APPENDIX 8

Reserves and Balances Policy

1.0       Background

This policy sets out the Council’s approach to reserves and balances. The policy has regard to Local Authority Accounting Panel (LAAP) Bulletin 77 “Local Authority Reserves and Balances”, issued in November 2008.

1.1       In reviewing medium-term financial plans and preparing annual budgets, the Council will consider the establishment and maintenance of reserves for the general fund. The nature and level of reserves will be determined formally by the Council, informed by the judgement and advice of the Chief Finance Officer (CFO).

2.0       Types of Reserve

The Council will maintain the following reserves:

· A working balance to manage in-year risks, called the General Fund Balance.

· A means of building up funds to meet known or predicted requirements, called Earmarked Reserves.

2.1       Earmarked reserves will be maintained as follows:

· priority outcomes and transformation reserve: to fund the transformation programme to change, protect and improve Council services, and programmes that meet the Council’s priority outcomes.

· financial management reserve: to manage the potential financial consequences of risks recognised in the Council’s risk management arrangements and the CFO’s robustness statement, and to enable the effective management of the medium-term financial strategy and investment strategy.

· named service reserves will be held specifically for the capital programme, waste contract risk and insurance risk.

· other reserves will be held on behalf of others (e.g. Schools) and/or statutorily ring-fenced (e.g. Public Health).

2.2       The Council will also maintain a number of other reserves that arise out of the interaction between legislation and proper accounting practices. These reserves, which are not resource-backed, are for accounting purposes and will be specified in the annual Statement of Accounts.

3.0       Principles to assess the adequacy of reserves

The CFO will advise the Council on the adequacy of reserves. In considering the general reserve, the CFO will have regard to:

· the strategic financial context within which the Council will be operating through the medium-term;

· the overall effectiveness of governance arrangements and the system of internal control;

· the robustness of the financial planning and budget-setting process;

· the effectiveness of the budget monitoring and management process

3.1       Having had regard to these matters, the CFO will advise the Council on the monetary value of the required general reserve.

3.2       In considering specific reserves, the CFO will have regard to matter relevant in respect of each reserve and will advise the Council accordingly.

4.0       Underspends

The process for determining the specific use of any underspend will be based upon the principles of effective financial management. Therefore underspends will not automatically be carried forward via reserves, nor will they only be available to the service that has identified the underspend.

4.1       Periodically during the year, Services will be asked to submit business cases for the use of underspend. Business cases will be determined by the CFO in conjunction with the Corporate Management Team. These will then be held in a Strategic Reserve.

5.0       Use of reserves

Members, as part of agreeing the budget, will agree the policy for drawdown of reserves on the advice of the CFO. Use of reserves will be approved by CMT and reported to Cabinet as part of the RPPR monitoring process.

5.1       The CFO will monitor the drawdown of specific reserves in accordance with the agreed policy, and keep Members advised.