The Financial Statements for Essex Fire and Rescue Authority - Report Example

Financial management Abstract Following the recent general election, there is an increased pressure to the government to cut down on its expenditure. This was mainly due to the heavy spending that comes with the electioneering period. In this report, I am going to review the financial statements for Essex fire and rescue authority and present it to you, the senior manager, Essex Fire and Rescue Authority. In this report, this paper has critically analyzed and assessed the operational boundary and the authorized limit proposals for the Fire and Rescue Service. In this analysis, this paper has calculated the safety margin of the operational Boundary to the Authorized Limit and identified six categories of risk facing the FRS. For each category this paper has commented on whether the risk has a financial impact on the FRS and if so, whether it has been recognized in the financial statements. At the conclusion this paper has given opinion as to whether it has been recognized, explaining why I believe that is the correct view. This financial management guide has described in step after step, the responsibility of the management of the Essex Fire and Rescue service in conjunction with the Greater Manchester Fire and Rescue Service to fulfill the government’s requirement to cut down on the expenditure of the company by 5%. I hope that this guide will be of importance to you as you plan too go ahead and establish some critical decision making procedures for the sake of the fulfillment of the requirements as well as being in line with the objectives of the company. Essex Community Fire and Rescue Service This is a community based fire and rescue service mostly serving the Essex area. As compared to the Greater Manchester Fire and Rescue Service, Essex serves a smaller geographic region. Most of the functions of the group are in line with the Greater Manchester and include among others; fire control and mitigation, road safety, fire safety visits at home and so on. In road safety, they are involved with attending to victims of road carnages and prevention of road accidents or traffic collisions. Risk Areas There are various risks that pertain to organizations in general and risk areas that are pertinent to a fire fighting and rescue service. In the fire and rescue service realm, some of the most common risks that are associated with the industry are: - Community risks: - these are risks that affect the local people in the community. These kinds of risks affect the health conditions, housing, standards of housing and deprivation among others. The risks of this nature can be averted by seeking to improve the living conditions of the people in the community and improving the standards of the surroundings (Barnett, 2005). Strategic risks: - the risks of this nature are associated with conditions which can be natural or human. Such conditions include transport facilities, hospitals, droughts, flooding, events which can lead to an influx of people like the Olympics and so on. Future risks: - the risks in this realm are bound to happen after a certain period in time. They can range from changes in the climate, proposals to extend and develop some buildings and old age. Such risks should always be taken into account so as the Fire and Rescue service can be better prepared to target the affected groups or the groups which are bound to be affected in order to reach them in a timely manner and also to have the risks reduced. The information can also help the organization to have their resources organized in a well organized manner. The Essex Fire and Rescue Service seems to have taken into account the procedure for risk management considering that they have already put in place some measures to be able to handle some of the most crucial; risks in future,. Some of the measures which have been put in place include the fact that there shall be: - More lone elderly people with problems of mobility Mental and disability probe individuals living in isolation Due to recession, overcrowding and poor health conditions Shared and rented housing facilities will be on the rise Extreme climate conditions like droughts Increased traffic on the roads Change in building materials which will increase the vulnerability to fire spread and fire development With these possibilities already outlined, it is clear that the company is already prepared to have the necessary measures put in place and the necessary financial projections outlined. Risk and decision making The company has outlined some procedures which will be out in place in order to avert the risks. Due to the increase in the number of the elderly people living alone, there is an increase in the fire and other related accident risks in their places of residence. The company is trying to work out with the providers of the hosing facilities to be able to circumvent the risks as well as judge on the magnitude of the risks. Due to the increase in the rates of road accidents owing to the increase in the number of vehicles plying most routes, the authority has collaborated with the police department and also the local authority to be able to curb the accidents and reduce the carnages to manageable levels. Owing to the change in the building material, it is evident that more timber products are being used to construct houses. The use of timber has increased the likelihood of the fire accidents and has also made the process of putting out fire more complicated. The authority is devising ways and means in which to work with planners and also the developers to have the risks minimized. There is a higher risk of more floods as has been projected by the local environmental agency. The authority is working closely with the local resilience forum which it chairs to ensure that the impact of flooding is reduced to manageable levels when it happens and that there should be a better and faster response to the flooding menace. This has been made a reality through the increase of public awareness programs which insist on personal safety on the event of a flood so that the rescue service can assist the people who are most in need first before engaging in the community as a whole. The authority has also improved the equipment which is vital for the rescue efforts. Looking at the above stated procedures which have been taken by the organization in trying to avert risks, it is necessary that whatever procedure is taken stays in line with the government’s regulation to have the expenditure of the company reduced by 5%. The higher the risk, the higher the anticipated return and in this case, there should be focus on salvation to more life and property. The authority should have more focus on projects which will have more mitigation of the risks. The company can also seek out ways in which to diversify the modes of averting the risks so as to minimize the risks. The risks in the company’s way of doing things should be speculated in such a way that they are diversified so as to increase the ways and means of solving them. To reduce the costs and get the risks into the investment appraisal, the “capital asset pricing model” can be applied. Other risks There are some precise risks which are associated to most businesses and organizational premises. Some of the most common risks are: - a) Strategic risks Strategic risks are linked to the operations of a particular industry. Such risks may begin from mergers or attainments, client or demand based change, industrial change and change resulting from additional research and substantial development. These kinds of threats warrant a ready answer if the stated jeopardy is bound to come about. b) Compliance risks Theses are risks that require the company ton act in a particular way. They cannot be avoided or predicted though the company has to be ready to encounter such an action to avoid being in danger of being adversely affected by the regulations. c) Financial risks Fiscal risks are those risks that are linked to the financial makeup of the organization. It also includes the transactions that are put in place by the organization and the kind of systems in use by the organization. In order to get a clear vision of the financial risks, it is important to consider the financial operations. Most pertinent in financial operations includes cash flow. One of the critical factors to consider when looking at matters of financial operations is the customer base. Lack of satisfaction to the customer may render some very serious complications to the business. It is also important for the company to be able to have a way of identifying cash flow hiccups in order to stay safe. d) Operational risks These risks are associated with the operational procedures of the business as well as the administrative procedures. They include among others; chain of supply, recruitment, transport, control of accounts, IT, regulations and composition of the board. In dealing with these risks, there should be a proper examination of the risks and making of the necessary provisions as per the priorities. A good example of this provision is through development of a continuity plan in the event of a likely shortage of goods for a business that involves continuous delivery. This is an applicable method in the case of fire and rescue service considering that there is continuous need of some requirements like water, chemicals, gases, fuel and so on. Analysis of the accounts In trying to decrease the expenditure of the company by 5%, it is wise to first analyze the accounts of the company. The company got its funds from national business rates, levies, grants and charges from rents, interests and so on. Most of the money was spent on salaries and the rest distributed almost equally on pensions, running of the facilities and capital financing. There was an augmentation in expenses from the 2006/07 financial year to 2007/08 from 3.66m to 8.1m. Most of the increase in the capital expenditure was in the newly built fire station at Ashton through premises refurbishment and replacements and more vehicles. Most of the financing for this expenditure has been from external borrowing and using the reserves. The total liability owed to the pension scheme amounts to 925.7m with 919.9 under the fire service and 5.8m under the local government. According to the income and expenditure account, there was a 111.259 million net cost in services, and an operating expenditure of 168.66 million. The yearly deficit was 58.855 million. Looking at all the statements of accounts tat are presented in the financial statement, most of the expenditure was at the salaries that were offered followed y the pension’s scheme. Additionally, there was extra expenditure on the premises where putting up of the new premises was a bit expensive for the company. The operational costs also have proven to have had quite a big overhead for the company thus calling for extra caution, With the above discussed factors as the targets for the reduction in the total expenditure, the greater Manchester fire and rescue service was obliged to consider the magnitude of the risks that were probable and consequently look for ways in which they could avert the risks. The operational boundary for the year 2007 was 6.998 million in both borrowing and the total external debt. For the year 2008 was 11.6 million in both borrowing and total external debt. For the year 2009 was 14.15 million in both borrowing and total external debt. For the year 2010 was 16.41 million in both borrowing and total external debt. To calculate the authorized limit there needs to be headroom above the operational boundary and so there needs to be a 5% variation on the operational boundary for the stated headroom. The authorized limit hence becomes 12.5 million borrowing and total external debts for the year 2007/08, 15.0 million for the year 2008/09 and 17.5 million for the year 2009/10. Impact of the budget cut With the government proposition to have the expenditure of the company reduced by 5%, there are some factors in the company which are bound to be greatly affected. The areas are also bound to have some greater impact to the company and are also bound to receive some reactions. According to the accounts analysis and the risk aversion projects discussed in the earlier parts of the paper, most of the income is spent on salaries (70%). Other areas to be involved are the equipment and the premises. Salary reduction by 5% may lead to some angry reactions from the employees. According to the current economic deficit, this is a very direct way of making the whole process effective and might lead to some serious reactions from the affected members. Succumbing to a directly noticeable effect like salary reduction does not seem like a correct answer as it might lead to direct reaction from the employees such as waging go slows, striking, losing morale or even losing some services. This being the case, it should be approached very gently and the organization should put much focus on the probability of the unexpected happening (Kagan and Ford, 2002). If the probability of compromising the services of the organization is higher than the achievement of the wanted or the predicted results, then the organization should avoid the whole thing altogether (Amram & Kulatilaka, 1999). Another method that may apply in the budget reduction quest is the increasing of working hours to the staff. This will act to lessen the number of personnel who will be requisite to be hired by the fire and rescue service. Decreasing the tempo of hiring will be an out right hack on the financial plan. To make this stride effective the corporation should search for ways and means in which the personnel are informed of the requirement. Making the populace come to stipulations with the sense behind a certain act can act to better create them conscious of the inevitability to have the steps stay as they are apparent to be (Ephraim and Marois, 1996). The service should also think about revising the pension system and cut the rate of training. The training fee should not have an effect on the excellence of training on hand to the employees as this may adversely affect the eminence of service. It should nevertheless focus on the diminution of the material expenditure with preservation of the output and the excellence of the services (Kieso et al. 2007). There are ranges of other ways in which the expenses of the company can be abridged without unswervingly affecting the employees. One of the most excellent ways in which this can be made a certainty is through the evading of promotions. In any endorsement from a inferior to a superior job category, there desires to be an augmentation in the salaries and or the wages that are presented to the person concerned. In this case it is relevant for the corporation to halt the promotions so as to continue with the targets of the corporation to have the full amount of expenditure abridged as a result of the monetary downturn (Chapman & Ward 1997). To avoid response from the workers, the corporation should utilize such tactics as enlightening the workers on the impact of the recession and the call for some activities halted which would otherwise be putting their jobs at stake. When the workers are aware of such happenings, there is bound to be fewer risks of revolting for better conditions as they would be already aware of the risk that they are posing to their jobs. Another method which would be used to reduce the expenses of the company would be through avoiding replacing the employees. The modalities of replacing some of the employees entail that the new employees possess better skills than the outgoing counterparts. This hence means that there needs to be an extra pay. It is hence necessary to avoid employing new people and in turn focus on improving the skills of the existing personnel through various methods. At the same time, where applicable, the company can focus on use of temporary employees or even sub contracting some of the labor. In this way, the company is bound to spend less as they will only need the employees only when it is necessary and during the less busty times, they will be saving on what they would have spent if they were to be having permanent employees (Gitman, 2003). References Amram, M., & Kulatilaka, N. (1999): Real options. Harvard Business School Press. Barnett, M.L. (2005): Paying attention to real options. R&D Management Blackwell Publishing Ltd Chapman, C., & Ward, S. (1997): Project risk management. JOHN WILEY & Sons. Ephraim Clark, E., and Marois, B. (1996): Managing Risk in International Business. Intl Thomson Business Press. Gitman, Lawrence. Principles of Managerial Finance, 10th edition, Addison-Wesley Publishing, 2003 Kagan, C. B. and Ford, D.N. (2002): Using Options to Manage Dynamic Uncertainty in Acquisition Projects. Acquisition Review Quarterly Fall 2002 Kieso, D. E., Weygandt, J. J., & Warfield, T. D. Intermediate Accounting (12th ed.). Hoboken, NJ: John Wiley & Sons, p. 1320, 2007. Knight, F. H. (1921): Risk, Uncertainty, and Profit. Houghton Mifflin Company. Read More