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The subject of grants is one area of financial management that can quickly bring a glazed expression to the face of any service manager. But they are undoubtedly big business. In 2004-5, 15 per cent of government funding for adult social services is made up of grants (£1.498bn). For children's services the figure is lower at 6 per cent (£258m), but still significant. On top of these social services grants come £1.8bn of Supporting People money and grants for asylum costs.

So be warned: neglecting your grant position will allow precious resources to be frittered away by wily corporate finance colleagues, possibly without you even knowing it.

The key question about a grant since time immemorial is: "Is it or is it not included in my cash limit?" You need to be confident of the answer to this wearisome question for all the grants covering your service area.

Drawing up a cost centre report is the first step. Cost centres - 100 or more in most directorates - are the basic building blocks for preparing budgets, monitoring spend during the year, and preparing the final accounts. There are three important points to note in any cost centre report:

First, most grants provide additional funding for mainstream services, a top-up if you like. So it does not really make sense to try and split off the grant-funded part of the service into a separate cost centre. It will prove complicated to operate (which invoices do you pay on which code?). Before long you will have two unintelligible cost centres instead of one.

Second, many grants are used to boost services across a wide range of services and client groups (carers grant being an example). The budget for this grant income therefore needs to be shared out to the appropriate cost centres too. If this is not done, service unit costs will be messed up. Managers will not see clearly in their budget reports that they have grant funding. This point needs particular attention as risk-averse accountants much prefer to pay the entire grant into one easy-to-account-for cost centre.

And lastly, check the grant income figure is up to date. Lazy finance sections may be using last year's figure plus inflation, or some other figure altogether. It is easy to check the up-to-date allocations yourself on the website of the relevant government department.


To fence or not to fence.

Until recently, most social services grants were ring-fenced. This meant:

• Complicated conditions as to what the money could or could not be spent on.
• Councils needed to claim their grant at the end of the year depending on how much they had spent within the conditions (up to the maximum available).
• Claims were audited by the external auditors and any ineligible expenditure would be deducted from the claim.

But for 2004-5, most grants are no longer ring-fenced. Such unrestricted grants are known as specific formula grants. They have no conditions attached, require no claim at year-end and are not audited. This means that the receiving council has virtually unfettered discretion as to how the grant is used. High value grants falling into this liberalised category include access and systems capacity, and safeguarding children.

Before celebrating the government's good sense in eliminating those tiresome grant rules, we need to consider the wider perspective. Safely ring-fenced social services grants might have been a hassle administratively. But they had to be spent on - you guessed it - social services. Specific formula grants on the other hand may legitimately be diverted into the corporate council pot; or the basic social services cash limit reduced to achieve the same effect.

A further complication on the grant rules is that councils with an "excellent" rating under comprehensive performance assessment are exempt from ring-fencing anyway. Similarly councils with a high star-rating for social services are allowed more flexibility to carry over unused entitlements. But so many grants now come as specific formula grants that these freedoms and flexibilities are not as valuable as might appear.

As well as a transparent budget, it is very useful to have a clear grant plan for the year ahead. This is no longer a formal requirement for most grants, but it helps greatly with monitoring progress during the year.

A grant plan might include details of who is the lead officer or accountable manager, the size of the grant, and which cost centres have a share. It should also detail the main projects and programmes on which the grant will be spent, the account codes and budgets for the planned projects, and whether there are any conditions attached to the grant. In preparing a grant plan, you should ask whether the systems and procedures are in place to produce audit information if required, and whether it is possible to claim indirect costs or overheads.

Grant plans should ideally be prepared well ahead of the financial year. If you don't know your council's precise current allocation, prepare a draft plan based on your best knowledge of the likely increase over last year. Progress on grant plans should be monitored by senior management quarterly.

Plans should be concise and to the point or they will soon be gathering dust on a shelf. Grant plans usually prove invaluable in budget rounds, being a good first defence to losing out on those specific formula grants. They allow management to demonstrate a full understanding of how and why they are spending grant money.

Confidence and command scores well with resource allocators, so be prepared with those punchy grant plans.


Monitoring hazards.

Specific formula grants do not take a great deal of monitoring as they come as a fixed annual total. But ring-fenced grants with conditions need careful attention:

• Make sure supporting records are in good order. If you leave it to the year-end audit it may be too late.
• Make sure any criticisms or disallowed items from last year's audit have been sorted.
• Work through in-year forecasts with finance colleagues to get them as accurate as possible. There should be no surprises once the final claim is prepared.
• Be particularly careful with grants such as the unaccompanied asylum seeking children grant that are based on client numbers and unit costs. The entitlement can move significantly over a few months. Don't fall into the trap of routinely repeating an old and obsolete forecast; make time to do this key task properly.

That ends our brief review of grant finance. By using some finance common sense, you can go a long way to protecting this valuable resource. 


Abstract.

Social services income is heavily dependent on a variety of grants, and knowing how to keep track of them is important. Good financial control is becoming even more critical with the loss of some of the ring-fencing and other checks and controls surrounding grant income. This article looks at some common pitfalls and how to avoid them.

The rest of the series.

• 1 July: Weak forecasting and monitoring are the main financial danger areas for social services managers. How can you avoid disaster?

Previous articles.

• 3 June: A look at the common financial systems used to keep track of social services spending.
• 10 June: Closing the accounts - how to avoid the dreaded year-end overspend.
• 17 June: Unit costs have a big influence on star ratings - so how can you keep them under control?

Further Information.

Contact Paul Cook at dagnallcottage@ukonline.co.uk