Best Practice for Managing Local Authority Cashflows Mark Swallow

Managing local authority cashflow forecasts involves a unique set of challenges and considerations.

Effective cash flow management is crucial for ensuring that local authorities can meet their financial obligations, fund ongoing projects, and maintain financial stability. Here are some best practices for managing public sector cash flow forecasts:

Comprehensive Planning and Budgeting

The starting point for any cashflow forecast includes accurate revenue projections. This can be achieved by analysing historical data, economic indicators, and local taxation collection trends. This helps in anticipating the funds available for day-to-day expenditure.

Once the income is forecast then all expenses should be planned and accounted for and fed into the forecast. This includes day-to-day operating costs, capital expenditure plans, and a contingency for unforeseen emergencies. The revenue and capital budgets should form the sources of this information and historic trends can shape the forecast spend.

Regular Monitoring and Reporting

Once the forecast is developed it needs to be regularly monitored with cash inflows and outflows compared to the model to identify variances from the forecast. This helps in making timely adjustments which will inform borrowing and investment decisions.

The treasury manager should implement robust reporting mechanisms to ensure transparency and should regularly update the team and decision-makers on the reasons for variances so improvements to the internal information exchange can be implemented.

If unforeseen capital spend or slippage are the reasons for regular variances to the forecast then this regular reporting should highlight the issue!

Team Engagement

The treasury manager should engage various departments in the forecasting process to gather comprehensive data and ensure alignment with overall financial goals.

Explaining the importance of the forecast to the authority is key and a quantification of the value of lost investment income or unnecessary borrowing costs can focus people’s minds!

Contingency Planning

Reserves and balances can be used to manage unexpected shortfalls or emergencies but holding excess liquidity because the forecast is inaccurate is as bad as not putting in the time to develop and monitor the forecast in the first place.

It is often seen as good practice to conduct scenario planning to prepare for different financial outcomes, such as economic downturns or unexpected revenue shortfalls or changes in the capital programme but don’t be a passive treasury manager and keep all your investments on call. Best practice would be to take the time to develop a forecast that can help you make well informed, long-term decisions.

Training and Capacity Building

It is worthwhile providing training for staff involved in cash flow and budget management to ensure they are equipped with the latest knowledge and skills to assist in the cashflow management process.

Also it would not be a wasted effort in providing training to key service managers and elected members if you want cashflow forecasting to be taken seriously by your authority.

Long-Term Perspective

Cashflow forecasts can be prepared for a number of different time horizons and can form part of the authority’s overall strategic financial planning process.

At Arlingclose we understand the importance of this when assisting clients in the calculation of their Liability Benchmark as this helps inform the longer-term treasury management objectives of the authority.

Effective cash flow management in local authorities is vital for maintaining financial health, ensuring service delivery, and achieving policy objectives.

If you have any questions or need help in developing your cashflow forecasts then please get in touch.

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