Take nothing for granted.

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