An essential part of the financial planning process of the council is a robust policy on the level and nature of reserves (an account set aside to meet any unexpected costs that may arise in the future).
Within the existing statutory and regulatory framework, it is the responsibility of the Chief Financial Officer (the Corporate Director, Community and Business Services) to advise the council about the level and nature of reserves to be held.
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The Reserves Policy
Setting the level of reserves is one of several related decisions in the formulation of the Council's Medium Term Financial Strategy.
In establishing and approving the Medium Term Financial Strategy, "the Council will ensure that it maintains a prudent level of reserves in line with best practice and relevant guidelines".
Any surplus reserves will be considered in the light of the budget forecast and the risks associated with that forecast.
Integrated Financial Planning
The starting point in assessing the minimum level of general reserves is £1.1m which is considered in line with best practice and therefore appropriate for this authority.
This base figure will be subject to Annual Review by the City Treasurer in the light of risks within the Medium Term Financial Strategy.
In making a recommendation as to the level of reserves which should be maintained, the City Treasurer considers carefully:-
- The overall financial standing of the authority (level of borrowing, debt outstanding, council tax collection rates, etc.);
- The authority's track record in budget and financial management including the robustness of the Council's Medium Term Financial Strategy;
- The authority's capacity to manage in-year budget pressures;
- The strength of the financial information and reporting arrangements;
- The adequacy of the authority's insurance arrangements to cover major unforeseen risks.
The Council will not hold significant balances above those required by the Medium Term Financial Strategy.
The level of earmarked reserves will be reviewed in the preparation of the Medium Term Financial Strategy and again as part of the Closure of Accounts process. The creation of any new earmarked reserves will be subject to Member approval.
The Council's General Fund Reserves at 31 March 2019 was £8.878m.
Any recommended changes to the level of reserves held will be reported within the Medium Term Financial Strategy or in the consideration of the Annual Accounts and will take account of the strategic, operational and financial risks facing the authority at that time.
In making any recommendation the City Treasurer, will provide Members, (in line with the requirements of the Local Government Act 2003) with an opinion on the robustness of the budget estimates and on the adequacy of the Council's reserves.
Any changes to this Policy will require approval by the Executive Member.
Earmarked Reserves Position (as at 31st March 2019)
Earmarked reserves are a means of voluntary and prudently building up funds to meet known future or predicted liabilities. When establishing reserves the Council must adhere to the Code of Practice on Local Authority Accounting (the CODE) and in particular the need to distinguish between reserves (set aside for future liabilities) and provisions (mandatory set asides for actual liabilities existing).
In approving any new earmarked reserves the Council needs to identify the purpose of the reserve, the protocol for its use and the procedures for its management and control. The appendix details the earmarked reserves that can be released to revenue if required.
The Earmarked Reserves as at 31 March 2019 are set out in(Note 1).
In line with this Policy earmarked reserves have been reviewed:
The original budget 2019/20 approved at Budget Council February 2019 included release of a number of earmarked reserves which are detailed in.
In addition during 2019/20 the following earmarked reserves have been approved for release:-
i) IT Strategy Reserve
A number of IT projects have been approved by Corporate Management Team. All projects have to be supported by a full business case. Detailed Member reports are produced, in line with the financial procedure rules, if required.
Other Reserve Funds
Details of all other reserves and balances including information regarding purpose, how and when to use and possible release into revenue budget or funding of capital are set out in. These include:-
- Balances Available in Creditor Provisions/Income in Advance
- Capital Reserves
- Pension Reserve
- Financial Instruments Reserve
- Collection Fund Adjustment Account Reserve
- Capital Grants unapplied
- Accumulated Absence Account
Presentation of the Reserves
These have been presented in a way which is hopefully in an easy to follow and useful format. The reserves have been identified as usable or unusable.
The usable reserves are those which can be applied to fund expenditure although some can only be used to fund capital expenditure. The unusable reserves cannot be used to fund expenditure and are used to hold technical accounting balances required in order to comply with the CIPFA Accounting Code of Practice.
Release of Reserves - Proposals for 2019/20
At this stage the following reserves (as detailed in Appendix 1) are proposed for release:-
The latest forecast provisionally includes the release of the above reserve subject to being approved by the Executive Member (Resources and Performance).