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MAIDSTONE BOROUGH COUNCIL
AUDIT COMMITTEE
3 MARCH 2008
REPORT OF CHIEF FINANCE OFFICER
Report prepared by: Paul Riley
Chief Accountant
1. REVIEW OF FINANCIAL PROCEDURE RULES
1.1 Issue for Decision
1.1.1 To consider the attached revised version of the Council’s financial procedure rules, which have been updated to include recent changes in the financial environment, working practices and systems of the Council.
1.2 Recommendation of Chief Finance Officer
1.2.1 That Audit Committee agrees the amended financial procedure rules as attached at APPENDIX A and recommends their acceptance to Standards Committee.
1.2.2 That Audit Committee agrees the amended financial limits appendix to the financial procedure rules as attached at APPENDIX B and recommend its acceptance to Standards Committee.
1.3 Reasons for Recommendation
1.3.1 The financial procedure rules form part of the Council’s Constitution and there is an obligation upon all Members and Officers to abide by these rules where relevant to their activities. They are intended to provide a framework for the management of the Council’s financial affairs and thus aid the Council’s Chief Finance Officer to carry out his role under section 151 of the Local Government Act 1972.
1.3.2 The amended rules appended to this report have been considered and agreed by Cabinet and are on this agenda for comment by Audit Committee before being reported to Standards Committee. These rules form part of the Council’s Constitution and the changes must be considered by Standards Committee before approval by full Council.
1.3.3 Best practice recommends that the financial procedure rules are reviewed annually to ensure their continued relevance to the Council. This has been completed at officer level in recent years as no significant changes have been made.
1.3.4 The recent Overview and Scrutiny Committee report into partnership working along with changes to the statutory role of the Internal Audit function and the increased use of electronic methods of payment have all led to the need for significant changes this year.
1.3.5 The revised rules are attached to this report as APPENDIX A. Separately attached at APPENDIX B is the financial limits appendix to the financial procedure rules. The rules and financial limits include a number of minor changes to structure and content that make them more easily readable and some more significant changes as detailed below. A short table of all notable changes is attached as APPENDIX C.
Internal Audit (Section 7)
1.3.6 Amendments to the section on internal audit include changes brought about by the introduction of the Audit Committee and changes in the statutory guidance from the Accounts and Audit Regulations.
Credit & Purchasing Cards (Section 18)
1.3.7 Although the Council does not make extensive use of credit cards or purchase cards, a small number of credit cards do exist. Current procedures have been informally set by the Chief Finance Officer to ensure that purchases are relevant and properly accounted for and these are working well.
1.3.8 It was felt appropriate to formalise these procedures by adding the requirements to the financial procedure rules at this time.
Partnership Working (Section 25)
1.3.9 An additional section has been added to the rules specifically focused on the Council’s requirements for secure arrangements in terms of a business case and exit strategy for all partnerships.
1.3.10 Where partnerships involve financial consequences it is a requirement that the approval of the Chief Finance Officer is gained in advance of entering the partnership. Although no financial limit is placed upon this requirement it is similar to obtaining approval before entering into a contract that has significant financial consequences.
Authority for the Incurring of Expenditure (Section 4)
1.3.11 Following the audit and a review of the financial procedures included in the Emergency Plan a new entry in the financial limits appendix has been made. The item added is numbered 4.8(e) in the attached APPENDIX B and relates to paragraph 4.8 (e) of the financial procedure rules.
1.3.12 It is proposed that the Chief Finance Officer, whilst retaining his current limit for other supplementary estimates, is given authority to approve a supplementary estimate of up to £100,000 in two specific circumstances. These are where the Borough Emergency Coordinator has determined an Emergency exists or where the Council’s Business Continuity Plan has been activated. This will be in consultation with the Chief executive and/or the Leader of the Council.
1.3.13 It is possible that on some occasions, part of such additional expenditure would be covered by grant aid under the Government’s Belwin Scheme.
Financial Limits Appendix
1.3.14 The financial limits appendix to the financial procedure rules provides the values for all financial procedure rules. Rather than quoting a value as part of each rule, the rule refers to the financial limits appendix values. This enables easier updating of specific limits and clarity about the values concerned as they are all contained within a short, separate document.
1.3.15 The financial limits appendix is used by the financial procedure rules and the contract procedure rules. Attached as APPENDIX B to this report is a reproduction of only the part of the financial limits appendix that relates to the paragraphs in the financial procedure rules.
1.3.16 The last time that the values within the financial limits appendix were updated was 2001 and in the intervening years RPI has increased by 22.6% (April 2001 to December 2007). The financial values in the attached appendix have been updated to take account of this. Each value has been increased by 22.6% and then rounded. The rounding is done to maintain values that are easy to operate and control. They are also more likely to be remembered by officers who are occasional finance users.
1.3.17 In addition to the updated value APPENDIX B contains the previous value for reference, in a column to the right hand side of each paragraph.
1.3.18 The new value referring to paragraph 4.8 (e) regarding supplementary estimates for determined emergencies is set as discussed above.
Other Minor Changes
1.3.19 There have been a number of minor changes along with a restructuring of the sections so that the rules flow through the financial estimate and expenditure process more logically.
1.3.20 A table, attached at APPENDIX C, gives a brief explanation of all changes.
Other Issues
1.3.21 The financial procedure rules cover all resources of the Council and as such have sections relating to Property, Procurement, Information Technology and Human Resources. These sections have been reviewed by the respective Heads of Service and no specific amendments are required at present.
1.3.22 Following the implementation of the new Human Resources and Payroll system it will be necessary to update the relevant Human Resources sections and this action will form part of a future review.
1.3.23 Following acceptance of new contract procedure rules it may be necessary to update the sections relevant to procurement activities and this action will form part of a future review.
1.4 Alternative Action and why not Recommended
1.4.1 The Council could retain the financial procedure rules in their current format and not make the proposed changes. The consequences of this action would be that:
a) As the Council has developed new ways of working the current financial rules will hamper or fail to control the related financial activities;
b) As the economic environment has changed financial limits will not maintain a relative status quo regarding delegation and responsibility levels;
c) The financial controls identified in the recommendations of the Overview and Scrutiny report into partnerships would not be formalised.
1.4.2 There is currently a Kent wide review of contract procedure rules and the amendment of these financial procedure rules could wait until that is complete. Best practice is to complete an annual review and if necessary review more frequently. If the Council waits for the completion of the contract procedure rules before commencing this review it may be longer than one year since the previous review.
1.5 Impact on Corporate Objectives
1.5.1 The financial procedure rules support the financial activities of the Council, aiding service managers, directors and members with the financial aspects of service delivery.
1.5.2 The rules also provide a level of assurance to the Council and especially the Chief Finance Officer that the financial activities of the Council’s officers and members are appropriate and secure.
1.6 Risk Management
1.6.1 In general the financial procedure rules are a tool used by the Council to mitigate risk. Up to date and appropriate rules can aid in the reduction of error and fraud where the Council’s resources are concerned.
1.6.2 The major risk is that the rules do not cover all circumstances and Officers and Members do not receive appropriate guidance from them. It is essential that the rules are up to date and reflect the Council’s procedures and systems. This is achieved by the annual review.
1.7 Other Implications
1.7.1
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1. Financial
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2. Staffing
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X
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3. Legal
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X
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4. Social Inclusion
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5. Environmental/Sustainable Development
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6. Community Safety
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7. Human Rights Act
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8. Procurement
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X |
1.7.2 Financial: There are no financial costs as a consequence of the review of the financial procedure rules as this task is a normal part of the duties of the Corporate Finance Section. Failure to maintain the financial procedure rules could however have significant financial consequence for the Council through the increased risk of fraud and error.
1.7.3 Staffing: The financial procedure rules include sections on the establishment, payroll and expenses incurred by officers and members. These sections have not been updated in this review. They will be updated in line with the implementation of the new human resources and payroll system.
1.7.4 Legal: The financial procedure rules are Council policy and Officers and Members must abide by them. Many of the rules relate to contractual and legal arrangements made by the Council when entering into financial transactions and as such their accuracy and Council wide use are essential.
1.7.5 Procurement: The majority of procedure rules for procurement form part of the contract procedure rule, however there is some overlap in relation to placing of official orders and contracts. These rules must be compatible and cross referenced to the contract procedure rules. As the Council is currently agreeing Kent wide contract procedure rules further work on this issue will occur once the contract procedure rules are finalised.
1.8 Conclusions
1.8.1 The financial procedure rules are reviewed annually. This year the changes proposed are significant in nature and require the approval of the Audit Committee, Cabinet and Standards Committee.
1.8.2 Although some changes are still outstanding, awaiting further actions elsewhere, it is essential that the review of those areas proposed for change in this report is completed. If other changes that are expected to occur in the future are also significant, they will be brought back to members in a similar way to the changes outlined in this report.
1.9 Background Documents
1.9.1 None
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NO REPORT WILL BE ACCEPTED WITHOUT THIS BOX BEING COMPLETED
Is this a Key Decision? Yes No
If yes, when did it appear in the Forward Plan? _______________________
X
Reason for Urgency
[State why the decision is urgent and cannot wait until the next issue of the forward plan.]
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