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APPENDIX A
Budget Strategy Risks
The risk matrix below provides a summary of the key budget risks. The risk register that follows provides more detail.
Likelihood |
5 |
G |
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4 |
M |
H |
I,J |
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Black – Top risk |
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3 |
K |
D,L,Q |
P |
|
Red – High risk |
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2 |
E |
B, C, |
A |
|
Amber – Medium risk |
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1 |
F |
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Green – Low |
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|
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|
1 |
2 |
3 |
4 |
5 |
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Blue – Minimal risk |
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Impact |
|
|
|
|
|
A. Failure to contain expenditure within agreed budgets |
J. Capital programme cannot be funded |
B. Fees and Charges fail to deliver sufficient income |
K. Increased complexity of government regulation |
C. Other income fails to achieve budget |
L. Collection targets for Council Tax and Business Rates missed |
D. Planned savings are not delivered |
|
E. Shared services fail to meet budget |
M. Business Rates pool fails to generate sufficient growth |
F. Council holds insufficient balances |
O. Litigation costs exceed budgeted provisions |
G. Inflation rate is higher than 2% government target |
P. Financial impact from major emergencies such as Covid-19 |
H. Adverse impact from changes in local government funding |
Q. Financial impact from IT security failure |
I. Constraints on council tax increases |
R. Pension liability cannot be funded |
The budget risks may be ranked, based on the scores shown below, as follows:
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|
Financial impact (in any one financial year) |
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Risk |
Ranking |
Lower |
Upper |
Mid-point |
Likelihood |
Weighted |
|
|
|
£000 |
£000 |
£000 |
% |
£000 |
|
G. Inflation rate is higher than 2% government target |
1 |
400 |
800 |
600 |
95 |
570 |
|
I. Constraints on council tax increases |
2= |
500 |
1,000 |
750 |
75 |
563 |
|
J. Capital programme cannot be funded |
2= |
500 |
1,000 |
750 |
75 |
563 |
|
H. Adverse impact from changes in local government funding |
4 |
100 |
900 |
400 |
75 |
300 |
|
D. Planned savings are not delivered |
5= |
250 |
750 |
500 |
50 |
250 |
|
P. Financial impact from major emergencies such as COVID-19 |
5= |
250 |
750 |
500 |
50 |
250 |
|
M. Business Rates pool fails to generate sufficient growth |
7 |
150 |
450 |
300 |
75 |
225 |
|
L. Collection targets for Council Tax and Business Rates missed |
8 |
200 |
600 |
400 |
50 |
200 |
|
Q. Financial impact from IT security failure |
9 |
100 |
600 |
350 |
50 |
175 |
|
A. Failure to contain expenditure within agreed budgets |
10 |
200 |
800 |
600 |
25 |
150 |
|
B. Fees and Charges fail to deliver sufficient income |
11= |
200 |
600 |
400 |
25 |
100 |
|
C. Other income fails to achieve budget |
11= |
200 |
600 |
400 |
25 |
100 |
|
R. Pension liability cannot be funded |
11= |
200 |
600 |
400 |
25 |
100 |
|
O. Litigation costs exceed budgeted provisions |
14 |
100 |
500 |
300 |
25 |
75 |
|
K. Increased complexity of government regulation |
15 |
50 |
100 |
75 |
50 |
38 |
|
E. Shared services fail to meet budget |
16 |
50 |
150 |
100 |
25 |
25 |
|
F. Council holds insufficient balances |
17 |
100 |
300 |
200 |
5 |
10 |
|
Chart - Budget risks
Budget Strategy Risk Register
The following risk register sets out the key risks to the budget strategy. The register sets out the consequences of each risk and the existing controls in place.
Ref |
Risk (title & full description) |
Consequences |
Key Existing Controls |
Overall Risk rating |
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I |
L |
∑ |
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A |
Failure to contain expenditure The Council overspends overall against its agreed budget for the year |
Failure to meet the budget makes it more likely that the Council will have to rely on short term expedients to balance the budget from year to year, rather than following a coherent long term strategy. |
- Embedded and well established budget setting process - Medium Term Financial Strategy - Balanced budget agreed by Council for 2022/23.
- Strong controls over expenditure and established process for recovering from overspends |
5 |
2 |
10 |
B |
Fees & Charges fail to deliver sufficient income Fee charging services may be affected if there is a downturn in the economy, resulting in Fees and Charges failing to deliver the expected level of income. |
The total value of all Council income from fees and charges is around £20 million. A loss of income for service budgets will require restrictions on expenditure levels and delivery of all objectives may not be met. |
- Fees and charges are reviewed each year, paying careful attention to the relevant market conditions - Where the Council is operating in a competitive market, the aim is to ensure price sensitivity does not lead to a loss of income. - Procedures are in place to ensure that fees and charges are billed promptly (or in advance) and that collection is maximised. |
4 |
2 |
8 |
C |
Other income fails to achieve budget In addition to fees and charges, the Council relies on other income from capital investment, which may not deliver the expected level of income. |
The medium term financial strategy includes a contribution from investment opportunities, so any shortfall would have an impact on the overall strategy. Income generation from investment activities supports the revenue budget and is required in ordered to pay back capital investment. |
- The Council set aside a provision of £0.5m against losses from activities that do not deliver. This provision is cash limited but available to cover short term losses. - Individual risks associated with specific projects within the capital strategy will be assessed, both as part of the project appraisal process and during the course of delivering the projects. |
4 |
2 |
8 |
D |
Planned savings are not delivered Failure to deliver savings and / or failure to monitor savings means that the Council cannot deliver a balanced budget |
The level of saving required to achieve a balanced budget is significant and non-delivery of these savings will have a major consequence on managing financial viability of the organisation.
Not achieving savings will impact the overall delivery of the Medium Term Financial Strategy and would require appropriate action, which might include the suspension of some Council services, redundancies, etc.
|
- The risks associated with delivery of savings proposed in the current Medium Term Financial Strategy have been reviewed as part of the budget setting process. - Savings proposals are separately identified and monitored in the Council’s general ledger. - The ability to achieve the targeted savings is monitored quarterly in budget monitoring reports to the Corporate Leadership Team and to Service Committees. |
4 |
3 |
12 |
E |
Shared Services Shared services, which are not entirely under the Council’s control, fail to perform within budgeted levels. |
Failure of a shared service to manage within the existing budget will have the same consequences as for any overspending budget, ie it would require appropriate action, which might include the suspension of some Council services, redundancies, etc. |
The arrangements governing shared services include a number of controls that minimise the risk of budget overspends and service failure, including quarterly reporting to a Shared Service Board comprising representatives of the authorities involved. The shared services are required to report regularly on financial performance and key indicators. |
2 |
2 |
4 |
F |
Insufficient Balances OR Minimum balances exceed the real need and resources are held without identified purpose with low investment returns |
Additional resources would be needed which would result in immediate budget reductions or use of earmarked reserves.
The Council would not gain best value from its resources as Investment returns are low in the current market. |
- The Council has set a lower limit below which General Fund balances cannot fall of £4 million. - At the beginning of the 2022/23 financial year unallocated General Fund reserves stood at £9 million. |
3 |
1 |
3 |
G |
Inflation rate is higher than 2% government target Actual levels are significantly above or below target |
Unexpected rises will create an unbudgeted drain upon resources and the Council may not achieve its objectives without calling upon balances.
Services have supported the budget strategy through savings. Levels below those expected would result in an increase in balances or unused resources that could be used to achieve strategic priorities. |
- Allowances for inflation are developed from three key threads: o The advice and knowledge of professional employees o The data available from national projections o An assessment of past experience both locally and nationally - MTFS core inflation projections are based on the government’s 2% inflation target but an additional contingency of £1.3 million is included in the 22/23 budget |
4 |
5 |
20 |
H |
Adverse impact from changes in local government funding The financial implications of the new local government funding regime, now unlikely to be introduced until 2022/23, remain unclear. |
The Council no longer receives Revenue Support Grant (RSG), but the amount of Business Rates that it retains depends on the funding regime set by central government. |
- The Medium Term Financial Strategy to 2026/27 includes an adverse scenario which allows for a significant impact on the Council’s resources, - The Council has developed other sources of income to ensure it can maximise its resources while dealing with the consequences of government strategy. |
4 |
4 |
16 |
I |
Constraints on council tax increases The limit on Council Tax increases means that the Council must manage expenditure pressures even if these potentially give rise to cost increases greater than the referendum limit. |
The limit on Council Tax increases means that inflation levels in excess of the referendum limit have to be absorbed by making savings elsewhere. |
- Budget planning is based around the assumption that Council Tax increases will be maximised within the constraints of the referendum limit in subsequent years. . |
5 |
4 |
20 |
J |
Capital Programme cannot be funded Reduction or total loss of funding sources means that the capital programme cannot be delivered or demands on funding exceed available supply |
The main sources of funding are: o Internal borrowing o PWLB borrowing o New Homes Bonus o Capital Grants o Developer contributions (S106) A reduction in this funding will mean that future schemes cannot be delivered. |
- Council has access to borrowing. - Council has confirmed in the past that borrowing is acceptable if it meets the prudential criteria. - Capital expenditure is monitored carefully against the borrowing limits that the Council sets itself. |
5 |
4 |
20 |
Increased volume and complexity of government regulation Covid-19 and the range of government support for local authorities and the community have led to a rapid increase in the volume and complexity of reporting and regulation. |
Scaling up administrative resources to address the increased volume and complexity of reporting and regulation may divert attention from other priorities.
Ultimately, failure to comply with new regulatory requirements could pose financial and reputational risk for the Council. |
- The Council has formal procedures for monitoring new legislation, consultations and policy / guidance documents. - Our relationships with organisations such as the Council’s external auditor provide access to additional knowledge regarding relevant future events. |
2 |
3 |
6 |
|
L |
Business Rates & Council Tax collection Council fails to maintain collection targets for business rates and council tax
|
Failure to achieve collection targets will reduce the level of key resources to ensure a balanced budget. This will mean further cuts in other budgets or the cost of financing outgoing cash flow to other agencies in relation to taxes not yet collected. Business rates amount to around £50 million in 2022/23 and Council Tax due amounts to around £120 million.
|
- The Council has a good track record of business rates and Council Tax collection. - Steps are taken to maximise collection rates, such as active debt collection, continual review of discounts, etc. |
4 |
3 |
12 |
M |
Business Rates pool Changes to rateable value (RV) or instability of business rates growth within the pool may not generate projected levels of income |
Changes in RV or instability in growth will result in a reduction in income from business rates and a potential consequence for the Council. |
- The pool is monitored quarterly Kent wide and Maidstone is the administering authority. The projected benefit of the pool across Kent as a whole is projected to be around £14m in 2022/23. - Provisions have been made when projecting business rates income for bad debts and losses on appeal so any loss of income would relate to the excess over the provisions already made. |
3 |
4 |
12 |
O |
Litigation costs exceed budgeted provisions. The Council is often engaged in litigation and generally the costs of any award against the Council and associated costs of legal advice can be met from within budgets. However, it is prudent to acknowledge the risk that provisions may not in fact be sufficient to cover all likely costs. |
Costs in excess of budget would require a drawing on reserves and the identification of savings in subsequent years in order to replenish the level of reserves.
|
- Corporate Leadership Team is updated regularly on outstanding legal cases. - Appropriate professional advice is taken at all times. |
4 |
2 |
8 |
P |
Financial impact from emergencies such as COVID-19 A resurgence of the pandemic or a similar emergency would see similar impact to those experienced in the first wave, eg reduction in fees and charges income arising from lower levels of economic activity and the effect of a broad reduction in economic growth on public finances. |
In the short term the Council would need to draw on reserves to cover the financial costs, but in the longer term savings would be required to replenish reserves. |
- Senior officer group mobilised to address short term impacts - Mitigations to be developed over longer term |
5 |
3 |
15 |
Q |
Financial impact from IT security failure Local authorities have been subject to cyber attacks over the past few years, often with severe financial and service implications. |
The Council might have to suspend normal financial transactions for a period of time. |
- Anti-virus software - Regular communications with staff to warn about risks - Back-up arrangements with neighbouring authorities |
4 |
3 |
12 |
R |
Pension liability cannot be funded There are a range of risks associated with the pension liability, including pension fund investment performance, inflation in salaries and pensions, changes in longevity, and capacity of the organisation to support pension fund contributions. |
Additional revenue costs will arise from an increased pension liability |
- Regular actuarial valuations - Mitigating actions in the form of increases to employer pension contributions |
4 |
2 |
8 |
Impact & Likelihood Scales
RISK IMPACT
RISK LIKELIHOOD