How much is a reasonable amount for a parish council to have in earmarked reserves?

Question

The council has over £175,000 in earmarked reserves.  Some of the items look like ongoing costs to me rather than costs associated with a project over a number of years.  For example there is an earmark reserves for Insurance, Tourism & Marketing, Weeding.  The total precept is less than £350,000.  i.e. the total earmarked reserves are over 50% of the annual precept.

None of the items in the earmarked reserves have a corresponding description of what each item can be spent on (as I would expect if the items were associated with a specific project).  Whether the Council can dip into the earmarked reserves seems to be at the whim of the Clerk.

Is there a best practice guide with regard to earmarked reserves?

The internal auditor is aware of the earmarked reserves but made no comment.

Answer 1

Earmarked reserves should cover your short term liabilities.  In my parish council, we have reserves to cover our lease obligations and contracts with grounds maintenance, a pot of money for emergency works on our sports pavilion, and specific projects that the council wants to undertake.  It is acceptable for there to be a project carried over if you need to build up the pot for some major works ie. building a village hall or similar.
I believe there is a general rule that non-earmarked reserves should be in the region of 3-9 months operational costs to cover the unlikely event that the precept is not received, redundancies etc etc.

Comments

Thank you, that largely matches my expectations.
With regard to emergency works on buildings - won't this be covered by insurance?

When you earmark money for a project, do you require an outline of the project to define how the money is to be spent?  Do you have a rough definition of "major works" e.g. would you consider adding noticeboards around the parish as "major works"?; is there some minimum amount to define "major works"?

What would you NOT accept into earmarked reserves?  We currently have 33 items listed in earmarked reserves ranging from £250 (garden works at the back of the town hall) to £20000 for renovation of moorings - this seems excessive to me.

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Firstly in my experience Internal Auditors are highly unlikely to rock the boat as they don’t want to risk loose their fees.

 If only the Internal Auditors were employ by the local authority

A lot of Parish / Town Councils abuse their powers by accumulating large amounts of residents money for a rainy day for no real purpose
This adds to the complacency regarding budgeting and value for money

Ear marked reserves are for specific large one off expenditure saved up for over time rather than distorting the budget by paying for it in one year. I don’t know how big your income is but some of the items you mention don’t fall into this
But even then if a specific item is necessary it might make more sense both economically and practically to borrow the money
Although having said that I’ve seen Councils with huge General reserves still borrow money
Earmarked reserves must be justified and individually reviewed at least annually
Of course if you’ve got huge earmarked reserves why would you need a general reserve especially as you say you are insured

The question to ask about general reserves is why is it say £150,000 not £100,000 or £200,000

Finally can someone give me examples of when a local authority has failed to pay a precept
I could bang on about this for ages as I feel it’s a disgrace that millions of pounds of residents money is rotting away  in Council bank accounts instead of being spent or used to reduce the precept

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I absolutely agree that more discussion is needed re justifying reserves. Some PCs work on the principle that you can never have too much money. I currently have a complaint with the external auditor re £100k being held to object to inappropriate development. I did this as a request for review was simply ignored  , As regards general reserves the bigger the precept the smaller the reserves should be in NRE terms as JPAG in Mar 20 said  “The smaller the authority, the closer the figure should be to 12 months NRE,  In practice, any authority with an  NRE in excess of £200,000 should plan on 3 months equivalent.”  As such I would have thought it would have been easy to advise a table of suggested levels