Financial Management for Greater Manchester Fire and Rescue Authority - Case Study Example

Running head: Financial Management Report for GMFRS Name: University: Course: Tutor: Date of Submission: Abstract This report actually gives a summary of the impact which will be experienced by Greater Manchester Fire and Rescue Authority on it budget proposals for the year 2011 if the government reduces it’s spending on the Authority by 5%. Additionally, it assesses the areas that the Authority could deem necessary to cut down its costs on the Authority’s budget spending as a result of the reduction in governmental spending. The report makes an analysis of various financial statements and put in place necessary financial controls which will help the Authority to minimize the financial impact of the proposed budget cuts. Additionally, the report identifies areas of risk which could be affected by the proposed budget cuts hence it gives a summary of recommendations as well as controls which be put in place by the Authority as a way of reducing the impact on its fire and rescue operations. Finally, the report gives conclusions on what the Authority should do to minimize the impact of the reduction as far as its fire and rescue operations are concerned. Introduction Greater Manchester Fire and Rescue Service actually is a statutory emergency fire and rescue service for Metropolitan County of Greater Manchester England which has fourty one fire stations. From the analysis of the financial statements of Greater Manchester Fire and Rescue Service, it indicates that the four income sources of the fire service comprises of governmental grants, National Non Domestic Rates Precept Levied on the 10 Greater Manchester District Authorities ,Rents, Charges, Interest among others as well as money it receives from the council tax. Grants from the government comprise 12% which equals to approximately £14.817m of the total income used by the fire service authority in carrying out its daily operations as well as services (Rusdbridge, 2007, pp.15-45). Since the fire Service is large and it offers a great deal of services to most of the residents in Metropolitan county both at regional level and national level the decision by the government to reduce the overall budget spend by 5% which totals to approximately £0.74 m will have a massive impact on the entire services as well as departments of the fire rescue. Methodology This report will analyze the financial statements of Greater Manchester Fire and Rescue Service in relation to other sources to determine the effect which will be caused by the reduction in spending. It will implement measures which can help the Authority to deal with this situation Discussion Given the fact that Greater Manchester Fire and Rescue Service relies on government grants to carry out its daily operations reducing the overall budget spend by 5% will alter in various ways how the Authority operates. This too will have a great influence on many of its priorities as well as decisions concerning resource allocation hence it will force the Authority to look at all areas of the service. From the income and Expenditure accounts the net operating expenditure of Greater Manchester Fire and Rescue Service fire station is approximately £156.249 for the year 2009/10 which implies that reducing the overall budget spend by 5% will have a great impact on the financial viability of the Authority. The Authority will be forced to reduce costs as well as its budget expenditure allocation on various activities by approximately 20% to achieve efficiency in its operations as well as service delivery to ensuring community safety. Doing this too will help the fire service Authority to save money on its proposed corporate budgets as well as back offices services which can be allocated on other activities of the Authority which have been adversely affected by the budget reduction. With the reduction of governmental spending on the authority by 5% will have a greater impact on fire service personnel. From research Greater Manchester Fire and Rescue Service employs approximately 2,641 personnel out of which 2,174 are uniformed operational personnel, 64 control room staff, and 403 non-uniformed support staff. The Authority will be forced to reduce the overall number of personnel a situation which will led to an overstretched workforce that will be expected to work longer hours. This will eventually affect the services of the fire service since it will require Greater Manchester Fire and Rescue Service to evaluate the way of responding to emergencies through the implementation of Preventative measures which will reduce the emergencies from happening hence saving on costs related emergencies such as transport costs, equipment, materials, personnel among others. Apart from the budget cuts having a massive impact on the personnel of Greater Manchester Fire and Rescue Service, it will have a great effect on the overall budget expenditure on community safety and Firefighting and Rescue Operations which from the financial statements have a great budget expenditure as far as the fire service operations are concerned. From the Income and Expenditure Account, the fire rescue service authority spends approximately £14.082m on community safety while £79.576 m Firefighting and Rescue Operations. With the governmental reduction in spending it is clear that the authority will be forced to reduce its costs spending on these two areas by approximately 3%. These two areas will be greatly affected since they form a greater percentage as far as the fire services are concerned and it could have a great impact on the service delivery to the residents. Regional fire stations will be affected greatly and this may create a situation where people living on the lowest income as well as living alone are more likely to experience fire and die or suffer as a result of injuries since the budget limitation may limit the Authority from giving a hundred percent effective service delivery to such residents especially those living in remote areas. From the analysis of the Greater Manchester Fire and Rescue Service financial statements, employees of the Authority are divided between two separate pension schemes (Great Britain, 2008, pp.45-65).The two pension schemes consist of the Fire Service Pension Scheme which actually is meant for the uniformed firefighters. This is an unfunded scheme which is usually administered by Authority in accordance with CLG regulations. This scheme in normally circumstances is usually treated as liability under the pension reserves since it no investments assets (Jones, 2009,pp.32-56). Given the fact this pension scheme is unfunded as well as has no investment assets it will be greatly affected since the Authority will be required to reduce the funds allocated towards this pension scheme in order to be used in other operations. Local Government Pension Scheme which is for civilian staff usually defined as benefits scheme also will be affected by the budget reductions. The Authority too will be required to reduce the total cash allocated to provisions. According to the stipulated financial statements, Greater Manchester Fire and Rescue Service has made some provisions in its financial budget as part of risk management control as well as to take care of ceriman operations. An example of this provision is insurance which over the years the Authority has been carrying out excess clauses within its legal liability and vehicle insurance policies. With this provision the Authority claims which may not be settled for some time after they arise, an Insurance Provision was established to meet the cost of such claims. The Authority usually makes an annual revenue contribution towards this provision where claims settlements are charged to the provision. With the budget cuts the Authority will be required to reduce the total funds allocated to the insurance reserve by approximately 0.8 % which was established according to the FRS12.The insurance reserve actually provides a prudent contingency against unforeseen future claims, including the MMI Scheme. This will have a negative impact on Authority as will be required to reduce the number of insurance clauses to avoid having a situation of excess clauses as well as unpaid claims. The other reserve which will be affected is capital reserve which from the statements is built up from revenue contributions for the purpose of funding deficiencies in the resources available to finance the Authority’s capital programme. From the financial statements in 2009/10 £1.182m of expenditure was financed from the Capital Reserve (£0.697m in 2008/09). The Capital Reserve plays a crucial role as far as Greater Manchester Fire and Rescue Service operations are concerned. The financial statements indicate that in the years 2009/10 a contribution of £2.500m from the Authority’s revenue budget was also made in line with the budget strategy. This actually implies that in the year 2011 the reduction in government spending in form of grants towards Greater Manchester Fire and Rescue Service Authority will have a negative impact on this reserve. This is because the Authority will be required to reduce its total fund allocation towards this reserve by approximately 2% which calculates to £0.5m hence reducing to approximately £2m.The cash saved from this fund can be allocated to community safety as well as fire fighting rescue operations to ensure efficiency and effectiveness in service delivery. Moreover, cash allocated towards Innovation & Partnership/CYP Reserve will be reduced too. This reserve which was created in year to provide the necessary funding for future partnership and innovation schemes and to support children’s and young people’s initiatives will experience greater impact resulting from the governmental spending cuts. It is necessary that the Authority reduces the funds allocated to this reserve by approximately 5%-10% depending on the total income the authority earns from other sources as well as the total expenditure. The funds which will be generated through reducing the total expenditure on the above mentioned areas will enable the Authority to invest directly into front line services. Since the reduction in governmental spending may lead to job losses, it will be necessary that the Authority allocates funds towards personnel training incase of emergencies to avoid incidences of firefighter deaths resulting from insufficient training for emergency. With the budget spending cuts in the indicated areas, it will be appropriate for Greater Manchester Fire and Rescue Service to create a restructuring reserve of £ 3m which can be obtained from any unused balances as well as funds saved from reduction in the total spending on provisions, unfunded pension schemes and reserves. This will play a crucial role since the fire service station will use these funds to substantiate the most affected area in terms of budget expenditure spending or incase of fire emergencies which requires excess funds. This will have a positive impact on the regional fire service since these funds mostly will be allocated towards them to avoid increased number of fire injury as well as deaths among residents living in remote areas of South, East and West of Metropolitan County of Greater Manchester England. Due to the budget expenditure reduction in the indicated areas the Authority will be required to implement a sustainable medium term financial strategy (Dennett, 2004,pp.45-65). Using this strategy the Authority allocate a significant proportion of the total under spend funds of the year 2011 as one of the initial allocation which will be used to cover potential transitional and restructuring costs towards delivering the proposed efficiency programme despite the total budget cuts. This will assist the Authority in delivering its services effectively. Moreover, the proposed budget cuts expenditure will have a positive impact on the financial statements of Greater Manchester Fire and Rescue Service since the authority will be required to produce a balanced budget. This will go in hand with the regional fire stations since it will ensure effective use effective use of resources and as well as constant cost reduction exercises improving the services of the fire service stations in general. The use of procurement savings such as medical services contract, use of sustainability initiatives as well as negotiating utility charges will make Greater Manchester Fire and Rescue Service as the lowest precepting fire Authority in the North West despite the costs reduction. Efficiency savings will be required from various reviews including back office functions which will include subsequent operational changes. Since the funds allocated towards insurance reserve will be reduced this area will be greatly affected hence need for fire service procurement managers to work together with Merseyside Fire and Rescue Authority in establishing insurance services for a three year period. The other option which could be adopted by the Authority is through purchasing commercial insurance policies with a current value of £400,000. The Authority will be required to set out investment criteria on the policy annual basis in which the Treasurer of the Authority will be required to initiate a borrowing as well as investing period of 365 days. It is necessary that the Authority adopts a pro-active approach which will allow it to monitor as well as amend Authority’s investments within varying periods. To add to its total income it will be necessary that Greater Manchester Fire and Rescue Service puts in place Cashable savings reserve of approximately £5M which will obtained through proper use of workforce. This will help a great deal in handling the proposed budget cuts. Since the funds allocated towards capital reserve will be reduced by approximately 2% this implies that the Authority will be required to review the revenue expenditure. This will provide an opportunity for the Authority to identify the projected level of balances for the Authority for the coming year 2012(Charles, 2007, pp.58).   The Authority will be required to use its investments primarily to achieve optimum return (yield) through the use of proper levels of security as well as liquidity. With the budget cuts proposals it will be necessary for Greater Manchester Fire and Rescue Service to keep investments short term rather long term. Additionally, the Authority will be required to implement a financial plan which actually will ensure that Authority’s capital security as well as liquidity has appropriate level of return which is consistent with the budget cuts as well as Authority’s budget expenditure as well as Authority’s risk appetite (Great Britain, 2008, pp.48-56).Investments which have a higher yield within the first six months will be necessary. The Authority may be forced to implement debt rescheduling plan during the first four months of the financial year was 2011.Lastly, the Authority will be required to increase its fees as well as charges such as licensing to adequately cover for full costs of their related services which is usually perceived as a major income for the Authority since it contributes to approximately 2%.There are a range of human resource implications which result from the budget cut proposals. The Authority too will be required to implement policies as well as approaches which assists the staff in dealing with downsizing in a positive manner rather than in a negative manner. The Authority too will be required to implement a comprehensive policy framework which will put in place a range of efficiency reforms over a medium term financial cycle in relation to the expected financial performance. This will led to the creation of a large scale change programme that will foresee fundamental changes on how service support is organized, delivered as well as how operational resources are matched with organizational operations in achieving total efficiency as well as effectiveness. With the budget cuts the Authority will be required to introduce Rostering for duty system for all its employees. Introducing this new duty system by Greater Manchester Fire and Rescue Service will incorporate significant changes as far as employees working practices for all whole time operational staff are concerned. This new duty system will offer a wide range of flexible duty patterns which will eventually results to a better alignment of firefighter availability to risk in relation to demand (Willing, 2008, pp.58-70). This system will allow the Authority to constantly review its human resource capacities primarily as way of ensuring continuous improvement and refinement in alignment to the financial status of the Authority. Introducing this system will definitely help Greater Manchester Fire and Rescue Service to save upto approximately £1.2 million annual efficiency savings as well as improved performance standards. The other area which will be greatly affected by the budget cuts is Firefighting and Rescue Operations (Hannes ,2009,pp.59).To reduce the number of death associated with such operations it will be necessary that the Authority implements flexible forward capital programme which will ensure that the fire fighting skills are maintained through constant trainings. With the current budget proposals Greater Manchester Fire and Rescue Service (GMFRS) will be required to effectively use its resources by harmonizing the accessibility of its people in relation to the demand as well as risk profile of the community as far as fire safety is concerned (Charles,2007,pp.58). In order to achieve flexible deployment of resources, then it implies that Greater Manchester Fire and Rescue Service would be required to introduce employment contracts and duty systems. Additionally, the Authority should put in place Integrated Risk Management Plan (IRMP) which actually can be done through investment in training, developing partnerships fire safety initiatives as well as sourcing fire rescue equipments from donors and other funds required to keep people more safer. The Authority too will be required to put in place better performance management systems which actually service planning with organizational financial management. This actually will enable the Authority too provide a stronger foundation required for delivering as well as assessing value for money required for its operation as far as overall authority’s budget expenditure is concerned( www.manchesterfire.gov.uk) Conclusion/Recommendations With the overall budget cuts proposals as a result of reduction on governmental spending by 5% it is necessary that Greater Manchester Fire and Rescue Service be prepared to make progress as well as expedite a range of significant cost reductions measures which will help the Authority to deliver a sustainable medium term financial strategy. From the research it is quiet evident that blackloading cuts are designed to enable Fire Authorities to make extensive progress in their operations, it implies that Greater Manchester Fire and Rescue Service will be required to implement programmes which delivers change within particular budget constraints. As a result of budget cuts proposals the Fire Service Authority will be required to implement a Corporate Plan in which the Authority will carry out a comprehensive review on the risks facing the local communities, current risks facing each fire station, the financial challenges expected. This analysis will help Greater Manchester Fire and Rescue Service to balance as well as address the risks in accordance with fewer resources. Word Count:2900 Greater Manchester Fire and Rescue Authority Statement of Accounts 20 Bibliography British journal on total governmental spending on fire Authorities. Volume 145.Publisher:Henry Greenwood & Co., Ltd Charles, K (2007).Financial corporate management and spending strategies. Wiley and Sons,pp.58 Chief Fire Rescue Advisers (2008).Greater Manchester Fire and Rescue Service Authority , volume 3 Dennett, M (2004).Fire Attack: An Integrated Strategy.Publisher:Jeremy Mills , pp.45- 65 Environmental Protection: Fire and Rescue Manual, Volume 2, Fire Service Operations. Publisher: The Stationery Office, pp.12- Great Britain:H.M. Fire and Rescue Service manual: Vol. 2: Fire service operations, Incidents involving rescue from road vehicles. Publisher:The Stationery Office, pp. 56-60 Great Britain:H.M. Volume 1 of the Fire Service and Rescue Service: Fourth Report of Session 2005-06. Publisher:The Stationery Office, pp.48-56 Greater Manchester Fire and Rescue Service Authority Financial statements for 20009/10 available at www.manchesterfire.gov.uk Greater Manchester Fire and Rescue Service Corporate Plan 2011 – 2014 January 13, 2011.The Corporate Plan 2011-2014, can be found on the website www.manchesterfire.gov.uk Hannes , S (2009). Strategies to implement in times of budget reductions. Publisher:British Government, pp.59 International Journal on transformational change in the Fire and Rescue Service Jones , S(2009). Financial management and effective resource allocation by UK Fire Authorities. London: Wiley and Sons, 32-56 Report on the overall budget cuts proposals on the operations of Greater Manchester Fire and Rescue Service 2010.Publisher: Greater Manchester Fire Authority Rusdbridge, B., J (2007).The Greater Manchester municipal year book and public services directory .Publisher:Municipal Journal, pp.15-45 Volume 6; published November 2010 Willing, J (2008).Proper Financial management guide: Willing's press guide, Volume 1.Publisher: Willing’s Press Service, pp.58-70ho Read More