Knowledgebase

Since 2020 and indeed the advent of Covid, we’ve witnessed the vast majority of Councils move away from cheques and more towards online payments. We realise that this can be a minefield and so we’ve put together a simple guide. 

The reasons for moving to online banking are many, not least:

1. Section 150 (5) was repealed meaning that two signatories was no longer law (but still advised that payments should be authorised by more than one person 
2. Royal Mail industrial action caused excessive delays on postal service and became unreliable. 
3. Late Payment of Commercial Debts (Interest) Act 1998 require that payments be made within 30 days of the due date.
4. Government Prompt Payment Policy

We realise that Councils and indeed Clerks and RFO’s are often swamped by regulatory requirements and can even have trouble locating or interpreting the changes in regulation. In one instance, we learned of a Council that was authorising payments at a meeting and then authorising the cheques being signed for those payments at the next meeting often months later. Naturally this was a misinterpretation of the guidelines and recommendations and resulted in late fees and a poor relationship with suppliers. 

The repealed Section 150(5) of the Local Government Act 1972 governed the stewardship of money by local councils. It required that ‘every cheque or other order for the payment of money shall be signed by two members of the council’. Although no longer the law, local councils must have in place safe and efficient arrangements to safeguard public money. It is not a requirement that two people authorise electronic payments, however, it is a general principal that more than one person should be involved in any payment, whether that is before, at or after the point at which the payment is made.

Moving from cheques to online banking

Some banks allow for a system known as ‘Create and Submit’. This enables a feature that works as follows:

1. The Clerk prepares a schedule of payments based on the invoices received since the last meeting
2. These are presented and approved / disapproved at the next meeting
3. Those payments that are approved are created and submitted on the banking website
4. Within 48 hours, two Council members log in and authorise payment, thus completing the payment

Two banks that we know to offer this feature are Lloyds and Unity Trust. 

In the absence of this feature however, Points 1-2 would still apply, and the control would be as follows:

1. The Clerk prepares a schedule of payments based on the invoices received since the last meeting
2. These are presented and approved / disapproved at the next meeting and recorded with the minutes. 
3. The Clerk/RFO makes these payments online as soon as possible following authorisation.
4. A list of successful payments made (with remittance advice or statements for documentation purposes) will be made available in the next meeting pack. 

In many ways, the second option actually reduces risk as there is only one person accessing the bank account and therefore the likelihood of an account being maliciously compromised is greatly reduced. In addition, the need to add or remove members from the account as they leave or join the Council is also removed. 

There are other safeguards and recommendations that should be noted, in particular with reference to saved passwords, ongoing and unchallenged invoices etc. Below are the recommendations from NALC. We hope that this short guide has aided your understanding. 

NALC Model Financial Regulations 2020/2021

1. 1. Banking arrangement and authorisation of payments
1. 1.1 The council’s banking arrangements, including the bank mandate, shall be made by the RFO and approved by the council: banking arrangements may not be delegated to a committee. They shall be regularly reviewed for safety and efficiency.
2. 1.2 The RFO shall prepare a schedule of payments requiring authorisation, forming part of the Agenda for the Meeting and present the schedule to Council. The Council shall review the schedule for compliance and, having satisfied itself shall authorise payment by a resolution of the Council.
3. 1.3 All invoices for payment shall be examined, verified and certified by the RFO to confirm that the work, goods or services to which each invoice relates has been received, carried out, examined and represents expenditure previously approved by the Council.
4. 1.4 The RFO shall examine invoices for arithmetical accuracy. The RFO shall take all steps to pay all invoices submitted, and which are in order, at the next available Council meeting.
5. 1.5 The Clerk and Chair shall have delegated authority to authorise the payment of items only in the following circumstances:

a) If a payment is necessary to avoid a charge to interest under the Late Payment of Commercial Debts (Interest) Act 1998, and the due date for payment is before the next scheduled Meeting of council, where the clerk and Chair certify that there is no dispute or other reason to delay payment, provided that a list of such payments shall be submitted to the next appropriate meeting of Council

b) An expenditure item authorised under 5.6 below (continuing contracts and obligations) provided that a list of such payments shall be submitted to the next appropriate meeting of Council or

c) fund transfers within the Councils banking arrangements up to the sum of £5,000, provided that a list of such payments shall be submitted to the next appropriate meeting of Council.

1. 1.6 For each financial year the RFO shall draw up a list of due payments which arise on a regular basis as the result of a continuing contract, statutory duty, or obligation (such as but not exclusively) Salaries, PAYE and NI and the like for which Council may authorise payment for the year provided that the requirements of regulation 4.1 (Budgetary Controls) are adhered to, provided also that a list of such payments shall be submitted to the next appropriate meeting of Council.
2. 1.7 In respect of grants a duly authorised committee shall approve expenditure within any limits set by Council and in accordance with any policy statement approved by council. Any Revenue or Capital Grant in excess of £500 shall before payment, be subject to ratification by resolution of the council.
3. 1.8 Members are subject to the Code of Conduct that has been adopted by the Council and shall comply with the Code and Standing Orders when a decision to authorise or instruct payment is made in respect of a matter in which they have a disclosable pecuniary or other interest, unless a dispensation has been granted.

1. 2. Instructions for making of payments
2. 2.1 The Council will make safe and efficient arrangements for the making of its payments.
3. 2.2 Following authorisation under Financial Regulation 5 above, the Council, or, if so delegated, the RFO shall give instruction that a payment shall be made.
4. 2.3 All payments shall be affected by cheque or other instructions to the council's bankers, or otherwise, in accordance with a resolution of Council.
5. 2.4 Cheques or orders for payment drawn on the bank account shall be signed by two members of Council. A member who is a bank signatory, having a connection by virtue of family or business relationships with the beneficiary of a payment, should not, under normal circumstances, be a signatory to the payment in question.
6. 2.5 Cheques or orders for payment shall not normally be presented for signature other than at a Councillor committee meeting (including immediately before or after such a meeting). Any signatures obtained away from such meetings shall be reported to the Council at the next convenient meeting.
7. 2.6 If thought appropriate by the Council, payment for utility supplies (energy, telephone and water) and any National Non-Domestic Rates may be made by variable direct debit provided and any payments are reported to Council as made. The approval of the use of a variable direct debit shall be renewed by resolution of the Council at least every two years.
8. 2.7 If thought appropriate by the Council, payment for certain items (principally salaries) may be made by banker’s standing order provided that the instructions are signed, or otherwise evidenced by two members are retained and any payments are reported to Council as made. The approval of the use of a banker’s standing order shall be renewed by resolution of the Council at least every two years.
9. 2.8 If thought appropriate by the Council, payment for certain items may be made by BACS or CHAPS methods provided that the instructions for each payment are signed, or otherwise evidenced, by two authorised bank signatories, are retained and any payments are reported to Council as made. The approval of the use of BACS or CHAPS shall be renewed by resolution of the Council at least every two years.
10. 2.9 If thought appropriate by the Council payment for certain items may be made by internet banking transfer provided members approved the payment.
11. 2.10 No employee or Councillor shall disclose any PIN or password, relevant to the working of the Councillor its bank accounts, to any person not authorised.
12. 2.11 Regular back-up copies of the records on any computer shall be made and shall be stored securely away from the computer in question.
13. 2.12 The Council, and any members using computers for the Council’s financial business, shall ensure that anti-virus, anti-spyware and firewall software with automatic updates, together with a high level of security, is used.
14. 2.13 Where internet banking arrangements are made with any bank, the RFO shall be appointed as the Service Administrator. The bank mandate approved by the Council shall identify a number of Councillors who will be authorised to approve transactions on those accounts. The bank mandate will state clearly the amounts of payments that can be instructed by the Service Administrator with two approvals.
15. 2.14 Access to any internet banking accounts will be directly to the access page (which may be saved under “favourites”), and not through a search engine or e-mail link. Remembered or saved passwords facilities must not be used on any computer used for Council banking work. Breach of this Regulation will be treated as a very serious matter under these regulations.
16. 2.15 The RFO ensures cash received is banked. Any payments made in cash by the RFO (for example for postage or minor stationery items) shall be refunded on a regular basis, at least quarterly.