6 Financial management
6.1 AFS has a portfolio of financial procedures which include clear instructions on budget monitoring and controls, transactions and the respective roles of finance staff and budget holders. The evidence that financial planning is fully aligned with strategic planning is less clear and this emerged as an area for development for the organisation.
Vision and leadership
6.2 AFS receives its income from a range of sources. In addition to the core grant from the Scottish Government, AFS receives funding from a variety of charitable trusts and corporate donors. Relatively small sums of money have also come from individual donors, and this source of income is currently under review. Historically, most of AFS's self-generated income has come from training and workshops.
6.3 Table 6.1 on the following page shows AFS's income and expenditure for the past three years, according to the organisation's annual reports. The table shows that the proportion of AFS's income received from the Scottish Government (including core funding and short-term project funding) has risen in the past three years.
6.4 In 2010, the Executive Committee took a decision to no longer accept funding from the alcohol industry, which comprised only a small portion (< 2%) of AFS's total annual income. However, at the same time, the organisation withdrew from an historical endowment trust funded by the alcohol industry. This endowment appeared as a substantial source of income in AFS's accounts (>£100,000). In fact, because of the conditions attached to the endowment, only the relatively small interest earned on the fund was available to AFS to spend on an annual basis. The principle fund was required to be held intact for a period of several decades.
6.5 This loss of income came at the same time as an overspend on costs related to restricted projects, which was met by the accumulated surplus on the restricted projects from the previous year. In addition, there was a new financial liability resulting from the organisation's withdrawal from the local authority pension scheme as there were no longer any contributing members. This was successfully negotiated to be paid over six years. There was also a significant reduction in self-generated training income. The latter had been partly expected due to the cyclical nature of licensing training; however, the actual reduction in training income was substantially larger than anticipated. As a result, at the beginning of 2011-12, the organisation was projecting a substantial deficit.
Table 6.1: Income and expenditure, 2008-09 to 2010-11
|Income from Scottish Government*||429,214||26%||509,000||30%||449,000||43%|
|Other income from grants, trusts and individual giving||265,641||16%||295,995||17%||190,519||18%|
|Self-generated income from training, consultancy, etc.||637,463||39%||744,622||44%||392,729||37%|
|Education and training||574,479||34%||672,809||38%||405,371||30%|
|Policy and communications||260,582||15%||330,854||19%||200,835||15%|
|Surplus / deficit||-77,646||15,406||-321,578|
* The figure shown for 2008-09 includes core funding of £265,534 plus project funding of £163,680. The figures shown for 2009-10 include core funding only.
** SAADAT = Scottish Association of Alcohol and Drug Action Teams. This funding from the Scottish Government for Alcohol and Drug Action Teams was administered by AFS. However, AFS had no direct control over the funds.
6.6 As discussed in Section 4, to reduce the deficit, a decision was taken to reduce staffing by 20% for all staff working more than half-time. Senior managers reduced their hours starting in April 2011, and the remaining staff reduced theirs in May. This and other measures to maximise income and reduce expenditure have been successful in enabling the organisation to meet its budget. And by September 2011, the situation had begun to be turned around. At the Executive Committee meeting that month, a report from the Finance and Operations sub-group was projecting a surplus of £70,000 by the end of year.
6.7 AFS reviewed its risk register in 2011 after a gap of four years. Financial risks emerged as the highest and most urgent risks to the organisation. In addition, as noted in Section 5, there was some evidence from senior management minutes (particularly from 2010) that timely and useful feedback to budget holders had been lacking. For example, when the new CEO came into post, budget reports were being provided to budget holders on an ad-hoc basis with projections going to senior management team meetings every six months, which was too infrequent to enable remedial action to be taken quickly enough.
6.8 However, there is now good evidence that measures have been put in place to more precisely monitor the organisation's financial status - for example through new monthly financial meetings between senior managers. In addition, having recognised the need for more detailed management data, particularly in relation to the organisation's training function, AFS is taking steps to develop this.
6.9 These are important positive steps. At the same time, the new income generation strategy and the leadership being provided by the Chief Executive and Director of Operations in this area generally points to improved financial management and oversight.
6.10 There was more limited evidence that financial planning is fully aligned with strategic planning processes. The documentary evidence submitted on finance was concerned with everyday operational arrangements. Strategic planning documents shed no light on how the role of strategic financial planning and long-term forecasting had impacted on the decision-making processes.
Governance and accountability
6.11 There was good evidence that the accounting arrangements in place for budget monitoring, feedback and reporting lend themselves to good governance. There was more mixed evidence that the practice consistently meets this expectation. While Executive Committee members expressed their general satisfaction with the sufficiency and the quality of the financial reports provided to them, the organisation has recently had to familiarise itself with the process of full-cost recovery in order to ensure the accuracy and usefulness of the information on which the reports are based.
Use of resources
6.12 There was an explicit requirement contained in the financial instructions to consider best value when making any decisions on projected costs or approving expenditure. Furthermore, there was evidence in Executive Committee minutes and senior management minutes that discussions about cost-benefits routinely occur before taking decisions about whether particular activities were worth bidding for or continuing with.
6.13 There is growing evidence that AFS is taking a more systematic approach to resource management based on a more sophisticated understanding of what constitutes resources. The strategic prominence and operational priority given to effective and efficient use of resources over the last year was clearly in evidence from a range of sources.
6.14 Statutory returns are routinely submitted to the Office of Scottish Charity Regulator (OSCR) and there appeared to be no instances where OSCR had queried compliance or conducted any follow-up on submissions.
6.15 In common with other organisations in the current economic climate, AFS has used money from reserves to support operational viability. Minutes of an Executive Committee meeting indicated that the readily accessible reserves had temporarily fallen below required levels although total reserves were sufficient. Steps were being taken to bring readily accessible reserves back to the level expected.
6.16 AFS has identified that a number of long-standing activities are exposing them to certain risks because of a failure to take into account full cost recovery. At the same time they have realised that their management information had not allowed them to fully capture either the full costs or the full value of what they were doing. As mentioned previously, this has resulted in a comprehensive review of costs and income associated with the organisation's training function, which is still ongoing.
Email: Iain MacAllister
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