Virements arrangements

Report: 7
Date: 17 April 2001
By: Treasurer and Commissioner

Summary

This paper makes proposals for the manner by which budget virements (transfers between budgets) will be managed and reported during the financial year 2001/02.

The paper also sets out the circumstances under which movement between budgets are permissible and more importantly where they are not.

A. Recommendation

The Committee is recommended to agree and endorse the proposals for virement management set out in paragraphs 5 to 11.

B. Supporting information

1. Historically there has not been significant corporate scrutiny of budget performance below the relatively high level of subjective budget category such as Police Pay, Property etc.

2. There has also been a tradition of substantial numbers of small value budget transfers in year as unexpected/unplanned expenditure occurs combined with a regime of authorised overspends due to priority shifts funded by underspends, often occurring fortuitously, but with no budget movement to recognise the management decision.

3. This has resulted effectively in a financial control process that manages the organisation budget to the bottom line without great clarity about the component over/under spends on individual budget lines.

4. Members since MPA creation have received budget-monitoring reports, which fail to answer, to their satisfaction, questions about the performance and volatility of budget lines. Furthermore with the increased focus on budget scrutiny resulting from the significant budget increase and investment in particular areas, Members have requested greater transparency and clarity in financial reporting and greater evidence of budgetary control. This report sets out proposals for virement control in response to the Authority's request that Finance, Planning and Best Value Committee review this area.

Proposals for budget virement control

5. Budget virements should only be made when permanent shifts of priorities or resources are planned. Such a shift might be the creation of new business or operational command unit resourced from a number of existing areas, or from verified additional funding. In year budget reductions to achieve efficiency savings targets is another example.

6. Temporary budget moves to cover unplanned/unexpected expenditure will not be approved. Whilst overspends will be expected to be offset by underspends in other areas, it will be important to see and understand where and why costs are falling rather than following a methodology of 'chasing the actuals' with budget movements.

7. Budget movements will not be encouraged between business units or business groups unless as the result of a permanent budget change as described in paragraph 6. Business units are defined as individual borough or operational command units and recognised departments within support business groups.

8. The MPS Management Board has already agreed that there will be no virement from police pay budgets in 2001/02.

9. FPBV Committee will approve budget virements of over £1m. Virements below £1m will be approved by the Resource Allocation Committee of the MPS and reported to members through the budget monitoring mechanism. It is not expected that virements of less than £100k will meet the conditions set out in paragraph 6.

10. No budget virements will be allowed in the first and fourth quarters of 2001/02. The key reporting and approval meetings for budget virements will be July/October 2001 and January 2002.

11. The proposals do not remove budget holder flexibility where it has been devolved. Local management will still be able to manage underspends in direct budgets to spend more in other lines. However, because budget virement will be more tightly controlled, over and under spends will be more transparent and managers will be expected to explain why and how they are occurring to justify their actions. This development will aid or understanding of costs and improve budget setting and devolved management in the future.

C. Financial implications

There are no direct financial implications from the recommendations above. However there is an expectation that the standard of financial reporting and analysis will improve in 2001/02.

D. Background papers

None.

E. Contact details

The author of this report is Bob Alexander.

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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