Information for local authority chief finance officers (CFOs) on strategies to optimise the use of limited resources and maintain financial resilience.
The law requires that local authorities maintain a balanced budget, one that balances planned spend with available resources, including reserves and borrowing where permitted. Local authority chief finance officers (CFOs) working closely with the organisation can employ several strategies to optimise the use of limited resources and maintain financial resilience. While these strategies may not prevent the issuing of a Section 114 Notice, experience has shown they can improve financial sustainability and CIPFA would encourage that they are part of the proactive prevention approach.
The three areas are:
- financial management
- capability and capacity
- capital programme and asset management.
Financial management
One of the core responsibilities of the CFO (or section 151 officer) is the financial administration of a local authority’s finances. The CFO is therefore responsible for ensuring that its financial management policies and practices are sound and effectively implemented.
A measure of the quality of a local authority’s financial management is how well it incorporates the six principles of good financial management, detailed in CIPFA’s Financial Management Code (2019). Based on these six principles and CIPFA’s experience of supporting local authorities, four stand out as essential for financial resilience. These are leadership, transparency, standards and assurance.
Leadership
The tone set by leaders influences the organisational culture which in turn has a tremendous impact on whether the organisation spends prudently. Local authorities’ leadership teams must provide clear messages about the organisation’s regard for delivering value for money when faced with financial pressures.
Key actions
- Develop a closer working relationship between the three statutory officers (the CFO/section 151 officer, the head of paid service (chief executive officer) and the chief monitoring officer) to enhance the financial congruence of strategic decisions.
- Ensure senior officers with significant organisational influence lead spend control panels.
- Introduce clear risk and financial parameters for decision making and enforce adherence to them.
Transparency
Local authorities must strengthen decision-making processes and the scrutiny function to ensure there is transparency in decision making. Transparent decisions support the democratic process and foster accountability.
Key actions
- Ensure all officer and elected member decisions are evidence based.
- Ensure each project has a clear exit strategy should it become non-viable.
- Take decisive action to address reports of impropriety.
Standards and assurance
Adherence to standards of proper accounting and treasury management is integral to achieve financially sustainable outcomes. Similarly, the CFO needs to be assured that the organisation’s governance, risk management and control processes meet established standards.
Key actions
- Ensure the audit committee is chaired by an independent member.
- Implement appropriate governance of partnerships, joint ventures and local authority companies.
- Introduce or strengthen pre-decision scrutiny.
Capability and capacity
Industry-wide resource constraints can set back progress on delivering service and financial improvement plans. Given the greater pace of change in the sector, authorities need to plan to strengthen their capacity and capability.
Key actions
- Streamline the authority’s focus to core projects which are resourced for delivery.
- Create a project management team to deliver key programmes and projects, or identify skills to support projects where there isn’t a dedicated project management team.
- Ensure members are appropriately skilled to perform their duties. Impartial and independent advice from the Centre for Governance and Scrutiny (CfGS) is a valuable resource for member induction. The Financial scrutiny practice guide (2020) by CIPFA and CfGS is also helpful.
- Train officers to improve financial acumen and adherence to the authority’s policies.
- Build internal capacity by upskilling and retraining officers.
Capital programme and asset management
A local authority’s capital programme represents its long-term approach to delivering value to residents. CIPFA encourages councils to periodically assess medium to long-term service needs and align its capital and asset strategy to those needs.
Key actions
- Rationalise the lowest-performing assets held by the authority, considering relevant local/democratic factors.
- Implement a strategic asset maintenance programme to support the long-term sustainability of the council's estate.
- Engage experts to review the council’s non-core investment assets to establish:
- compatibility with the authority’s risk appetite
- delivery of value (financial and otherwise) anticipated
- a clear recommendation on retention or sale of investment
Help is available
Authorities can draw from a range of free resources to support their efforts to rebuild financial resilience:
- CIPFA’s Financial Resilience Index provides a starting point for assessing financial resilience in comparison to statistical neighbours.
- UK Government funded a sector support programme delivered to councils by the Local Government Association (LGA).
- The LGA’s peer review also offers a critical friend review and recommendations that elected members take seriously.
If you are at a crossroads and wondering where to begin, CIPFA understands the complexities you now face and has extensive experience of helping councils like yourselves. We will work with you to develop your recovery plan and what short- and long-term actions you can take to address your operations and service delivery, improve your risk profile and ensure that you maximise the use of the tools available to you including your financial and non-financial resources.
If you believe your local authority is at impending risk of an unbalanced budget, and you have exhausted all the options outlined above, we recommend you immediately begin discussions with the Ministry of Housing, Communities and Local Government.
More on Financial Resilience
Explore CIPFA's Financial Resilience Index, a comparative analytical tool that is intended to be used by Chief Financial Officers to support good financial management.