How can local governments avoid the slippery slope to a possible s114 notice? Nathan Elvery offers his thoughts on what to look out for, and why s151 officers must become comfortable with the uncomfortable.
My intention in this article is to stimulate a debate within the financial leadership of the local government sector.
It would be foolish to suggest that any one individual could write an all-inclusive checklist of the warning signs of potential financial failure, as undoubtedly the next example of a council in financial crisis will add and expand such a list.
However, for those new to the s151 role and responsibilities this should act as a useful aide-memoire.
I have listed ten factors any s151 must consider, which will help begin the debate.
Culture – Is the organisation ‘financially aware’? Does the organisation place importance on financial discipline, and is this supported through clear objective setting relating to the principles of sound financial management across the organisation?
Leadership – Is the financial strategy understood by the leadership of the council? Does sound financial management form a regular part of the leadership agenda? Is this properly aired, debated, and understood by the leadership of the council? Are difficult decisions owned collectively and implemented effectively? Does the s151 officer sit at the ‘top table’?
Structure – Does the s151 officer have a clear and unfettered reporting line to the chief executive? Is this supported by regular ‘red card holding’ meetings between the chief executive, s151 officer and monitoring officer? Without these meetings, frank and direct conversations cannot take place, and solutions will be more challenging to find without these relationships.
Experience – How experienced is the s151 officer and the senior finance team? Consider coaching and mentoring support as part of their ongoing development, and to act as an external sounding board for challenging internal situations.
Governance of financial decision making – Is the finance team the last to see reports for approval, or are they engaged early in the development of recommendations? Is there optimism bias in the financial implications? Do the financial implications set out best, worst, and likely case scenarios? Is there a plan for the worst-case scenario? Are there sufficient checks and balances in place for recommendations which are led by the s151 officer?
Financial resilience index – Although there was much debate in the sector when the Chartered Institute of Public Finance and Accountancy (CIPFA) first launched the index, it offers clear clues to the challenges facing individual councils. Is there a strategy in place for each of the 18 indicators? Are these referred to in the chief financial officer statement when setting the budget and in the financial reporting of the council?
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Balanced budget – A budget which contains such phrases as ‘unidentified efficiencies’ or the equivalent is not balanced. This creates a false sound financial management impression for the organisation and in-builds pressures which will need to be resolved. Does the budget contain such unbalanced items? These should be addressed urgently with a review of the budget setting process and cycle then needed in this situation to reset the balance.
Financial reporting – What is reported? When and where is it reported? Is a monthly report approved by the corporate leadership team and the executive and scrutinised appropriately? Does it clearly identify all the financial risks facing the council with clear recommendations and mitigation plans?
Financial management – Are appropriate plans in place to manage the financial risks for the council? At the top of every steep hill there is a sign which reads ‘test your brakes’. In-year financial management will require the testing of both brake, accelerator, and clutch on a regular basis. Critically it will be important to know the brakes work when you need them, so the first report of the financial year needs to be acted upon.
Exposure – What is the organisation’s total financial exposure through is external relationships? How does the s151 officer influence the decision-making of these relationships? Often this level of exposure can far exceed the annual general fund revenue budget but does not get the airtime it appropriately demands.
Several councils are already in choppy s114 waters, and the remainder of the local government fleet is sailing on the same seas. It is increasingly important that s151 officers become comfortable with the uncomfortable, and start to ask much tougher questions of their own organisations.
Nathan Elvery is past president of the Society of London Treasurers and the Association of Local Authority Treasurers. He is founder and managing director of Imagine Public Services.
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