What a director of children’s services and their senior team need to know about finance:
The difference between revenue and capital
Revenue is the day-to-day expenditure such as staffing costs, children’s placements, adult care costs which is funded through fees and charges, council tax and government support. For many education services, government support comes via the Dedicated Schools Grant which is provided by the Department for Education. In addition, children’s services have pooled budgets and joint funding agreements with health.
Capital is where the expenditure will create an asset that is expected to last more than a year, such as building a children’s home. The funding of such projects can be from government grants, borrowing by the council (like a mortgage) or through the council’s own resources such as a revenue contribution. When a capital asset is sold, it is recognised as a capital receipt but unlike revenue which can fund capital expenditure, capital cannot ordinarily without specific direction be used to support day-to-day revenue expenditure.
What is the section 151 officer?
Under Section 151 of the Local Government Act 1972, every council must make arrangements for the proper administration of their financial affairs and appoint one of their officers to have responsibility for the administration of those affairs. They are also known in law as the chief financial officer (CFO) but in practice have many different job titles. The CFO is required by law to be a member of a specified professional body, one of which is The Chartered Institute of Public Finance and Accountancy (CIPFA). The governance guidelines in the CIPFA statement on the role state that the CFO should report directly to the chief executive and be a member of the leadership team with a status at least equivalent to other members. The statement also requires that if different organisational arrangements are adopted the reasons should be explained publicly in the authority’s annual governance report, together with how these deliver the same impact.
As the council’s nominated officer responsible for effective financial administration, the CFO also has a role in ensuring value for money. They will also usually manage the relationship with the council’s external auditors. The CFO has a statutory responsibility (under S114 of the Local Government Act 1989) to report to the council under certain circumstances, including where it appears to them that expenditure will exceed available resources in any year.
Budget approval
It is a statutory requirement that the council budget, revenue and capital, are approved by the full council. This usually takes place in February in each year for the forthcoming financial year starting on 1 April. The proposed budget is initially considered by the council’s executive or the appropriate committee, (if operating a committee system) who make recommendations to the full council. The approval of the budget does not need to be unanimous but by simple majority, usually by the ruling political group on the council. It is important to note, there are different rules in place for Mayoral authorities.
It is a legal requirement that the revenue budget is a balanced budget. In other words, the budgeted expenditure must be matched by the expected level of income after planned use of reserves. Since reserves can only be used once, it follows that in the medium-long term, the council must spend in line with expected levels of income. Income includes specific grants and fees and charges into account as well as Council Tax, and government support through revenue support grant, business rates. For the Capital Programme the sources of funding must be identified.
A specific control in the budget process is a report from the S151 officer known as the Section 25 report (as required by Section 25, Local Government Act (2003)) which advises the full council on the robustness of the estimates and on the adequacy of the proposed financial reserves.
Children’s services budget setting
The council’s budget should flow from its corporate plan and regard should be made to the agreed corporate objectives for children’s services. It may be that any proposed expenditure which does not meet corporate objectives or is not for statutory responsibilities, could be identified for a saving.
The ability to predict demand for services and track the market for placements is crucial for budget setting. However, some budget pressures are extremely difficult to predict, for example:
- The cost and sufficiency of placements for children.
- Increasingly complex care packages for children with Special Educational Needs and disabilities (SEND).
- Unexpected demand for example through the Unaccompanied Asylum Seeking Children dispersal scheme.
- New and unfunded duties/burdens are such as extending SEND duties up to 25 years of age.
- Recruitment and retention of staff and agency costs.
For this reason, councils should include contingency planning as part of setting budgets. It is important the DCS and CFO work together in the context of invest to save priorities which might include expanding in house residential provision. In addition, it is important to work with key partners of the council such as health to maximise important contributions to packages of care.
For many services, the higher the level of spending, the better quality service is provided. Children’s social care is unusual in that some of the higher costs are most commonly associated with some of the poorer practice. Councils with ‘inadequate’ or ‘requiring improvement’ judgements from Ofsted are usually among the highest spenders and only some of this is associated with the cost of improvement.
Budget monitoring
Good financial management is based on sound budget monitoring. On an ongoing basis, as expenditure is committed, the forecast spend is measured against the agreed budget. This will then be summarised into a report on no less than a monthly basis. It is then important, that as the senior leadership team you are involved in the monitoring process and provide realistic and achievable budget projections.
Social care budgets are often described as ‘demand led’ - the council is obliged to respond to the need for services as and when it is identified and even to actively seek out need. All budgets are ‘demand led’ in one sense or another; the real issue with social care is how councils are legally obliged to meet demand. Effective triage and assessment are key to ensuring that children’s needs are addressed safely with an appropriately costed package.
Where there are variances, positive and negative, these need to be investigated to identify any underlying trends. Where a variance is identified, then there should be discussion between finance and children’s services colleagues to consider any appropriate remedial action. It is likely that significant variances will require Member approval and it is not unusual for such variances to be reported to Members in a revenue budget trends report.
Medium Term Financial Plan
The Medium Term Financial Plan (MTFP) also sometimes called Medium Term Financial Strategy (MTFS), outlines the forward projections for the next few years in respect of the council’s budget. It is prepared for the whole Council but it is critical that the senior leadership team of children’s services has input into this (like the annual budget preparation) and help to identify future pressures and achievable savings. Issues such as general trends in demography, economic forecasts and forthcoming legislation should be reflected in the MTFS. Given the significant financial pressures facing local government, it is normal for these projections to identify the need for savings at a corporate level over the forthcoming years. It is for each council, members and officers to determine how that budget gap is bridged but it is essential that plans are considered at the earliest opportunity and that a corporate approach is adopted.
Reserves
Councils do hold revenue reserves which reflect money set aside for spending against known and unknown risks, delays in spending incoming grants and, sometimes, members priorities.
It is good financial management to review reserves on at least an annual basis to ensure those held for earmarked purposes remain appropriate and as a matter of good practice the senior leadership team of the council, including the DCS, should be involved in that review.
Questions to consider for strengthening a common purpose:
- Do children’s services understand their roles and responsibilities in relation to finance?
- How do children’s services understand challenges and barriers experienced by those in finance team?
- How does children’s services communicate the challenges and also needs of all children and their families in a way that finance understands?
- What is your assessment of the current working relationship between directorates?
- Reflect on what works well for your council in terms of finance and children’s services working together?
- Consider if you are maximising the contributions from health and schools in supporting Education Health and Care Plan (EHCP)’s and SEND needs.
- Have you defined the needs/ requirements for children’s services at present and in the future? These can be technical as well as outcome based.
- What needs to happen to support you in furthering and strengthening the common purpose between your directorates to achieve better outcomes for children and their families?
What a Section 151 Officer and their senior team need to know about children’s services:
Children’s services present one of the biggest risks to a council, both reputational and financial, if matters go wrong. Children’s services financial issues cannot be overlooked and have to be considered within a council’s corporate financial framework.
Each council will regularly produce dashboards of key performance data for children’s services and normally this is accompanied by an analysis of the data and benchmarking against other councils or national averages. In addition, each council is a member of a Regional Improvement and Innovation Alliance (RIIA) who undertake regular collection of children’s services data from the region. This information which is shared by the DCS will provide a comparison with other councils in the region. This type of information can be really important in identifying potential areas of increasing demand and therefore spend and also how this compares with other places. But it is important that you work with colleagues in children’s services to understand this performance information. Below are some of the key areas of focus for a CFO.
Placements
A number of councils have encountered financial difficulties because they have not been able to adopt a strategic approach to purchasing placements for children in care and those requiring specialist educational placements (often called a commissioning or sufficiency strategy). In other words, they have gone to the market for a placement and have to accept how the market responds, which may or may not provide value for money.
However, it should be noted at present, there is an acute placement shortage both nationally and locally especially for those children with multiple and complex needs. Although work is being undertaken by commissioning and placement teams to source placements at good value, the market is currently led by providers. Many councils have taken the strategic decision to build their own or increase their residential provision to manage the shortage. It is important the DCS and CFO work together in the context of invest to save.
As CFO you will want to ensure the council has appropriate procurement practices in place, to ensure that when a placement is needed that financial value for money is being achieved. It should also be noted that some of these high-cost placements are due to complex health needs and as such costs shared and placement reviewed with health partners as appropriate. It must be recognised that the financial cost of a placement is not a consideration in the placement of a child, the needs of the child are paramount, but good forward planning should help to ensure value for money.
As CFO, you and your team should work with colleagues in children’s services to review the existing high-cost residential and educational placements. This will help to understand why these are high-cost places and to identify improvements in your Council’s procedures. This is to secure better value for money in the future. This exercise should not be seen as a means to reducing the cost of the existing placements unless it is in the best interests of the child which are always of paramount importance.
Support to families
Councils want to support families at the early stages of concern. This can often provide better outcomes for the child but also avoid the long-term costs of supporting children on child protection plans or coming into the care of the council. This approach is also one of the key recommendations in the Social Care Review (2022) in which it is proposed that there is a move to establishing more early support for families. However, it is difficult to continue to commit to sustaining these types of services when difficult short term budget decisions need to be made. As CFO, you will want to be aware of the council’s arrangements for supporting families, how this dovetails with the council’s corporate approach but also the evidence that supports this focus on early help/intervention.
Staffing
There is currently a national shortage of professionals to support children’s services. This is not just social workers but extends to other professionals such as educational psychologists, SEN workers, health visitors etc. This has resulted in a number of councils undertaking initiatives to recruit staff but this can often leave gaps in capacity in neighbouring councils. A significant proportion of the children’s workforce is also now provided through employment agencies and this has increased staffing costs for councils. The CFO will want to receive timely and accurate information on the levels of agency staff in children’s services and the additional cost of this. If the council has a high level of agency staff, it is suggested that you work with colleagues in children’s services and HR to determine whether alternative solutions exist. This could include ensuring that there is a robust recruitment and retention strategy in place which addresses practitioner sufficiency as well as reviewing how the strategy is being implemented.
The need to stop it going wrong
Experience across the sector indicates that when a council receives an ‘Inadequate’ judgement from Ofsted the council’s costs will increase significantly. This is because there is a need to deliver an improvement plan that will quickly deliver improved outcomes for children. This plan will be underpinned by a statutory improvement notice and progress will be closely monitored by Ofsted and DfE. The costs will run into several millions of pounds and will last for at least three years. It is therefore critical that the CFO works closely with children’s services and the corporate management team including the chief executive, to ensure that effective services for children can be delivered.
Special Educational Needs and Disabilities (SEND)
Under the current arrangements (recognising the Government is consulting on changes), children and young people with SEND will have access to Special Educational Needs (SEN) support through their educational setting. However, some children and young people may have more complex needs that cannot be met through SEN support. They are eligible for an assessment for an Education and Health Care Plan (EHCP), the plan identifies educational, health and social needs and sets out the additional support required to meet those needs. The EHCP is funded by DfE through the High Needs Block (HNB) of the Dedicated Schools Grant. There has been an increase in EHCP numbers nationally and there is also an increase in the numbers of councils exceeding the funding available in this funding block and operating a deficit. The government is working with those authorities to alleviate the position through projects such as Safety Valve and Delivering Better Value in SEND.
Where council spending exceeds the DfE grant in this way, the deficit accumulates over time and can become a major problem for the financial position in children’s services and corporately. It is essential that both the senior leadership team of children’s services and the CFO have a shared understanding of the position in HNB spending and have plans to contain it within budget. However, it should be noted that very few councils are within budget and as such focus should be on whether risk can be mitigated in this area.
Corporate parent
When a child or young person comes into the care of the council or is under 25 and was looked-after by the council for at least 13 weeks after their 14th birthday, the council becomes their corporate parent. The CFO, as a senior officer of the council, has a collective responsibility, alongside elected members, other officers and partner agencies, for providing the best possible care and safeguarding for these children and young people. It is important, that you work with the director of children’s services and the senior leadership team to achieve this aim.
Risk Management
Risk management is critical in any organisation and it is the responsibility of all managers. There should be a risk register and risk management arrangements in place within children’s services that identifies and manages risks at local level. The DCS and their management team will oversee this risk register. Significant risks, including those that have a corporate impact should then also be reflected in the strategic risk register which is overseen and managed by the corporate leadership team, including the DCS. An accountable officer, usually but not always the CFO, takes responsibility for overseeing the effectiveness of risk management. It is critical that the risk register is regularly updated, and that regard is made to it in making decisions including budget decisions.
Internal Audit
It is the responsibility of managers in the children’s services department to action recommendations drawn to their attention by internal audit. The chief internal auditor will monitor the delivery of recommendations and report accordingly to the audit committee. It is also important for children’s services to work with internal audit to shape the audit programme and focus on those areas that would really benefit from an independent check.
Government grants
The DfE regularly provides both on-going and one-off grants to support children’s services. It is not uncommon for these grants to have very detailed criteria as to their use and it is important that the CFO is aware of the grants being received and that these are being used in accordance with the grant conditions, thus, avoiding any subsequent difficulties particularly at the time of an internal or external audit. This is of particular importance given a number of grant allocations are approved in public forum, for example, schools forum.
Partnership working
There are many opportunities and benefits from public services working collaboratively and there are also many examples of where budgets from different public sector organisations have been pooled or aligned to support this approach. As the CFO you should be aware of all the joint arrangements between children’s services and external partners and consider how will you satisfy yourself that appropriate governance exists, so as to ensure sound budgetary control.
The relationship between finance and children’s services
Due to the size, risk and complexity of children’s services, a close working relationship with finance is essential. There are a variety of models used, but typically will include finance staff providing hands on support to children’s services managers, and a senior financial professional (that reports to the CFO) sitting in the children’s services management team. This individual should have specialised knowledge and understanding of children’s services finance.
Working with members on children’s services finance
The portfolio holders for finance and children’s services should both understand children’s services finance. Working with the senior leadership team of children’s services you should ensure that they have that understanding, provide challenge in terms of budget setting and monitoring and be able to respond to matters as part of the democratic process.
Questions to consider- strengthening a common purpose
- Is there a clear understanding of what role finance plays when working with children’s services?
- How do the finance team understand challenges and barriers experienced by those in children’s services?
- How does finance communicate their challenges and also requirements to children’s services?
- What is your assessment of the current working relationship between directorates?
- What is your assessment of the current working relationship with key partners, such as health where joint funding is expected.
- Reflect on what works well for your council in terms of finance and children’s services working together?
- Have you defined the needs/ requirements for children’s services at present and in the future? These can be technical as well as outcome based.
- What needs to happen to support you in furthering and strengthening the common purpose between your directorates in order to achieve best outcomes for children and their families?