The final reckoning

    Paul Cook is an independent consultant who has run
    social services finance at five major authorities. He is 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.

    What could be easier than closing the accounts? This routine
    might seem as straightforward as making a cup of cocoa, but it’s
    not. Too often, closing the accounts leads to the unexpected.
    Mishaps are so prevalent that the dreaded year-end overspend has
    become common in social services accounting.

    Councils have a financial year that runs from 1 April to 31 March.
    The purpose of closing the accounts is to finalise income and
    expenditure for the year and produce a balance sheet.

    Final accounts are used for calculating unit costs, which feed into
    social services performance ratings. They are also instrumental in
    setting future budgets, claiming government grants and seeing
    whether a social services department has stayed within its

    The balance sheet is not so important. Essentially, it is a
    mathematical check on the validity of the final accounts. However,
    it must correctly state the value of any land and building used in
    the service, and the value of any debts owed by or to the

    The social services accounts need to be closed simultaneously with
    the accounts of all other council services. Each service’s final
    accounts feed into the council’s overall accounts.

    Government policy is that councils should close their accounts
    quickly. For the 2005-6 financial year, councils will need to close
    by the end of June. It is a demanding timetable.

    The council’s finalised accounts (the “statement of accounts”), go
    to external auditors. Finance directors aim for an unqualified
    audit opinion by negotiating with the auditors, amending the
    accounts to avoid any crunch issues that might oblige the auditors
    to qualify the accounts.

    The rules for preparing the accounts and calculating the figures
    are set out in two key documents published by the Chartered
    Institute of Public Finance and Accountancy. The documents are huge
    and leave very little latitude to finance directors. The key
    closing stages are year-end accruals, reconciliation, provisions
    and grant claims.

    • Year-end accruals cover adjustments in expenditure to reflect
      services received in the financial year but which have not yet been
      paid for. Likewise, income is adjusted for services supplied or
      fees due for the year not yet billed.
    • Reconciliation means checking that figures in the accounts are
      consistent with other systems. For example, the figure for debt
      owed by the primary care trust should be the same as the total of
      individual PCT debts on the income system.
    • Provisions cover the potential downgrading of sums owed to the
      council: some unpaid debts are very old, or unlikely ever to be
    • Added to the accounts as income are grant claims, which are a
      fair estimate of the various government grant entitlements.

    The impression of a complicated but dull process is, however,
    deceptive. Fall into one of the traps lying in wait for the unwary
    and you will have major problems.

    Year-end accruals
    Most directorates still monitor their spend against budget by
    watching expenditure to date and extrapolating. So if three months’
    invoices for utilities total £50,000, their full-year forecast
    is £200,000. This is a strategy that can unwind badly at

    The notorious “invoices in drawers syndrome” leads to unexpected
    overspend when big volumes of payments that were sitting in a
    backlog suddenly hit the books. Or invoices do not come in quickly
    enough to be scored in the old year under those tight closing
    timetables, resulting in unexpected underspend in one year and a
    ready-made overspend welcoming in the new financial year when the
    invoices are finally paid.

    In other words, do not rely on payments alone to forecast and
    control spending: cross-check with other sources. Also, organise
    suppliers to bill up to date in the lead-in to year-end, and verify
    that colleagues are not sitting on invoices. If you are unsure
    whether invoices are up to date, check how old the latest payments
    in the accounts are.

    Similar problems can arise with income due. Failure to include a
    full year’s income in accounts could produce an unexpected
    overspend. So plan the year’s last billing run well ahead so that
    it comes within closing deadlines. As billing often depends on
    service teams putting new client data on to systems, ensure there
    is no backlog here.

    Even accountants find reconciliation tedious. But the reason why
    reconciliations are important in closing is that auditors like to
    make cross-checks between systems. If systems disagree, auditors
    may expect the accounts to be adjusted to the lower figure. With an
    income area, that could cause a closing blip. Avoid this
    embarrassment by bearing in mind the following:

    • Do a monthly reconciliation to the accounts for major systems
      for collecting residential or fairer charges – don’t wait for
    • Beware systems you know are struggling – the ones where billing
      runs are delayed or cannot implement regulation changes
    • If reconciling local systems is a problem, you may be able to
      make checks with counterparties. Is your list of PCT contributions
      for packages the same list as they expect to pay?

    Councils reflect income in their accounts as soon as it is billed.
    But income sources, such as client residential accommodation
    charges or Supporting People charges, are complex to administer and
    collect. But if charges are not being paid, directorates generally
    cannot withdraw services, which makes for limited debt recovery
    potential. This is not the case with other council services.

    In the final accounts, figures for debts owed to the council need
    to be modified by setting up provisions for the likely level of
    non-collection. Any additions to these provisions must be paid for
    by service accounts.

    Bringing provisions to a realistic level can sour year-end income
    figures. Avoid this by planning ahead. Anticipate year-end changes
    to provisions by monitoring income month by month. Ensure any debts
    known to be irrecoverable are written out of the accounts promptly.
    If you do not do this, you may balance the books in the short term,
    but face financial disaster in the long term.

    During the year, check for income anomalies that are bound to need
    adjustment later – for example, individual clients with negative
    values of debt owed, debt without enough detail for it to be
    collected, accounts with no movement over long periods, and so

    Grant claims
    In closing the accounts, you will need to include income items for
    government grants. This will not cause problems if you can claim
    grant at the level assumed in in-year forecasts. For many grants
    this is no longer a big closing issue, because they are
    formula-specific payments without conditions or certification of

    But, for ring-fenced grants, you need to ensure your assumptions
    about entitlements hold good. To avoid year-end surprises, produce
    regular updates against grant plans during the year. And get your
    internal audit to do a limited audit of the claim in advance of
    external auditor certification.

    That, then, is closing the accounts. You will know when you have
    got it right because it will be monotonous and uneventful. Just
    like painting by numbers or making a cup of cocoa.


    This article explains the process of closing local authority
    social services accounts. It also highlights where and why major
    problems are likely to arise and looks at how you can avoid getting
    into a mess.

    The rest of the series

    • 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. How can you avoid

    Further information   

    Contact: Paul Cook at

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