Question

How would you establish a correction plan to bring your actual expenses in line with the budget?

Please cite your sources.

THERE IS NO CASE STUDY

Answer 1

Good financial management systems and processes for tracking resource utilisation are essential for a department to make effective use of its resources. Effective planning and financial control will help departments to:

• ensure the efficient and effective use of resources
• make sound business decisions
• demonstrate accountability
• take remedial action where needed

Budgeting

Core expenditure relates to the annual budget allocation from your Faculty Pro Vice Chancellor for Academic Departments for Professional Service Departments.

When considering your department’s core expenditure for the year, the following factors should be taken into account:

• your department’s strategy for the year and how financial resources will be deployed to deliver the strategy
• other operational and organisational considerations such as income targets and the agreed expenditure cap
• any existing expenditure commitments ie recurrent staff costs
• the prioritisation of activities in the department

For the allocation of expenditure budgets, the appropriate levels may be informed by historic expenditure patterns and any appropriate benchmarks that have been identified or adopted. You should be mindful of the administrative burden associated with creating and reporting on cost with budget allocations of less than £100. Consideration of budgeting materiality levels will of course vary from department to department depending on the size of the overall budget and the number of people actively engaged in the process of managing expenditure against budget.

Find out more about management responsibilities for budgeting (Faculties and Academic Departments).

Allocating Budgets

When budgets are allocated to individual 'cost ' (an account for collecting costs funded from core budget allocations) or teams, the following steps should be taken:

• if appropriate, the initial budget should be compiled with the participation of whoever will be responsible for its control and performance
• the outcome of any budget decisions should be communicated to all relevant staff
• responsibility for each element of the budget allocation should be delegated to a named individual
• the named individual will normally be the 'person responsible' or the 'approver' in the uBASE system. If not, the department should be clear on who is monitoring expenditure against budget and/or is accountable for the use of the budget

The Use of Reserves (Academic Departments)

A department’s total reserves should reflect expenditure plans for future years (ie beyond the current year) and these can be supplemented by adding to them from the current year’s allocation or by a Prior Year Adjustment (PYA).

Any movement into reserves can only be done at the end of one financial year/beginning of the next, ie only when the new year’s budget has been announced and/or when the PYA has been confirmed can an element be nominated as being added to reserves.

It is not possible to take budget into reserves during the financial year as this would prevent the correct assessment of the PYA for that year. The PYA is calculated on performance against both expenditure AND income budgets.

The current guidance is for the maximum permitted drawdown of reserves in any one year to be either 20% of the unreleased reserves at the start of the year, or £50k, whichever is the greater.

The recommended best practice when recording the unallocated or unreleased element of reserves is to hold them in a single 'cost ' and view the release of reserves as part of the budget allocation process to individual 'cost '.

Find out more about the use of reserves for academic departments and faculties by reading the Financial Advice Notes on the Reserve Accounts Policy which is available from here.

Carry Forward and Project Surplus Balances (Professional Services Departments)

Guidance on the principles for agreed carry forward balances on non-staff expenditure and non-earmarked projects for Professional Services departments is explained in detail here.

Monitoring Expenditure

Regular monitoring of expenditure is essential; not just to verify expenditure against target but also to identify changing patterns or circumstances that need corrective action.

You should have procedures in place within your department to monitor progress against budget and objectives at regular intervals (generally monthly). In addition, appropriate reporting and authorisation mechanisms should be in place.

To monitor expenditure, the types of information you need include:

• budget for the area of activity for the full year and profiled for the year to date. When profiling the budget, planned expenditure patterns should be considered. For certain types of expenditure (particularly non-staff costs) it is likely that expenditure will peak and trough at particular points in the year
• actual expenditure to date
• future expenditure commitments
• balance of annual budget remaining. When actual expenditure and commitments together are compared to the full year budget, this will indicate the balance of budget remaining at the review point
• forecast outturn. This is the expected position against budget at the end of the year after taking into account all anticipated expenditure. The forecast outturn may not be equal to the original budget
• analysis and explanation of any positive or negative variances when comparing expenditure and forecast outturn to budget, together with a documented action plan in order to address adverse variances

There are a number of reports in uBASE that can help you with the monitoring of expenditure against budget. Information on the reports is available in the Reports catalogue.

The monitoring of expenditure against budget should be regularly undertaken at an overall level by the Head of Department and, where appropriate, at a more detailed level by the individual budget holders.

Meetings between the Head of Department and the individual budget holders should be held at regular intervals (ideally monthly) and any actions identified should be formally documented and agreed.

Budget Virement and Journals

Virement of Budget Between Cost  

Where budget virements have been authorised there should be formal evidence of this by the Head of Department (or nominee) and a record held within the Department for potential review by Auditors or other staff in the event of a query.

It is not necessary to systematically vire budgets across all cost in order to remove any possible variance. In these circumstances the original budget value should be left in place to aid future expenditure planning and to highlight to budget managers where variances have arisen.

The Head of Department should use budget virements proactively, in order to authorise additional expenditure in a particular 'cost ' arising from changes to the original plan. Virements are not required to simply match budget to total expenditure already incurred. The Pro-Vice-Chancellor for your Faculty will be mainly concerned with the control of expenditure within the overall Department, not at individual cost level.

The materiality level for conducting a virement should be in line with the size of the original budget allocation. For example, where a cost has an original budget of £10,000 it is not envisaged that budget virements would be conducted for sums less than £100.

The capability to conduct budget virements in uBASE should be limited in a Department to no more than three users. This is to ensure consistency of approach and that the required documentary evidence to support the need for the virement can be maintained.

Journals

The use of journals in uBASE is for the correction of genuine coding errors.

To request a journal, users should email the details to the Finance Manager for their Academic Department or Professional Services Department or the Research Finance that looks after the account code to be charged.

For example:

• a journal to correct expenditure originally charged to a cost that is now to be debited to a research account should be sent to the appropriate section in the research finance team that deals with that particular grant or contract
• a journal to correct the core cost to which some expenditure should be charged should be sent to the Assistant Finance Manager for your Academic Department or Professional Services Department.

The details to be supplied when requesting a journal must include:

• the cost or WBS element to be credited and the corresponding cost or WBS element to receive the charge
• the Expenditure General Ledger (GL) code(s) for the transfer
• the amounts per GL code
• the original Purchase Order numbers to which the correction relates. (This is to ensure that the use of journals has supporting evidence that is auditable. It is not possible to simply move fixed sums or 'block sums' from one code to another without this supporting evidence.)

It is expected that the General Ledger code will be the same for both the credit and debit entry since journals should not be used to reclassify the nature of the expenditure (ie GL code) that was originally generated when the material group was first selected. Where this is not the case, details in the journal request should be supplied to explain why different GL codes have been indicated.

For journals requesting the movement of staff employment costs, the supporting details provided must include the staff to which the transfer relates and the period concerned.

For journals requesting the movement of incorrectly charged Internal Trade costs a specific type of journal is required. This is marked on a report as Internal Trade.

It may be possible to move by journal fixed sums of employment costs but, for most corrections to staff employment costs, journals are not actually required. This is because the payroll system itself can recode the 'cost distribution' from previous pay months and this should be initiated by making a request to the Finance Manager for your Academic Department or Professional Services Department or the Research Finance (ie depending on whether the corrections involve an externally funded research project code or not).

Again, the details required will include:

• staff name
• period concerned
• % of employment costs to be recoded

For example: Dr A Bloggs (payroll No 12345) , 50% recode to cost 399999 from 1st September 2008 to 30th November 2008.

Users requesting journal transfers to be made should note that the 'person responsible' or 'approver' for the cost or WBS element to be debited will not receive the opportunity to accept or reject the entry. As such, in order to protect all parties concerned with the journal transfer (ie requester and inputter) it is vital that the supporting details as described above are provided.

Departments should be mindful of the administrative burden of gathering the evidence to support the request for a journal and the inputting process itself. It is not envisaged that journals will be requested for sums of less than £50.

Consideration of journal materiality levels will of course vary from department to department and project to project depending on the size of the overall budget.