Local authorities are now in the grip of a budget process dominated by the need to make big savings. Agent151 argues that finance chiefs need to accept that it’s not their problem alone.
If you’ve been working on balancing your budget for next year, as I have, then the summer has been a frustrating period. No-one has been around to work on those budget proposals because they’ve all been away camping in France or enduring the rain in Devon. Haven’t they read the budget timetable, for heaven’s sake? Don’t they care?
This time the challenge is bigger than ever before for many councils, and it’s all about social care. With funding still following the austerity curve, spending on care packages rising out of control, the usual bail-outs from the health service not likely to be forthcoming, and an ingrained culture among some social care colleagues of spending first and asking questions afterwards, many finance directors are complaining about overspends that cannot now be brought back under control. To make matters worse, they are finding that, going into the autumn, social care colleagues are struggling to come up with any suggestions about how their budgets might be trimmed to contribute to the corporate budget gap.
What, then, can a weary finance director—one who has been too busy to take a holiday this summer and is now into perhaps the most difficult budget setting process of their career—do to stem the tide of overspending and pull a credible set of budget proposals together?
The single most important thing is to establish within your organisation that it is not your problem alone, although it may feel that way. Corporate ownership is a must. Your politicians must understand and accept the necessity to address the issues. Your colleagues around the boardroom table must do likewise. A budget problem on this sort of scale can only be solved if everyone plays their part.
Let’s start with the overspending. The first thing is to understand the problem. Exactly where and how is the overspending occurring? Is the service measuring and forecasting it accurately, and if not, the first action is to remedy this. You need to know the true scale of the problem. The service will suffer from optimism bias in its forecasting; your job is to make sure that the numbers that go into the finance monitor present a prudent position—in other words, they won’t get worse as the year wears on. Be careful here: the service will probably present you with a few unwelcome surprises in a month or two anyway, so make sure this possibility is reflected in your commentary.
Tackling the in-year position will require the entire organisation to tighten its belt a few notches, unless your reserves are big enough to take the hit. Don’t expect the areas that are overspending to be able to solve the problem on their own: everyone will have to play their part. This may cause some resentment in areas that have been spending to budget, and some blaming of social care colleagues; you may need to remind everyone that you all work in one organisation and that it is one community that you are serving. Also, be clear with everyone that the measures you are putting in place are only temporary, until spending is under control. This is an important point: a spending freeze can only work if it has a finite life.
Look at spending on staff. Recruitment can be controlled. Overtime and honoraria, expenses, and the use of expensive agency staff and consultants are all opportunities for spending reduction. Next look at contract spending, and where possible move the authorisation level on purchase orders and invoices upwards until only senior staff can approve spending. This introduces senior scrutiny, but also creates a bottleneck, slowing spending down. Monitor and hold budget holders to account on a monthly basis throughout this period.
Once you have spending controls in place, you will be able to focus on the budget picture for the next few years. Your work with the areas that are experiencing the biggest pressures will have provided insight into the issues. However, you will find that there are no immediate solutions. Fixing things, in as much as they can be fixed, will take time.
It is important to engage the whole organisation in planning the future, but how you do it will depend upon the way your organisation is configured: the politics, the layers of accountability, the appetite for change. Do what works for you. The underpinning requirement is to line everyone up behind a credible vision of your organisation managing within its means and delivering the outcomes your community needs, and a delivery plan that gets you there. With spending under control you will have a much better chance of achieving this, and perhaps squeezing in that overdue holiday too.
Agent151 is a senior local authority finance director and s151 officer writing exclusively for Room151.