REVENUE EXPENDITURE

Question

Just getting used to (and  making sense of)  Financial  terminology/workings  .   Am trying to get clear in my head precisely what  the difference is between revenue expenditure  as opposed to earmarked reserves in terms of authority to spend . The Fin Regs appear when talking about budgetary control to apply limits to revenue expenditure and while I cant find any specific reference it seems usual that all Earmarked Reserves expenditure/control   must be authorised by Full Council .    It appears that our RFO has now recommended varying levels of earmarked reserves spend (for specific projects) of up to £20k can been delegated to committees  and has presumably used LGA 1972 S101 to do this. We have therefore  ended up with two separate authority to spend levels. Is there any manifest reason why this cannot be done. ?

Answer 1

Aren’t all earmarked reserves agreed individually by full council when agreeing the budget ?
If so the authority to spend them falls to the appropriate committee unless you have a de minimus limit
I read somewhere earmarked reserves should be individually considered every six months and that seems like a good idea to me
In a lot of cases reserves are abused and sometimes not used when they should be

Comments

Jules.  Sorry just trying to understand all this .  The Fin Regs refer when talking about budgetary control to revenue expenditure.  I need to understand what is include in that .  I assumed it was all non reserves expenditure .  Having said that with year round expenditure the Fin Regs still say even it it relates to say a Highways budget any single spend over £5k still has to be referred to the Full Council .  However there seems to be a lack of specific advice regarding earmarked reserves expenditure and that is what I am trying to get to grips with . Many PCs seem to operate an all reserves expenditure is down to the Full Council whereas mine appears to say all such expenditure  can be delegated to a Committee
Incidnetally the Good Councillors guide contains this
The council may have Earmarked Reserves for specific projects, where money is allocated for a specific purpose but may not be spent in that financial year. This may include reserves to purchase or renovate a building, develop a sports facility or community centre. The level of, and continued justification for, Earmarked Reserves should be reviewed by council on a regular basis, and not
less than annually.
What does the bit about "but may not be spent in that financial year" mean and why .  Is it saying  any EMR set at the beginning of Year 1 cannot be spent until Y2 and if so why .  There is much I don't understand re EMR

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As a small council we have not delegated financial authority in any committee. All expenditure is authorised by the main council once a month. We use the model Financial regs.
The spend to budget is now reviewed once a month as a set of management accounts to ensure the full council ( and all our parishioners ) is aware. Every payment is listed in the Agenda / Minutes for transparency.

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The only purpose of an earmarked reserve is to identify that funding is being saved for a future project.  As a general rule, an earmarked reserve is created or amended at the end of a financial year to carry forward to the next year not because it can't be spent for 12 months but because timescales for the project mean at the end of the financial year, the project hasn't been completed (or even started!).  For example, last year my council received a grant for some play equipment and the grant was received in advance of the order being placed (and goods received) so reserves carried forward (i.e. money in the bank) were increased by the amount of the grant at the end of the financial year because the grant had been received just before the FY end.  An earmarked reserve was created to identify to the public (and auditors) that the money was being held in the bank account for a specific purpose.  In due course, the play equipment was purchased and the accounts at the end of the next financial year will reflect that the EMR will have been reduced accordingly.
Earmarked reserves are not separate funds that have separate financial regulations.  Expenditure from an earmarked reserve is the same as any expenditure, requiring the same procedures for quotes, etc.  If a committee has authority to spend it is exactly the same procedure whether that expenditure is from the precept, general reserve or earmarked reserve.
Expenditure against all budget headings should be reviewed during the financial year and ideally at every meeting so everyone can see what has been spent against all budget headings, what remains and where there might be issues of over expenditure that need addressing.

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Delboy I love your final paragraph as I’ve been trying to do that for years
We get given a Budget and once it’s been rubber stamped it’s basically ignored so we have no idea as to it’s progress as the sheets we receive bear no comparison to the Budget
One year the Budget was £200,000 out because the Clerk added the income to the bank balance and assumed we could spend the lot!
I was the only Councillor to notice and for my sins the Chair ridiculed me and it was only after the meeting it dawned on them I was right !

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Nobody has answered my question as to what "revenue expenditure" as per Fin Regs includes/excludes.  Our Finance Committee seems to think it excludes Earmarked reserves. I cant find anything specific written advice  except how different people deal with it . Of course in the absence of specific advice people will apply their own interpretation.

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The term "revenue expenditure" is no different in a local authority from any other business.  It is an accounting term used to refer to day today expenditure/costs such as salaries, maintenance, utilities, stationery, etc.  Earmarked reserves tend to be set up for projects or capital expenditure (one-off items often) but some smaller councils will set up an earmarked reserve for election costs for example.  Earmarking simply ring-fences money for an identified item of expenditure.
When I was clerk/rfo (and it is a practice the clerk to my current council also follows), the budget for each year identified revenue expenditure as routine, often recurring, expenses and separated out "projects" or "capital items" as non recurring items.  As a minimum the precept was set at a level to cover the revenue expenditure and reserves (earmarked or otherwise) used for non recurring items.

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Right so I think you are saying  revenue expenditure does not include ring fenced project funds (earmarked reserves) . Got it.   That being said the Financial Regulations for budgetary control purposes as stated apply only to revenue expenditure.   As such by default  no  limitations on Earmarked Reserves spend appears in the Financial Regs .  Therefore in the absence of any stated  limits I deduce that any project funds  can be delegated to any committee or officer as per S101 at whatever limits any Council sees fit. ?

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My apologies as I'm clearly not explaining this well.  My interpretation of the expenditure limits and budgetary controls is that they apply whatever the budget heading is allocated to that expenditure.  To do otherwise would be nonsensical and clearly contrary to the intention of the controls on expenditure by local authorities that the government seems to be attempting to achieve.  My interpretation of the model financial regulations is that whatever the source of the funding for any item of expenditure (precept, general reserves, earmarked reserves, grant monies, loans - subject to borrowing approval - etc.) expenditure above a certain limit (usually £5,000 but not necessarily) must be made by full council.  Below that limit, expenditure decisions can be made by a suitably delegated committee if the council so chooses.

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I am inclined to agree with you but our local affiliated association do not . It does beg the question why is it not made clear in the Fin Regs.  There's a lot to learn about EMR a facility I  believe is abused by some PCs