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Budgets, Precept, Finance, Audit and Town or Parish Councils

This is a brief introduction to Budgets, the Precept, Finance and Audit for and about Town and Parish Councils. This is a very large area and this article only aims to give a very broad general introduction. Detailed explanations are beyond the scope of this article, The subject is covered in great detail in the members area,

The law is the same for Town or Parish Councils. There are significant differences depending upon the size of the council precept. If the council has a small precept it is to a large extent unregulated if it chooses not to follow the law. There is beginning to be in our opinion 2 tiers within Town and Parish Councils.

Budgeting and Town and Parish Councils

Budgets determine what the Town or Parish Council wishes to do for and with the community in the coming year. The budget is the basis of the Town or Parish Precept.

How is money allocated to parish councils?

Town and parish councils are not charities, community groups or residents associations they are part of local government. Consequently they do not have to go cap in hand to get money for community projects or their own running costs. Town and parish councils have and use the power to tax residents in the local community.

This tax is known as the parish precept and is collected by the principal authority (a billing authority) on the parish council's behalf as part of a residents overall council tax charge.

The amount of the parish precept varies widely depending upon the size of the local council, the population of it's community, it's assets and of course how active the council is on behalf of its' community.

Town and parish councils can also borrow money to fund the development of community assets.

For more information Click on one of the links below...

A CPALC 60 Second Guide (06) to parish council loans and borrowing

BPG 12 A CPALC Best Practice Guide to Participatory Budgeting

Can a council just accept the budget done by the parish clerk?

Probably not, town and parish councillors are elected by the community to enhance the community and help improve the quality of life for all. The parish clerk is not elected but is an employee of the council. The clerk may do the physical preparation of the council's budget they should not however be responsible for the ideas and content of the budget. That is the right of the council and its constituent councillors.

Failure by the council to “own” the budget process effectively means that the clerk is setting the precept for the whole community. As there is no legal requirement for the clerk to live in or near the parish it is wrong that the clerk sets the budget.

If the council just accepts a budget that is placed before it how do they know that it contains provisions for what they as a council wish to achieve in the coming year. Equally importantly how do they know that a proposed increase in staff costs and salaries is reasonable and justifiable?

Budgeting is a shared process which should involve the community and councillors.

What is parish council participatory budgeting?

Participatory Budgeting (PB) is a process that allows residents to be more involved in making decisions. It is about the community being more involved and having a greater say in how the council spends some of its budget.

A simple test of whether the council has really engaged with its community in participatory budgeting is to ask residents how they feel about how the exercise was undertaken. If the response is “it feels like we've decided” then PB has been successful but if the response is along the lines of “it feels like someone else decided” then the council’s efforts have missed the mark.

Participatory budgeting is a very simple process. It is one in which the town or parish council works with its community in deciding on what to spend residents money. Residents are taxed by their council through the precept.

In simple terms...

  • It improves transparency in how the council manages its budget and precepting process
  • It encourages residents and others to become part of the decision making process
  • It drives increased accountability and competency of the council and councillors.
  • It enables priorities to be agreed on management and use of resources.
  • It has the potential to generates increased trust in the council’s ability to deliver for its residents.
  • It helps create a more democratic culture to evolve within the parish and its community.

The Town or Parish Precept - Taxing the Community

What is the Town or  Parish Precept?

Town and parish Councils have powers to raise a "precept" which is a tax on residents in their parish. The council must produce a budget for the next financial year detailing on what they intend to spend the money.

Having worked out what monies it needs the council's precept request is sent to the District or Unitary Council, who add it to the other precepts from Police, Fire etc. These monies are then collected from all Council Tax payers, and the Parish or Town Councils get the money from the District/Unitary authority.

For many years the town or parish precept was “lost” in the principal authorities council tax charge to residents. Nowadays most principal authorities show the the precept for each parish within their area.

Is there a limit on the precept?

No currently unlike other parts of local government there is no limit on the size of the parish precept or any percentage increase. This may mean that where for example there has been a fraud residents may be left with increases in the precept of more than 80% often due to their council's failure to have proper financial controls, e.g. separating the roles of the council proper officer and responsible financial officer (RFO).

How and on what do Parish Councils spend money?

Parish Councils can only spend public money where they have specific legal powers . Additionally they can spend a small amount (set by government) per elector on other items (this is called "Section 137" spending).

The short list contains some items that are frequently overlooked but which can provide real benefits to communities, especially the ability to promote tourism.

Your parish council can do and provide any of the following...

  • Provide community and conference buildings
  • Support local community groups
  • Work with residents on local issues
  • Provide and support sports and recreation grounds
  • Promote and market the area for tourism
  • Provide and support entertainment and arts festivals
  • Provide and maintain open spaces and biodiversity
  • Provide allotments
  • Provide and support rural transport schemes
  • Provide traffic calming

This is not comprehensive but a short list of practical schemes that any parish council can do and with it's community. So why's your council not doing anything?

They will have to have their accounts properly audited each year, and the accounts are open for inspection by the public in the run-up to that audit.

Can the Parish Council give money to the village hall?

Town and parish councils have a wide range of powers. They can only spend public money where the have the legal power. If they do not have a specific legal power they may make very limited spending under section 137 LGA 1972. This capped at a very small amount per registered voter.The Parish Council does have the legal power to support village halls and other community buildings, and most see it as a fair use of public funds although they will usually apply conditions on any grant they make.

The Parish Council is the custodian of public funds and should have an agreed procedure in place for funding voluntary bodies within the parish.

Town and Parish Council Finance Matters

Do parish councils have to produce accounts?

Town and Parish councils are funded by a local tax on residents known as a precept. As they tax and spend residents money they have to produce accounts irrespective of the councils size. These accounts cover the annual period from April to March.

These accounts are subject to an internal audit and also an external audit. Nowadays the external audit is usually a simple review consequently the importance of having a competent internal auditor has significantly increased.

There are statutory requirements regarding the production and publication of the accounts. There are specific legal rights as to viewing and inspecting tha accounts and records.

Town and Parish Councils must produce and publish accounts because...

a) it's the law and

b) they have the power to raise taxes and spend public money from their residents and electors.

Whose responsibility is it to produce the parish council accounts?

There is a difference between the responsibility for the contents of the accounting statements and the physical production of those statements. It is the responsibility of the parish council RFO (Responsible Financial Officer) to keep the books and prepare the financial statements. The council has overall responsibility for both the production and contents of the accounting records.

Your parish council MUST have an RFO, this is a statutory office holder i.e. it is defined in legislation. The RFO is an employee of the council.

In small to medium sized parish councils the role of the RFO is often combined with that of the Parish Clerk. The RFO can be a separate role where for example the clerk has insufficient accounting experience.

A parish councillor can be the RFO. If this is the case they cannot be paid as it is illegal to be a councillor and a council employee.

What rights do I have to see the parish council accounts?

After the completion of the annual audit your parish council MUST publish the "Notice of conclusion of audit and right to inspect the annual return" You are allowed to inspect all the books of account, invoices, bank statements etc.

Do parish councils have a treasurer?

Town and Parish councils are not clubs, residents associations, charities or allotment societies. Town and parish councils are a tier of government whose role, powers and duties are defined in law.

Town and parish councils MUST have a Responsible Financial Officer (RFO) who is a statutory office holder (the position is defined in law). The RFO is responsible for the day to day operation of the councils finances but not the decision making as that power belongs to the council.

Who is the Parish Council Responsible Financial Officer (RFO)?

Your parish council MUST have an RFO (Responsible Finance Officer), this is a statutory office holder i.e. it is defined in legislation. The RFO is an employee of the council. The RFO is responsible for the council's finances, accounts and budgets. They should have a clear job description and be a competent and qualified bookkeeper as they are handling public money.

In small to medium sized parish councils the role of the RFO is often combined with that of the Parish Clerk. The RFO can be a separate role where for example the clerk has insufficient accounting experience.

A parish councillor can be the RFO. If this is the case they cannot be paid as it is illegal to be a councillor and a council employee.

Can a parish council borrow money for any purpose?

Yes and No. It all depends for what purpose the town or parish council is borrowing the money. Various statutes (laws) specify how and for what councils may borrow.

Can a parish council go overdrawn at the bank?

A bank overdraft is a form of borrowing. There are specific legal provisions how and for what a town or parish council may borrow money. Itl depends for what purpose the town or parish council is borrowing the money. Some borrowing requires authorisation by the Secretary of State.

Can our parish council use internet banking?

As the law currently stands there is no legal provision for Town and Parish councils to use internet banking or debit cards. Please note that this may change in the coming months.

Our parish council just gives money local groups

Your Parish Council should have a publicly available grant application process so that local groups know how to apply for funding. This grant application process should also ensure that the Parish Council has the legal power to provide funding and has complied with all relevant legislation.

Grant funding should benefit significant numbers of residents not just a minority. Funding should not be given to groups where councillors are members without those councillors declaring an interest.

You should contact your Parish Clerk and ask for a copy of the grant application process.

Why do parish councils have insurance?

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