Central government funding has fallen for local authorities in England resulting in many councils taking a commercial approach to raising finances.

Sanjiv Kohli, Deputy Chief Executive, Director of Resources and Section 151 Officer at Newark & Sherwood District Council, explains: “The role of finance officers in local government has changed significantly during the last 10 years. Up until the introduction of the current business rates retention system in 2013, we had certainty of funding from central government and the role of finance officers was principally that of setting the annual budget, monitoring spend against this budget and reporting on the end of year results. We also had the heady days of three-year finance settlements.

“The change in the business rates system in 2013 pushed the risk of funding from central government to local government and successive reductions in central government funding have meant that councils have increasingly had to generate their own funding through increased income from fees and charges, business rates retention, council tax and commercialisation activity. We at Newark and Sherwood have had a commercialisation strategy and plan which is an integral part of our medium-term financial plan.”

The need for strong financial literacy across local government is more important than ever. Councils must have checks and balances across the organisation to ensure they are not taking unnecessary risks.

“Commercialisation is not just about generating more income, but also about doing things more efficiently,” states Kohli. “Therefore, it is important that there is sound understanding of finance amongst elected members, senior management and staff colleagues. Finance is everyone’s responsibility – finance officers provide support and guidance on preparing budgets and monitoring the spend against those budgets but it is imperative that budget holders and service directors take ownership in managing their budgets.”

Educating councillors

Elected councillors need to understand the council’s financial operations and performance to deliver on their manifestos to the local community and to help the council generate more income. “There may be elected councillors who have worked in local government for several years, who have an understanding of how local government finance works,” says Kohli. “But at the last local election, 43% of our members were new to local government and did not have an understanding of how we are funded and our increased reliance on generating additional income.” 

Furthermore, financial experience often relates to the private sector, where the Companies Act governs financial statements. This differs greatly from how local government finances are managed and financial statements prepared. “The fundamental difference is that in the corporate world, you're answering to shareholders, and therefore you're profit-driven. In local government, you are not there to make a profit. You are providing services to the local community, which come at a net cost,” details Kohli.

Induction programmes that encompass financial training are vital. “As part of our councillor inductions, we do an introduction to finance, explaining where our funding comes from and the shift towards greater self-reliance,” says Kohli. “We present budgets and our medium-term financial plan, which is partly reliant on meeting the targets in our commercialisation plan. We also discuss treasury management, an often-overlooked area, explain how central costs are recharged to different departments and talk through financial and contract procedure rules.”

Ongoing training is also vital to aid effective decision-making. “We seek to identify gaps in knowledge and ensure that there is relevant, regular training. We also provide education on hot topics, such as prudential borrowing and treasury management. We talk about how to invest money, mitigating the risk of over exposure versus return on investment, as well as training them on risk indicators,” details Kohli.

Supporting council officers

Council officers also need to be trained in the council’s financial strategy and approach to financial management to aid their decision-making. “We have over 50 services running and about 25 business managers overseeing these services. We call them business managers because we want them to think more commercially. One of our core values is ‘being commercial and business like,’” says Kohli.

To facilitate a commercial mindset, it is essential that budget holders have access to the right tools and analytical data for budget decisions, as well as monitoring and reporting on performance. “We train our business managers to use our financial management system. We invested in a new system in 2020, which provides our budget managers with real-time data on their current budgets. They can see their budget and manage the spend against those budgets, as well as see digital copies of source documents.”

A good working relationship between finance and the business leads is also crucial. “Our accountants typically look after several budget holders,” says Kohli. “They act as advisers and support those budget holders throughout the year by monitoring their budgets, having regular monthly meetings and assisting them by providing financial support on any projects that the budget holders are leading on. This close relationship helps to identify any training needs.”

Regular performance meetings with business managers also mean that finance is better placed to report financial performance to senior management and quickly pinpoint the reasons why key performance indicators (KPIs) are not being met. “Our service performance reporting is now aligned with our financial performance reporting with quarterly reporting to senior management, cabinet and our scrutiny committee,” says Kohli. “Through the alignment of reporting of service KPIs with financial performance, we can see if certain services are slipping and are better placed to identify the underlying problem and what needs to be done to address that, whether through better performance management or whether there is a need for budget reallocation to increase capacity, for example.”

Ensuring organisational alignment

Finally, various council stakeholders must also work together to ensure the financial vision is aligned. “We have an officer commercial group, which cuts across the authority and meets regularly to see how we are progressing on our commercialisation plan. This includes councillors, senior management and business managers who all need a good grasp on our performance.”

The use of data visualisation tools, such as Power BI, can be invaluable in summarising the data. “These tools help when creating presentations and helping translate the data into a standardised format that makes the report better for all users,” says Kohli. “We are also developing this tool to provide our elected members with key data about their residents in their electoral wards.”