial controlsthroughout the organisation.

5.2 Financial Reporting for ManagementOne of the key responsibilities of the Head of Finance is to ensure the highest standards offinancial management within the local authority and to provide financial managementinformation to the management team that is timely, relevant and accurate. This informationshould be tailored to the needs of the users and enable them to make financially informeddecisions. As well as receiving high-level financial information, members of senior managementshould be proficient in using the financial management systems.

The Head of Finance should provide a corporate financial report to the management team, eitheron a monthly or quarterly basis, as considered appropriate. This report should includeinformation drawn from divisional financial reports7 and be linked to the delivery of targets asreflected 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.

5. Recommendations


15

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

This recommendation should be implemented across local authorities not later than January 2008.

5.3 Financial Management within DivisionsThe implementation of devolved financial management responsibility requires the developmentof effective financial management structures within the various divisions of the Council. Whereappropriate, suitably trained specialist staff should be available to provide the necessary expertiseto 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.

5.4 Financial Reporting for Councillors

As stated in paragraph 2.4 of this report, Section 105 of the Local Government Act, 2001 provides

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.


16

The above recommendations should be implemented across local authorities from January 2008.


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.

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


17This recommendation should be implemented across local authorities and be applied to the 2007 AFS

• Financial/budgetary control• Grant/loan draw downs• Post project completion review

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

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.

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


18

The above recommendations should be implemented across local authoritiesnot later than January 2008.


8 See section 4.2 of this report

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.

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• 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

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 themaintenance and operation of the financial management systems

• Ongoing support should be provided to all system users.


19

This recommendation should be implemented across local authorities during 2009.


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

to them.


20

The above recommendations should be implemented across local authoritiesnot later than January 2009.

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

6. Implementation of Recommendations

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.

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.


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7. Acknowledgement


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

Town Clerk

Financial Accountant

Appendix 1


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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

• 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

Appendix 2


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• 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

- 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.


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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

• 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.

Appendix 3


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Printed on recycled paper containing aminimum of 75% post-consumer waste

value for money unit local government audit service financial

Documents