GENERAL RESERVES

Question

I am glad to note a plethora of questions about PC Finances as I suspect that the overarching lack of accountability of PCs,  disguises a lot of "bad practice".  I am an ex Councillor with no hands on experience of my PCs accounting system but a lot of outside budgetary control experience.  I have always had a real problem re the level of General reserves  .  To me the Guidelines sate  that there is a sliding scale which indicates that for a £200kpa year round budget the level should be 3 months ie £50k.  However many PCs default to using the between 3 and 12 months advice.    I am now in a position in which my PC states at the year end it will have £200k in General reserves   (funded mainly by savings I identified) whereas £50k is warranted if you use the sliding scale .

Whilst the Clerk seeks to retain all of the money  my question is what is there to prevent my PC overspending it £50k GR sub head if needs be  and then recovering it at the next precept . My point is that the  PC always holds cash to cover all its reserves so it has the cash in the bank to cover any GR overspend .  Hope this makes sense.

Answer 1

Local councils are (collectively) sitting on masses of banked money.

Individually, this happens (IMHO) due to a lack of clerk / RFO AND Cllr experience and qualification in budget management.

The process is perfectly straight forward :

- review historic spending and forecast future liabilities

- review projected income

 - insert any properly costed and validated future project aspirations for successive years

- periodically monitor and adjust in year expenditure

What actually happens is that councils build up unjustifiable balances which allow knee-jerk in year un-forecast expenditure.

The breakdown is the failure to present properly costed proposals in the preceding year because it is 'easier' simply to maintain an excessive balance and spend at will.

Comments

With respect RAG you haven't answered the question. Interestingly an AI response says While it is technically possible to overspend General Reserves and recover the shortfall through the precept in the next financial year, this must be done carefully, with formal council resolutions, adherence to proper practices, and a clear recovery plan. The council must ensure that such actions are lawful, transparent, and do not jeopardize financial stability.
The irony is that the concerns expressed are precisely what causes the problem in the first place

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Absolutely agree!
The question seeks to address the “symptom” without considering the “cause.”

I’d suggest you’ve got got the cart ahead of the horse

Answer 2

Broadly speaking, the issue of reserves is unregulated. There are guidelines, but it falls within the remit of the council to set its own policy. Challenging the level of uncommitted reserves held often leads to an increase in earmarked reserves, as a paper exercise not backed up by any specific proposals. I've seen councils hold an earmarked reserve of a whole year's precept in case the district council goes bust and can't make the payments! There are the rainy-day reserves for items that are fully covered by insurance. It's not unusual to see funds held for expenditure falling outside the council's powers, with highway maintenance as the most common example.

This can be nothing more than inexperience and a lack of training amongst those involved, although empire-building is also a common theme.

Comments

I agree absolutely with your summary DTC.  It would be so easy to transfer unwarranted General Reserves to an unwarranted Earmarked reserves pot in order  to "conform with the guidelines" .  But this is public money so surely there should be greater oversight than applying "you decide" principles.  The end result is as RAG indicates empire building is rife and many PCs operate on a "you can never have too much money basis".      I'm sorry but its obscene.

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The whole system is built upon a naive assumption (which may not have been quite so naive in 1972) that holders of public office will maintain the very highest standards of honesty and integrity, so external oversight is not required.