Policies & Procedures

Purpose

Witham St Hughs Parish Council is required to maintain adequate financial reserves to meet the needs of the organisation. The Council must only hold reserves for reasonable working capital needs or for specifically earmarked purposes. 

•   The purpose of this policy is to set out how the Parish Council will determine and review the level of such reserves, and how they will be used. Section 32 & 43 of the Local Government Finance Act 1992 requires parishes to have regard to the level of reserves needed for meeting estimated future expenditure, when calculating their budget. 

However, there is no specified minimum or maximum level of reserves that an authority should hold, and it is the responsibility of the Responsible Financial Officer (Clerk) to advise the Parish Council about the level of reserves, and to ensure that there are protocols for their establishment and use. 

Reserves can be used for long-term planned or exceptional (unbudgeted or higher than expected) expenditure.

The advice for the Lincolnshire Association of Local Council (LALC) is:

A council should hold a minimum of 3 months and a maximum of 6 months reserves to ensure smooth running of the council in the event of:

•   Dealing with severe emergency/financial demand within the parish (flood, terrorism attach ect …)
•   If the precept is delayed/withheld by the District Council.

Amount of reserve held, is Council dependent. 

Types of reserve

Reserves can be categorised as Ear-marked or General Reserves.

a.   Earmarked reserves can be held for several reasons.

•   Renewals – to enable Witham St Hughs Parish Council to plan and finance an effective programme of equipment replacement. 
•   These reserves are a mechanism to smooth expenditure so that a sensible replacement programme can be achieved without the need to vary budgets. 
•   Carry forward of underspend – some expenditure is budgeted for projects but is not spent in that financial year. Reserves are used as a mechanism to carry forward these resources.
•   Insurance reserves – to enable Witham St Hughs Parish Council to meet the excesses of claims not covered by insurance. 

Earmarked reserves must be reviewed annually by the Council. Any changes to the proposed use of reserves must be agreed by Council. The RFO will note earmarked reserves movements at the end of the financial year. 

b.   General reserves 

•   General reserves are funds which do not have any restrictions as to their use. These reserves can be used to smooth the impact of uneven cash flows, offset the budget requirement if necessary or can be held in case of unexpected events or emergencies. 
•   Witham St Hughs Parish Council considers a prudent level of general reserves to be the equivalent of 6/12 months' annual expenditure. 
•   If in extreme circumstances general reserves were exhausted due to major unforeseen spending pressures within a particular financial year, the Parish Council would be able to draw down from its earmarked reserves to provide short term resources. Even at times when extreme pressure is put on the Parish Council’s finances, the Council must keep a minimum balance in its general reserves sufficient to pay three months' salary to staff. 

Responsibilities & review 

•   The Responsible Financial Officer is responsible for providing an update on the Council’s reserves at least once per year. 
•   The Full Council will review all reserves at least annually and resolve any changes. 
•   Full Council is responsible for the review of this policy on an annual basis or in response to changes in relevant legislation.

Related legislation, policies & guidance

Related legislation, policies and guidance is listed below:  

•   Local Government Finance Act 1992
•   Accounts and Audit Regulations 2015
•   Joint Panel on Accountability and Governance (JPAG) Practitioners Guide

Witham St Hughs Parish Council internal documents:

•   Financial Regulations

Version control and amendment history