Managing the Devolved Budget

Chapter 1

Introduction

The control of public finances is always a key issue for scrutiny by Government. With increasing pressure on resources and increasing demand for public services, good financial management is essential. In response, the public sector has had to take a positive approach to implementing successful systems for financial management and control. Devolving budgets to individuals, making them responsible and accountable, has become a commonly adopted method for achieving the effective control of financial resources, and obtaining value for money. This is often a new area of activity and requires them to have a certain level of financial skill.

Managing the Devolved Budget has been developed to meet the needs of those working in public sector environments such as central government; local and regional authorities; health authorities; police authorities; educational institutions, and so on. The text is particularly relevant as many public sector employees have now been given some form of budgetary responsibility.

The publication has been designed to be used for reference and act as an important part of a managers own personal development. At the conclusion of each chapter is a series of exercises which encourage the reader to focus on the key issues covered. Suggested solutions to the exercises are provided in the final section.

Managing The Devolved Budget is presented in a simple format which is easy to read and makes practical sense. It will give those who have any form of budgetary responsibility an understanding of the process behind budget setting and control, and will provide tools with which they can undertake these tasks with greater awareness and confidence.

It is recognised that many budget holders work within constraints. This may be with respect to policies, limited resources, limited support, and restricted access to financial experts. Although circumstances may not be perfect, ideas are given within the text which will enable the most common constraints to be taken into account whilst allowing the budget holder to achieve the objective of controlling a budget.

The task of financial management and control is now relevant to many job descriptions in the public sector. For those who may wish to pursue a career within public service, this book will highlight the type of knowledge and skill now required to be fully prepared for acquiring budgetary responsibilities.

This book is one of a series of Essential Skills for the Public Sector titles. The series aims to assist public sector managers become more efficient and effective in carrying out their important management responsibilities. We consider this book to be an important part of the tool kit for public sector management development.

Chapter 2

Devolving the Budget

What is Devolvement?

It is necessary to firstly clarify the meaning of devolvement as this term carries many interpretations and definitions. For the purpose of this text, the following definition should be used.

Devolvement is:

the process whereby budgets are devolved to an individual who becomes the budget holder and who will be totally responsible and accountable for that budget. Ideally management and financial responsibilities are aligned such that the budget holder is accountable for the financial implications of his/her management decisions.

Other terms that are often used interchangeably with devolvement are delegation and decentralisation. Both these activities usually take place as part of the process of devolvement. Usually budgets are firstly decentralised, then devolved, and then sometimes delegated. In order to understand these terms more clearly, the definitions of delegation and decentralisation for the purpose of this text are given below:

Decentralisation is:

where the control of budgets is dis-aggregated from the centre and allocated to other areas of the organisation such as departments, divisions, branches etc.

Delegation is:

where budgets are delegated to nominated budget holders who are responsible for monitoring the budget, but are not accountable for the budget as they will have little or no control over its construction and its usage.

There are some common factors that apply to all three terms:

They all involve a transfer of financial control to some degree away from a central point

They all result in finance being more closely linked to service delivery or activity

They all result in a spreading of financial responsibilities throughout the organisation

In order to further appreciate the difference between each of the three terms, it is helpful to illustrate the normal devolvement process by way of the following chart:

DEVOLVEMENT IN A LOCAL AUTHORITY

Why Devolve Budgets?

There are a number of advantages to be gained from devolving a budget, some of which are summarised as follows:

Managers and officers who are involved with the direct delivery of a service understand service requirements, and are therefore in the best position to target financial resources efficiently and effectively to the benefit of the end user.

There is greater incentive for budget holders to maximise value for money if they consider they have real control over financial resources, and can reap benefits from the efficient and effective use of the budget.

More effective budget monitoring and control is often achieved as a result of a wider range of people being involved in the budgetary process.

Decisions can be made more quickly if the budget holder responsible for the service can also authorise the use of resources. The budget holder is in a position to exploit opportunities and avoid problems by being in control of the budget.

The budget holder can be held accountable for their decisions, and made to take responsibility for their actions. The impact of management decisions on financial resources can be effectively measured and assessed.

There are also a number of dis-advantages that need to be taken into account when embarking on a devolvement strategy. These include:

Devolvement often requires the person who becomes the budget holder to undertake additional duties including budget monitoring and control activities. These areas may not be part of the individual’s job description and will often be an area for which no prior training has been given. Certain budget holders neither have the skill or aptitude for this new task and no desire to acquire it.

Devolvement requires the organisation to give more autonomy to staff lower down the hierarchy, and hence removes some control away from senior management. This may leave senior managers feeling vulnerable if they lack confidence in less senior staff.

Devolvement means that the managers who become budget holders have to take account of the financial consequences