The importance of robust bookkeeping and accounting was thrust into the spotlight again recently, as a local fire authority announced debts of £15m. The debt, linked to pensions for injured firefighters, is said to be as a result of accounting mistakes.
Essex Fire Authority said that the error had occurred as a result of yearly £1.8m shortfall since 2006. The error should have been picked up in annual audits by fire service accountants.
Once the error was spotted, an independent inquiry, led by an external team, was commissioned. However, the acting chief fire officer for the service, Adam Eckley, said that the inquiry was not about apportioning blame but understanding the discrepancy.
Eckley said:
“While the Treasurer and Finance Director is clearly accountable, we are not looking for any scapegoats.
“This was a genuine oversight by a number of parties and was brought to the Fire Authority’s attention as soon as it was discovered.”
The identified shortfall was earmarked to service ongoing pension payments to firefighters injured in service and claiming their pension early as a result. Fortunately, the service has built up robust reserves which it can use to meet the deficit, but Eckley did warn of “the potential for interest charges on top.”
He went on to explain that it would subsequently challenge managers to focus on a future expenditure strategy that works.
Setting such challenging strategies, particularly amid less than favourable internal or external conditions, is something small business owners will be only too aware of.
Hopefully, the fire service’s accounting team will be able to provide this support, while many SMEs are opting to go for a complete outsourced accounting service. Indeed, many larger firms are also starting to see the benefits of having an outsourced accounting team in their corner.
From giving them the freedom, space and guidance to better take charge of daily operations, to empowering better decisions by accurate, innovative and proactive bookkeeping, there are many levels with which an external team can offer greater strength and cohesion.
It is fortunate that the Essex fire service has been prudent with its financial management as a whole over the years. This is, essentially, the only aspect that has allowed the service to wipe out the debt immediately.
However, Eckley went on to say that it would mean the service having to isolate savings of £7.7m over the next few years, instead of the £5.9m it had been previously targeting.