Blog: RSLs need to adopt new CIPFA financial code
With the new Treasury Management code due to be published shortly, accountant Dave Roberts outlines the reasons for the changes, what the key changes are likely to be and what RSLs need to do to ensure they comply.
A new year brings new guidance for those who operate within the Scottish and UK social housing sector with changes to the way Registered Social Landlords (RSLs) manage key aspects of their finances due to go live in these early days of 2018.
The Treasury Management Recommended Practice for Social Housing Sector, a set of guidelines developed by the Chartered Institute of Public Finance & Accountancy (CIPFA), provides a recommended practice framework on the strategies and transactions that an RSL is expected to adopt and implement to manage its investments, cash flows, banking, money market transactions, capital markets transactions and the risk associated with those activities.
This code was last updated in 2011 and, since that time, the public service delivery landscape has changed significantly creating the need for these forthcoming changes.
Over the last seven years Scotland and the rest of the UK has seen a significant reduction in public spending coupled with an increased need for housing. These factors, combined with a the transfer of decision-making powers from central to devolved governments, including the Scottish Parliament, has created a perfect storm for RSLs.
With councils racking up a mounting level of debt - the most recent figures from March 2016 show outstanding borrowing of £88bn and investments of £32bn across all UK local authorities – CIPFA is determined to put an end to what are now out of date financial practices.
Given the importance of local authority investments, which represented an important income stream generating over £1 billion in 2016/17, the updated Treasury Management code will likely focus on ensuring the public has confidence in the governance surrounding these investment and borrowing decisions.
After an initial consultation, the revised code, which was initially due to be published at the end of last year, is now expected to go live at any time now. While it’s not possible to pre-empt in detail what will be in the final code, the initial consultation, which closed last September, flagged a number of issues about the existing Treasury Management framework. This included a recognition that it is complicated and requires a good knowledge of financial reporting from RSLs.
Respondents highlighted problems with the timing of reports due to restrictions in RSL board meeting cycles and the limited timescales to act upon them. Many raised concerns about the challenges for board members to read, understand and make important decisions on what is often a complex and lengthy report. Given these factors and the fact that some board members do not possess the specialist knowledge to fully absorb the unfamiliar terminology often included within these reports, there were concerns about the level of risk to which RSLs were being exposed.
It remains to be seen if these issues will be addressed in the updated framework. What is clear is that RSLs will need to ensure they implement a Treasury Management procedure that is compliant with the increased scope of the new CIPFA code. This updating process will need to include all investments which are held, primarily for financial returns and not just those which are formally classed as ‘Treasury investments.’ This would now include subsidiaries held for financial return. RSLs must also update risk management procedures to prevent fraud or financial mismanagement and ensure they have a regular procedural reporting system in place.
The publication of the new Treasury Management code is imminent and RSLs will need to ensure they are aware of the changes and able to quickly get to grips with them.
- Dave Roberts, is director and social housing specialist at accountants Chiene + Tait