Using the Balance Sheet to improve Financial Reporting and Stewardship

1. Using the Balance Sheet to improve Financial Reporting and Stewardship Emma Stabler – Regional Fan Advisor: e-mail emma.stabler@cipfa.org

2. Consider practical ways to get tangible benefits to financial reporting from the balance sheet, including: Strengthening and demonstrating financial control Timely and efficient closedown Reporting in year Balance Sheet data Session Objectives This session aims to:

3. Using BSM to Strengthen and Demonstrate Financial Control (Ensuring No Surprises)

4. Assign responsibility for all codes to named individuals – avoid generalisations Ensure included in named officer’s job description/role Checking mechanism – Corporate Finance and/or Internal Audit? BSM – Assigning Responsibility

5. Agree list of control and suspense codes Controls for setting up new holding codes if used – some authorities have banned them Timetable for regular clearing Monitoring and Reporting: All balances to finance? Material balances to Managers/ Board /Executive as distort budget monitoring? On going balances (and action plan?) to Internal Audit/ Audit Committee? Control & Suspense Codes

6. Most find this Critical to BSM Identify and document all feeder systems into GL Manual / non manual For manual: How often are they reconciled? By whom? How long does it take to reconcile? Real efficiencies if can get this right Accounting and Feeder Systems

7. Often significant problems originate from balance sheet transactions Crucial that an authority has adequate control over its liabilities? What systems does your authority have to report high risk areas and ensure that the organisation is not entering into unrecognised liabilities Wider Control Issues

8. Treasury Management, especially ‘temporary’ investments Financial Instruments such as guarantees, especially those pre 07/08 that are still off balance sheet liabilities Property values on capital receipts Retirement Benefits Contingent Liabilities Current Risk Areas

9. Is there a role for IA to review balance sheet management arrangements? Close relationship between IA and accountancy to highlight control weaknesses Utilise Annual Governance Statement processes to highlight weaknesses in control Role of Internal Audit in BSM

10. Formal reporting provides a useful demonstration of financial control Links to Annual Governance Statement and the Audit Committee AC example of questions for scrutiny of accounts by Audit Ctte included: “Are all year-end control accounts reconciled? How have you maintained control when staff are involved in budget preparations Nov to Feb time – any significant slippages in reconciling suspense accounts? e.g. cash suspense”. Role of the Audit Committee in BSM

11. Credit Rating - developed methodology in private sector to assess financial strength Only aware of 1 authority using formal ratings (aims for AAA rating) Report considers the following: Financial Flexibility (income sources and pressure on expenditure) Management Capacity Budgetary Performance Liquidity and debt management Debt Burden (Debt as % of operating revenues) Contingent Liabilities including pension deficit Assessing the Balance Sheet

12. Using BSM to Achieve A Timely and Efficient Closedown

13. Question : How long does it take to produce your balance sheet? More Efficient Closedown A balance sheet at the push of a button Weeks of manual reconciliations and journals Or

14. Some Potential Barriers Asset registers updated on annual basis Capital financing undertaken annually Manual feeder systems, often substantial such as council tax & NNDR In year accruals Barriers to the Balance Sheet at a push of the button?

15. Monthly/Quarterly/Annually – consider workload. Identifying the tasks that save you work at closing rather than duplication of work during the year. How will your organisation use an interim balance sheet? Are there key indicators that could be reported instead? How often should an authority produce a balance sheet?

16. Reporting Interim Balance Sheet Data

17. Key questions : What to report both in-year and MTFS? When to report? To whom? Minimise the burden – link to current reporting where possible. Consideration of Reporting Structures

18. Potential key groups for balance sheet information Corporate Finance and S151 Finance Managers in Services Internal Audit Service Managers Management Board Cabinet Audit Committee Developing relevant key indicators for each of the key groups BSM – Reporting

19. Accruals help ensure budget monitoring is accurate Timely and Appropriate Accruals & Prepayments However Can be time consuming – Need to be clear about benefits

20. Need to consider your authority’s systems and set materiality levels accordingly UoR refers to accruals however does not specify monthly or quarterly Manual / Automatic from PO Verifying accruals Timely and Appropriate Accruals & Prepayments

21. CLG considering interim accruals based financial reporting (Enhanced Local Government Accruals Reporting) Timely and Appropriate Accruals & Prepayments

22. Any Questions ?