Lancashire Fire and Rescue Service Financial Management - Case Study Example

Name: University: Course: Tutor: Date: Lancashire Fire and Rescue Service Financial Management Introduction The Lancashire fire and rescue service is part of the Lancashire County Council also known as Lancaster county council is located at the most rural of North West England where agriculture is the major economic activity. Lancashire County is a major tourist attraction centers by its rich heritage and the university. The Comprehensive Performance Assessment for Fire and Rescue Authorities was introduced in 2005. This gives the organizational ratings for the councils and fire and rescue authorities. These ratings took into account the staff training, budget management and the service delivery to the community, for safer and fire occurrence prevention (Financial Management Notes, 2009). The Lancashire fire and rescue service was started to secure a safer community for the community around the county of Lancashire. Due to the better link with the other towns like Greater Manchester, North and West Yorkshire and Cambria, there is economic prosperity and quality environmental making it better place for residence thus the significant population growth. The Lancashire fire and rescue service need to improve its service delivery for the future population growth thus delivering effective and excellence service to the community. As part of priority to provide safer place for people to live, Lancashire fire and rescue services need to partner well with other local departments like the police, courts and local schools in providing education about the safety of either roads or fire prevention methods consequently making the county a safe place to live in. This will go in for more exposed people and those who are at most risk of harm. Lancashire fire and rescue service will commit itself in meeting the needs of its sundry neighborhood and is distributed without segregation (The Operational Boundary, 2008). This paper covers comprehensively the financial report for Lancashire Fire and Rescue Authority in England in which specifically it explains how the safety margins are compared with the operational boundaries verses the authorized limits in 2006 – 2007 through to 2009 – 2010 financial years. It also includes the risks factor that affects the council in its daily operational services. Operational boundary and the authorized limit proposals The Fire and Rescue Centre has a well designed operational boundary and authorization limit proposal which has been well calculated. This proposal is estimated to serve the requirements of the FRC across the financial years as stipulated. It has an overhead provision which is below and over the operational boundary that basically allows for unusual cash movements within the expenditure period. According to Statement of Accounts, (2009) it is therefore recommended that a 5% rate be allowed to cater for the unusual cash movements above and below the authorized limits. The operational boundaries that have been proposed are estimated in million Euros as per the figures indicated. Any current or recurrent expenditure is herein covered. In order to ensure that the cash flows are well managed, we do follow a systematic and comprehensive financial management protocol that was constitutionally established by the board of directors in the previous 2000 annual meetings. Hence the management techniques include the use of sound financial discipline system. With this discipline, it allows the management staff to adhere to the regulated treasury management statement that has its branches in managing cash flaws and money borrowings. This system has since been followed in our budget proposal and is therefore being followed unless otherwise directed. According to Rachellewms, (2009) the prudential code ensures that certain aspects of treasury management policy are well determined and is a subject to this proposal. These indicators include the interest rates exposures, maturity structures of borrowing funds, the total principal sums to be invested for over a year and the treasury management code of practice. We therefore have adopted the CIPFA Code of practice as regulated by the treasury management authority. Due to the changing effects of interest rates, the authority required that we use upper interest rates exposures both which are fixed rates and variable rates of interest. We still use fixed rates of interest in borrowing funds. Wit respect to the maturity structure of borrowing, the authority has set out percentages according to the period of time money is borrowed. For instance we do use 0% for cash borrowed within 12 months and within 24 months and 100% for a period of 10 years. There is no borrowing for a period less than two years in the proposal as per the treasury management authority code. We do intend to work on a budget plan of 17.8 million Euros in borrowing and long-term liabilities within the financial year 2009/2010. The table below shows a well calculated full proposal for operational boundaries and authorization limits have been set for the safety margins for the subsequent financial years ahead. Safety Margins Table 1: The Operational Boundary Borrowing Other Long Term Liabilities Total external debt £000 £000 £000 2006/2007 Amount outstanding as @ 31/6/2006 7115 9305 Maturing Loans -2100 -2100 Aprx. O/B @ 31/6/2007 5015 0 7205 2007/2008 Cash Flows for 07/08 Maturing Loans 0 0 Replacement Loans 0 0 Use of Capital Funds 4000 4000 Revenue balances uses -800 -800 Capital financing requirements 07/08 3500 3500 Statutory Min. revenue -1500 -1500 Revenue Provision Voluntary revenue set aside -900 -900 Aprx. O/B as @ 31/6/2008 9315 0 11505 2008/2009 2008/2009 Cash Flows Use of capital funds 1900 1900 Capital financing requirement 08/09 3800 3800 Revenue balances uses -800 -800 Statutory revenue set aside (MRP) -1200 -1200 Addition revenue set aside -1000 -1000 Aprx. O/B as@ 31/6/2009 12015 0 14205 2009/2010 Cash Flows for 09/10 Use of capital funds 4400 4400 Capital financing requirement 09/10 3800 3800 Revenue balances uses -3300 -3300 Statutory revenue set aside (MRP) -1400 -1400 Addition revenue set aside -1200 -1200 Aprx. O/B as@ 31/6/2010 14315 0 16505 Table 2: Authorized Limit Borrowing Other Long Term Liabilities Total external debt £m £m £m For 2007/2008 12.0 12.0 For 2008/2009 13.0 13.0 For 2009/2010 17.8 17.8 Key: O/B – Operational boundaries Analysis of the findings in the tables above Use of capital funds was high in 2007 with a recoding of $ 4,000,000 while in 2008/2009 had a recording of $ 1,900,000 which is a decline of 52.5%. In the financial years of 2009/2010 is $ 4,400,000 which is an increase of 131.5% as compared with last year. Capital financing requirement in 08/09 was valued at $ 3,800,000 while in the financial year of 07/08 it recorded $ 3,500,000 which has an increase of 8.5% in 08/09 financial year. In 2009/2010 the recording was similar to 08/09 with recording of 3,800,000. Aprx. O/B as @ 31/6/2008 is $9,315,000 and at 31/6/2009 is 12,015,000 which is an increase of 28.98% The safety margins of the operational boundaries and the authorized limits are managed by strict prudential indicators by the authority. This covers how the council manages the borrowings and other cash investments within the system. The indicators are a subject to the total principal sums invested for a year long duration, based under mutual structure of borrowing, interest rates exposures and the treasury management code of practice. Hence from the above results, the safety margins of the operational boundaries and the authorized limits is perfectly utilized within the required authorized limits by the council hence it is recommended to proceed to the next financial year 2010/2011. Risks facing Lancashire fire and rescue authority The Lancashire fire and rescue authority is exposed to risks and these can be categorized in the following class namely: Strategic risks: These are the risks resulted from setting the company’s agenda straight and following the company’s goal and objectives. This will make the organization lose out on its Operational risks: These are risks that are often experienced due to mostly negligence. Managers while strategically devising for sustainability method to overcome operational risk often find themselves in tight spot for devising ways that makes the firm to loose when the aim was to reduce expenses. Information risks: This is where the main risk arises when the management in the accounting division issues out wrong analysis. In most cases though not the case of these firm these where the cooking of books and earning management arises (Borokhovich Et al, 2004). These inaccuracy and irregularities would in future cost the firm and in most cases the firm is brought down to the knees near to bankruptcy if the reported data or information is false. Reputation risks: The risk associated here in this case mainly affects the name of the brand or corporation. Here the trust of the clients is lost and the firm future relies on how the brand champion are going to build that trust back and in most cases the most firm loose out because of these risks. Financial risks: The backbone of all risks in these categories and the impact is tremendous. According to Harris & Mongiello, (2005) the amount of lose found in these case is huge and the revenue that the firm need for existence is lost due to man factors like earning management, cooked books, voiding or cancellation of contracts and misuse of resources by in common cases incurring of unacceptable liabilities. Political risks: From the study case we are indulged in, the governance of Lancashire fire and rescue services is mainly piloted by the Lancashire County Council and the authoritative engine is the Central Government whose policies are adhered to the running of this institution (Doukas, 2004). Interference from the council and the political section can hinder the smooth running and the efficiency of these institutions. Economic risks: These are the inability for the institution to meet its financial commitments these happens from the inability of the institution to combat the discussed risk when advocating for sustainability management. Technological risks: These are risk brought about by the inability of the institution to capacitate for the pace and scale of the technological scale, these affects the service delivery due to internal or external failure in technology (Simon, 2003). The objective of the institution which is provision of quality and effective services is therefore halted by these limitations. Legislative risks: These are mainly incurred due to changes to current and potential changes by the common or Legislative laws such as National or European Laws. Environmental risks: These are risks that are related to factors related to environmental consequences. These consequences that can effectively change the efficiency of service provision are halted by the fact that the firm is not compatible with them, these include recycling, energy efficiency and community involvement (Thachappilly, 2009).  Competitive risks: These risks affect the quality deliverance of services which are compatible with the competitive nature of the market. In most cases they deter value in services provided if not addressed. Customer/Citizen risks: These are risks that are met when the firm does not address the changing trends of the current expectation by the customer and the citizen who adequately need these services.      Operational Risks: These are daily basis hindrances associates with these lines of service delivery. The staff and the managers encounter this in the course of the job they are attending to, they are the most venerable of them all for if they are not addressed the services that results from here are with many defective errors. Conclusion and recommendations Lancashire Fire and Rescue Authority is located at the heart of rural of the North West England where agriculture is the major economic activity. Lancashire city is a major tourist attraction centers by its rich heritage and the university. The Comprehensive Performance Assessment for Fire and Rescue Authorities was introduced in the year 2005. It faces a myriad of challenges including operational risks, political, economic, social and financial challenges in its process of operations. Other risks include environmental risks, technological risks and legislative weaknesses. This hindrance makes the management of the authority limit various issues regardless of their priority. On the other hand, the council operates within the law in its annual budgetary allocations. These reflect the safety limits calculated from the operational boundaries and the authorized limits in million dollars as shown in the tables 1 and 2 above. However its too demanding and challenging to work within the limits but what is important as per now is that we were able to adhere to the limits in this 2009/2010 financial year. This report has covered the general risks that face Lancashire Fire and Rescue Authority, its operational boundaries and authorized limits that are requires to its safety limits. It has been supported by previous and current financial budgetary limits established by the treasury management authority of Lancashire. References Borokhovich,K. Bricker,R. Simkins, B. 2004. ‘Financial Management's Success as an Academic Journal’. Financial Management. Vol. 13, No.4, pp. 25-38 Doukas, J, 2004, ‘Financial Management’, Multinational Financial Management, Vol. 2, No. 13, pp. 34-49 Harris, P & Mongiello, M. 2005. ‘Elements Of Financial Risk Management’, Accounting And Financial Management, Vol. 23, No. 6, pp. 35-50 Financial Management Notes, 2009, ‘Fire and Rescue Service Management Foundation Stage’ Rachellewms, P, 2009, Using Financial Management Functions in Decision Making Process. Available From: Simon, G, 2003, International Leasing: Its Financial and Accounting Application, Preston, University of Central Lancashire Statement of Accounts, 2009, ‘Lancashire Combined Fire Authority Statement of Accounts 2008/09’ Thachappilly, G, 2009, Business Financial Management Fundamentals, Available from: http://business-financial-planning.suite101.com/article.cfm/business_financial_management_fundamentals The Operational Boundary, 2008, ‘Lancashire Fire and Rescue Service’ Read More