Cook’s tour

Paul Cook is an independent consultant. He has run
social services finance at five major authorities. He’s the author
of the Chartered Institute of Public Finance and Accountancy’s
finance guides on housing, housing benefit, Supporting People and
partnerships. He has also been director of finance at Westminster
Council and chief executive of Daventry Council.   

How much does any right-thinking social services manager want or
need to know about finance systems? The answer is rather a lot.
It’s an unfortunate fact of life that understanding how to get the
most out of your finance system is the key to controlling your
budget. So in the first of this series on financial management, I
am going to look at the main finance systems used to run social
services and what they do. I am also going to show you how to use
them to your advantage, and what not to do.

For the sake of simplicity, I’ve assumed that functions are
delivered directly by a local authority using its own financial
systems. In reality, of course, the development of partnership
working means social services finances may be managed through
shared multi-agency systems or even another agency’s systems
altogether.

So what are the main computer systems used to run social services
finance and how do you get the best out of them?

The main financial system is used to prepare financial accounts and
monitor budgets. It is normally a corporate system used by all
council directorates, and an executive reporting package will offer
the flexible management of financial information.

Main financial system
Use the main financial system as much as you can. It is designed by
accountants for accountants and will be a high-quality,
high-performance tool. As with any system, you need to invest time
and effort to maximise its potential. After all, even a Steinway
concert grand piano needs regular tuning.

First, get in the habit of using it as the source of finance facts
and figures. If the system has weaknesses, work to redress them
rather than starting up another, rival data source.

Second, users need to be trained up to a good intermediate
standard. In many directorates, only a small part of the system’s
potential is ever used. This is a shame as it could mean you are
wasting money on additional accounting staff and locally developed
mini-systems that duplicate the main system’s functions. In
particular, all budget managers need to be able to access the
system and know how to extract reports.

Third, the cost centre structure must be simple. A basic reporting
framework is required where you can recast or manipulate data to
your heart’s content.

Fourth, use accounting structures that comply 100 per cent with the
Chartered Institute of Public Finance and Accountancy’s code of
practice for standard expenditure analysis for social services.
This usually changes slightly with each annual edition and needs to
be kept up to date. If you fail to do this and have your own
independent accounting structure instead, you will never find it
easy to generate robust unit costs for comparison purposes.

Finally, do not allow the accounts structure to get out of date.
You need to react quickly to reorganisations and new service
demands. Keep the details of cost centre managers and so forth bang
up to date.

Payments
The payments system is used to process payments to the suppliers of
goods and services to the council. With a good system you can drill
down from a charge in the accounts to an image of the invoice; more
traditional systems offer an invoice description and reference,
with the actual invoice batched and stuffed away in storage.

A good system will protect you against duplicate or fraudulent
payments, and save time in answering those innumerable queries from
suppliers as to when or if they have been paid. It will also give
managers fast access to information about costs for reports or
perhaps grant claims.

Prompt payment of invoices is a national Best Value performance
indicator. This is published as a single, whole-council figure. But
there is always an internal league table. Being one of the best
directorates in this area gives the winning impression that
finances are under control.

The payments system should try to minimise the number of petty cash
payments. Petty cash is a high-risk, opaque method of making
payments. Most payments need to go through what is hoped to be your
efficient and secure payments system.

Try to avoid small, localised payments teams. Aim instead at a
single centralised unit. It will probably be more cost-efficient,
and it will give much greater security.

Ensure each supplier has only one creditor reference or label. A
staggering number of directorates get this wrong, especially if
different services use the same supplier or contractor. If
suppliers have more than one reference, you are opening the door to
duplicate payments and confusion. There is plenty of inexpensive
software around that trawls through data for examples of identical
or similar labels. Give it a try: you might recover a significant
amount in overpayments.

Apply rigorous controls to setting up new creditor references.
After false benefit claims, fraudulent payments are probably the
biggest council fraud. As you might expect, fraudsters are adept at
setting up bank accounts with a company name that looks genuine.
Make test checks on your creditor listings (sad, isn’t it?). And
ensure temporary or contract staff dealing with payments are
assigned passwords immediately (no using Jim’s, who retired last
week, or Maureen’s, who is on holiday) so that there is an audit
trail of who did what to which payment.

You might even occasionally check out the VAT registration of small
suppliers or contractors who claim to be registered and charge you
VAT. It’s a wicked world out there…

Social services information
The social services information system is the warhorse database
used by all service teams to record client information.
Beware:unless the information in it is authoritative, the system
can be a huge waste of money. The system generates referral,
assessment and provision data for Department of Health
returns.

It is not in itself a finance system but I’ve included it here
because it offers a useful cross-check for finance forecasts. The
number of new placements, referrals and so on is usually a fair
indicator of financial outturn. Plus, shared client numbers or
references between this and the main financial system make it easy
to check out the cost of individual packages and so on.

Other functions, particularly income assessment and collection, can
exist as modules of this information system.

Income and commissioning
An income and commissioning system is used to record the care
packages bought for individual clients. It also assesses any income
due in accordance with the increasingly complex regulations issued
by the DoH. It may also be used to generate payments to service
providers, and may interface with the payments system and the main
financial system.

There are a couple of issues to be wary of with an income and
commissioning system. First, some directorates may have more than
one, perhaps to cater for different client groups or types of care
(residential placement versus domiciliary, for example). However,
the greater the number of different systems, the more
reconciliation and interface problems you will have. Use a single,
high-quality system as far as possible.

The second issue, recovery (or debt chasing), is a neglected area
in social services. A good system will have recovery facilities,
such as the ability to generate standardised reminders.

Income systems for social services are not usually designed with
the care and attention lavished on the accountants’ own toy, the
main financial system, so you may need to devote a lot of effort to
maintenance and reconciliation. That, though, is better than
missing income budgets and suffering service cuts as a result.

Abstract

This article examines some of the common financial systems used
to keep track of social services spending, looks at where
embarrassing errors and oversights are likely to occur and some of
the essential checks needed to avoid them. It also evaluates the
dos and don’ts of the main systems and suggests areas where
particular attention or caution may be needed.

The rest of the series    

• 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?  
• 24 June: Grants are a big portion of social services income but
  they are complex beasts to administer. A look at how to keep track
  of your grant income. 
• 1 July: Weak forecasting and monitoring are the main financial
  danger areas for social services managers. So how can you avoid
  disaster?

Further information   

Go to www.joint-reviews.gov.uk
and click on the Making Ends Meet button. Contact: Paul Cook at dagnallcottage@ukonline.co.uk