Guide No. 1 Finance Budgetary Control Version: 1.0 Revision Date: April 2008
Guide No. 1 Budgetary Control V1.0 Revision and Control Record Revision Number Section / Paragraph Reference Description of Change Revision Date 1 e.g. 2.1.1 e.g. New operating principle number xx e.g. Jul 06 2 3 4 5 6 7 8 9 10 Research Councils' Internal Audit Service Page 2 of 6
Guide No. 1 Budgetary Control V1.0 Contents 1. Introduction...4 1.2 Action Suggested... 4 1.3 Further Assistance Available... 4 2. Scope of the Guide...5 2.1 Financial Reporting to Council and Senior Management... 5 2.2 Institute, Unit, Centre, Department or Group Finances... 5 2.3 Profiling of Budgets... 5 2.4 Review of Balance Sheet Information... 6 2.5 Budget Formulation and Movement... 6 2.6 Commitments... 6 Research Councils' Internal Audit Service Page 3 of 6
Guide No. 1 Budgetary Control V1.0 1. Introduction 1.1.1 RCIAS has over time performed a number of audits of systems common across the Research Councils. These audits were not performed as Cross Council audits, but as separate audits in each Council. As would be expected, the scoping was similar and considered the standard controls expected within each of the systems. 1.1.2 The aim of the RCIAS Bulletins is to draw from this work and to share good practice between the Research Councils. 1.1.3 The Bulletins are colour coded under the following headings: 1.2 Action Suggested 1.2.1 The attached pages show common issues noted, along with good practices identified within the Research Councils or the wider public and private sectors. We hope that you find this document useful, and suggest that you undertake a self audit and benchmark your own procedures or systems against the good practice identified. Please note that no response to us is required. 1.3 Further Assistance Available 1.3.1 RCIAS are able to provide you with further information and guidance on the content of this circular. Please contact us if you wish to discuss any of the issues, or obtain further guidance. Research Councils' Internal Audit Service Page 4 of 6
Guide No. 1 Budgetary Control V1.0 2. Scope of the Guide Corporate processes for establishing overall budgets for financial year and the management of actual financial outturns to budget. 2.1 Financial Reporting to Council and Senior Management Not all Councils provide regular financial reports to Council members or senior management. This is a key financial control. Regular agreed timetable for Financial Reports showing actual financial results to date (values and percentages) compared to budget, together with a year end outturn forecast, to senior management each month and to Council each quarter. Commentary should be provided to enable Council members to review variance and analyse the current position. 2.2 Institute, Unit, Centre, Department or Group Finances Procedures to monitor expenditure at Institute/Unit/Centre levels vary across the Councils. A significant proportion of Councils expenditure and external income is directly controlled by corporate subgroups and not managed centrally e.g. institutes, etc. Council Chief Executives have ultimate responsibility for all finances. Further, unexpected variances to budgeted allocations at institutes may impact overall Council finances. Good practice is for institutes etc, to submit regular monthly financial reports (values and percentages), with commentary on significant variances of actual expenditure or income to budget, to appropriate Council management for review. Where there is potential for a significant over or under spend this should be highlighted and, appropriate, action taken. Variances, both positive and negative, outside a predetermined should be identified for management attention and action. 2.3 Profiling of Budgets Financial reports to management generally present income and expenditure to date compared to annual budgets. Some Councils profiled budgets in equal amounts over the months of the financial year, and presented actual spend compared to budget to date. The reports should include the original budget figure with separate details of any subsequent revision(s). At the time budgets are prepared, good practice is for budget holders to forecast when expenditure is expected to be incurred. Actual spend is then compared against this in financial monitoring reports. This enhances the usefulness of financial information and enables easier identification of deviations from budget. Research Councils' Internal Audit Service Page 5 of 6
Guide No. 1 Budgetary Control V1.0 2.4 Review of Balance Sheet Information Balance sheet information may not be regularly reviewed by Finance management within the Councils. The monitoring of key balance sheet items enhances financial control. For example: a review of aged debtors reports enable management to ensure that amounts owed to the Councils are being collected in a timely manner; and a review of aged creditors balances can provide management with assurance that supplier invoices are paid on time and with valuable information on forthcoming payments required. 2.5 Budget Formulation and Movement Budgets are not always aligned to the business objectives as set out in the Business Plan or organisational structures. Budgets were found to be based primarily on previous years rather than planned business requirements. Budgets should be derived from business plan objectives and used to help monitor financial performance. Budgets should be agreed and set to reflect planned business objectives and requirements, changes in the business environment and not based solely on previous years. There should be clear delegations and procedures for agreeing and authorising movements in year between budgets. 2.6 Commitments Reports may detail expenditure but not commitments against budgets. Budget reports should detail known and expected commitments especially where these may have a large impact and/or be volatile in terms of payment. Research Councils' Internal Audit Service Page 6 of 6