Question

How do I get my Council to stop having a reserve beyond it's 12 month precept?

Answer 1

Report them to the external auditor. The EA can't actually stop the PC doing it but can serve an issue notice which would urge them to act with more responsibility. The notice would go in the public domain.

Comments

Should the Council vote annually on the amount of General Reserve that is kept?

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Reserves policy (General reserves, Earmarked Reserves abd Sinking Funds) should be reviewed with the budget as far as I'm aware.
It should be reviewed annually as far as I'm concerned. Again, something the internal auditor could flag up if it isn't

Answer 2

If your council's reserves amount to more than twice the precept, the council must provide an explanation as part of the external audit process. It's one of the supporting documents to the AGAR form. There may be a valid reason for high reserves, such as raising funds for a capital project, but if the council is unable to provide a satisfactory explanation, the auditor will highlight the issue as a concern on the external audit report, which is a public document. The auditor has no power of enforcement in this regard. The hope is that residents will ask their council why they are taking money they appear not to need.

Comments

I assume this applies to  general reserves only?  There again if 12 months was exceeded then they could simply vire any excess  to earmarked reserves which I assume are without  limit.?

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Earmarked reserves are without limit only if earmarked to be spent. You can't earmark reserves you have no intention to spend.

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But how do you prove it ?  And how long are you allowed to "hang on" before you spend. it. Any criticism I would suggest can be easily countered .

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The external auditor has the benefit of an increasing number of years of back data and is entitled to seek clarification of the specifics.

Answer 3

There must be millions of pounds rotting away in Parish Council reserves “ just in case of a rainy day “
The answer is get effective Councillors who understand how to prepare a Budget and risk assess reserves
I discovered a local Parish Council which took out a loan  when they already had substantial reserves
Internal Auditors are totally ineffective and their main role appears to be to give Parish Councils the false impression all is well

Comments

The RFO has a key role in these matters, but they too are often under-qualified to understand the finances.

Answer 4

This is a timely question as I have just had the same discussion with my parish councillors about the reserves they hold and I have insisted that they reduce their reserves in the next financial year to a level that I consider covers all short term liabilities.  In previous years, we had a pavilion renovation that we had to save for but thanks to grant funding, we didn't need to spend all the allocated reserves.  So next year, we are renovating a playground, installing solar panels and an outdoor gym.

It was a battle but really, how can you justify any precept increase if the parish council is holding public money and not spending it?

Reserves should reflect the liabilities that the council has - so it is right to have money aside to cover any contractual commitments, rent, elections, emergency building repairs etc.  It is the unearmarked reserves that are the black hole.
Also bear in mind that when applying for grants, you have to state how much you have in reserves and that would certainly have an effect on your success rate.

Comments

It all revolves around total openess and transparency of the accounts and precept preparation. Reserves are kept back as an ability of the council to continue to operate efficiently and independently should funding be for any reason interrupted thereby allowing a term of adjustment to meet any new "requirements" from local or central government. The PC should have in depth forward planning fully costed and managed which can be "saved up for" over a stipulated period of time and following an open and transparent plan. These amounts of "earmarked or ringfenced" amounts should be dealt with as separate from annual budget amounts and accounted for until completion. Too many councils have little or no experience of accounting for public monies and unfortunately are aided and abetted in their incompetence by the likes of NALC and their local offices in being encouraged to give as little information in their budgets, precept proposals or accounts( and minutes) as possible so as not to have to explain where the money went or where they have failed in their duties. Accounting is one area where PC's have to be held to be professional.

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Totally agree, I know a Parish Council which has just agreed a 5% increase despite the fact the Councillors weren’t given a schedule of projected income and expenditure based on the increase
Most RFO’s appear to work on better safe than sorry
As the majority of PC income comes from the precept can anyone explain under what circumstances it won’t be paid over ?

If a large bill comes up unexpectedly then that’s surely a failure of budgeting
All PC’s should plan at least three years in advance according to NALC I wonder how many do

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The key comment in the foregoing is the role of the RFO. A former Councillor raised the issue of the Finance Chairman having an undue influence over the Clerk and when I tactfully raised this the response was not "is there a problem" but "shame on the former Councillor for bad mouthing a colleague" .  Many Councils are quite simply incestuous.

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Simple question here. Well to me. The precept is the amount levied to balance the requirements of the year round budget, the general reserves plus the earmarked reserves . So why is the level of the general reserves expressed as a percentage of the precept , Surely it should relate the the year round budget?

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Probably because it's an easier benchmark. If it was linked to budget, we'd simply budget for projects we have no plans to deliver to enable us to hold higher reserves without challenge. I'm aware of a council that has an £80k reserve for street lighting, £50k for the cemetery and £25 for highways. No plans to spend it, but it's just an excuse to hold over £150k for a rainy day.

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What is net revenue expenditure ?

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Revenue expenditure is basically the cost of running the council  normally for one year including wages and overheads, Stationary, utilities and maintenance etc etc. Net would be vat removed ( as most councils can claim back any vat paid on expenditure). Capitol expenditure is money paid out for replacements or improvements to assets or long term investment. ( say a new football pitch of play equipment) The covering and scheduling of capitol payments can be carried over an extended period of time hence the need for good planning in the budgets of councils.

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I ask this as I have found advice that general reserves are to be expressed as a proportion of NRE not the precept.  This makes much more sense to me as the precept could contains other things like project costs.

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What motivates this horrendous waste of Parishioners money?

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I don't think it is motivation( which denotes intent) more inclined to the a result of councillors being out of their depth and ineptly dealing with matters they do not understand or refuse to admit a lack of knowledge of. On the other hand it could just be indolence and a mistaken reason for serving as a councillor

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My parish holds relatively large reserves because we are due for considerable development in and around and will undoubtedly get some very large bills at some point -  despite planning and budgeting things like legal fees can be considerable and unpredictable, especially as we've experienced recently when it comes to land ownership/easements etc. We're increasing our precept and using some reserves this year to cover a gap in collection rates.

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In this context, net revenue expenditure could be taken to mean the total revenue expenditure, minus the total revenue income. The vast majority of councils will spend more than they earn, with the precept being used to make up the revenue shortfall. However many councils will generate significant sums from land and property, so taking this into account offers a more reliable measure of financial need.

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Clerk975 Can I ask if you have GPC ? If not what power would you use to employ legal representation  on planning matters?

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Clerk975 Please can I ask why you are increasing your precept to cover a drop in collections rates? Do your principal authority (either District or Unitary) that collects the Council Tax adjust if there is a drop in collection rate by the end of the the year? In our County the precept had always been paid in full with no adjustment for any reduction in the collection rate which is something which only impacts on the collection authorities. I was not aware this was different anywhere else, or even if the legislation permitted this to happen.

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Can I be clear RPC what do you mean by collection rates?, Does it  mean the number of houses that actually pay their council tax ?. I say this as last year I checked the number of properties in our area and multiplied them by the precept and discovered that  the total exceeded the precept by about 15%. The Council then explained that of course some houses are empty some don't pay so they make sure they get more than enough in. I certainly got the impression that the precept demand would be  met come what may  and if it came up short that  was not the PCs problem. What is the legal position ?

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Openspaces - The collection rate is the percentage of the actual Council Tax payable that is paid by Council Tax Payers (i.e. collected by the Principal or collecting authority). This would normally be a very high percentage of well over 90% and Principal authorities would include an expectation in their original budget planning. But there will always be a small amount of ‘bad debt’. I have not been aware of any Prinicipal authority passing this on to a Parish or Town Council. ( Which is something I thought was being referred to in the comment I originally replied to) As you say the precept you request is what you get.
What you are describing in your comment is the Council Tax Base - which is the number of Band D equivalent properties with your area. Very close to number of actual properties but adjusted by the number of other CT bands and also by some discounts such as single person discount. Your principal authority advise you of what your Council Tax Base is each year around early/mid December. It can vary slightly year on year even if you do not have any new houses built.

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The amount decided by the PC as the precept they require is initially an amount sent to the LA as a budgeting exercise for them to include in the levy of council tax to properties in their region. Collection of this tax is purely a matter for the management of the LA. As the proportion of the PC precept is a small proportion of the overall council tax it has had the benefit of being met in full by the LA( because it has been good value for money). Unfortunately as parish councils increase their demands ( for whatever reason including being made responsible for more matters) the precept requirements will come under increasingly closer scrutiny as LA's have to meet pressure on their budgets. Keep your reserves but at a reasonable unquestionable level. Plan ahead well.

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On the contrary RPC you can find out via the ERO the precise number of properties in your area and the bands they are allocated to .  You can then work out the theoretical income if  they all paid . But as we agree all of that is the Principal Authority's problem

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Apologies, I worded it badly - we are raising our precept a little but mainly using some reserves to cover an expected shortfall this coming year. We have a large development that was starting to come online in early 2020 - this has been held up so the considerable tax base increase we expected from that for 2021 onwards has been delayed hence the need to use reserves.

Answer 5

Let me give an example of rainy day syndrome,  during one of my PC’s meetings the Clerk claimed one of the reasons for having what I felt were excessive reserves was because we needed to have enough money to cover her wages and a substitutes wages if she was off sick

Firstly this would be a drop in the ocean when we had over £200,000, secondly another member of staff could cover and thirdly I pointed out we had insurance to cover exactly this situation
Using NRE is a cop out PC’s should be able to explain in detail why their reserves are what they are not just use a meaningless formula
Let’s face it the real reason so many PC’s perform poorly is because the Parishioners are apathetic

Comments

I agree absolutely with the apathy syndrome. Such a scenario also breeds Councillors who take advantage of the prevailing conditions to ensure that their vision of how the area should be managed  is adequately funded and delivered.  Some form of better control and monitoring must be introduced or else we get what we deserve. .

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It seems from my investigations that with my Council that the precept roughly  equals the year round budget . General  (and earmarked) Reserves seem to sit there permanently  as cash in the bank .
All reserves are largely unspent throughout  the year although ER seem to grow in total  each year. While there will always be an argument for general reserves it strikes me that Earmarked Reserves are the weak link .
Clearly more information is needed to direct PCs as to whats what

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What would be considered a reasonable wages bill, although understandably the Council is its own leadership until its next election process.