RESERVES AND THE PRECEPT

Question

 I am sorry but I am really struggling with how PCs should deal with “financial reserves” when setting the precept.

When dealing with reserves there are in my head two separate meanings to that word.  Firstly, there are the reserve totals on paper .  Theses are the amounts that the PC has decided that it wants to spend on certain subjects or hold as a contingency.   These consist of EMRs which contain S106 projects which come with the money  and other specified projects .  Then there are general reserves which are not restricted like  EMRs and are for any emergency which might arise.

The second meaning of the words “financial reserves”  to me is the amount of cash we hold to underpin the on paper totals ie if we write a cheque will it bounce . Now the straightforward (and to me logical way forward) would be to hold the equivalent amount of the paper totals as cash (or expected income like the precept) . This would appear to be supported by the statement that the auditor would query things  if your reserves (on AGAR)  where more than twice the year round expenditure budget .

 However at this stage   “accountant speak” comes into the equation and that dictates that the precept is set to cover expenditure for the next year only and of course some reserves will not be spent during that period.  There is also talk of “risk assessments” being made as to assess the strategic, operational, and financial risks facing the council.  What does that mean?    The bottom line is that whatever decision you take it has to be defendable but there dare I say doesn’t seem to be a right way or a wrong way.

If it were me and I had an EMR due to be completed next year I would transfer it to the year round budget .   I believe that PCs should have restricted reserves (EMRs) which should be calendarized by year and the general resaves (unrestricted) should be set at a given amount and used for contingencies and topped up each year .

 

 I hope my confusion makes sense to some of you.  I just need to be able to defend it to the  electorate (and myself) .   My PC does not comment on any reserves calculations at all.  NALC and my County Association are useless and refuse to comment.

 What do you guys do or am I losing the plot.??

 

 

  

Answer 1

Not sure if this’ll help or not…

You’ve got your revenue expenditure - planned in-year expenditure on predicted operating costs. Look back over past 3 years expenditure, assess any forecast uplifts, calculate total and monitor throughout the year.  This should arrive at end FY pretty close to zero balance if it has been effectively managed throughout the year.  If you forecast coming up short before end FY draw some across from another budget header
I think of EMR in 2 categories

Short term (1-2 years) duration projects which have been presented, costed and approved for inclusion in next FY so ‘new’ budget money required from precept
Cumulative EMR - that money which is set aside for larger capital repair / replacements example, a building with a notional value of 250k divided by a 50 year expected life span equals adding 5k per year into a pot which gets 5k bigger every year (unless repairs required) that pot just grows every year to allow a 50 year replacement
if you get to year 50 it flattens out and either stays at a steady state or it remains as accessible emergency EMR until needed for rebuild
all the money stays in the bank, you just have to have a virtual allocation awareness
Any use??