INTERNAL AUDIT OUTCOMES REPORT

STRATEGIC CONTEXT

10 The work of internal audit services is concerned with providing assurances that the Council’s system of internal control is adequate and effective in supporting the delivery of the Council’s strategic objectives. As such, it makes an important contribution to the Council’s governance arrangements.

CONSULTATION

11 The internal audit report attached as appendix 2 has been subject to detailed consultation with senior managers within the council.

FINANCIAL/BUDGET IMPLICATIONS

12 There are no direct financial implications arising from this report.

LEGAL IMPLICATIONS

13 There are no direct legal implications arising from this report.

14 The Council has a statutory duty under the Accounts and Audit Regulations (amended) 2006 to have an adequate and effective Internal Audit service in place.

RISK MANAGEMENT

15 This report is concerned with assessing the adequacy and effectiveness of the Council’s arrangements for controlling the value for money risk associated with providing financial support to IWEP.

BACKGROUND PAPERS

16 Audit project file held by the Chief Internal Auditor – ext 3683

APPENDICES ATTACHED

Appendix 1 – Enquiry Scoping Document/Terms of Reference

Appendix 2 – Value for Money report on IWEP

Contact Point: Ged Richardson, ( 3683; Email: [email protected]

GED RICHARDSON

Chief Internal Auditor

Appendix 1

AUDIT & PERFORMANCE ENQUIRY SCOPING DOCUMENT

RESPONSIBLE BODY

AUDIT AND PERFORMANCE COMMITTEE

ENQUIRY NAME

ISLE OF WIGHT ECONOMIC PARNERSHIP (IWEP) VFM

REFERENCE NUMBER

AP1/06

OUTLINE OF ENQUIRY

To recommend adding to the work programme of Internal Audit an investigation into the value for money received by the Council in respect of it’s funding of the Isle of Wight Economic Partnership.

In particular to investigate:

• What the IWEP is contracted to deliver n behalf of the council

• What other outcomes & outputs the IWEP is contracted to deliver on behalf of other funding bodies

• How the council determines what to contract the IWEP to deliver

• To what extent the council can influence the outcomes agreed by the IWEP with other funding bodies

• How well does the council contract/performance manage the delivery of agreed outcomes by the IWEP

REASON FOR ENQUIRY

To act in accordance with the Committee’s Constitutional responsibility to review the arrangements for managing contracts and securing value for money from contractors.

PROPOSED OUTCOME/S

• Assurance that the contract/SLA with IWEP is appropriately managed, or that processes have been put in place to appropriately manage the contract/SLA.

• Assurance that the Council is receiving value for money in respect of the financial contribution to IWEP.

RELEVANT CORPORATE AND/OR COMMUNITY STRATEGY/IES

Corporate Priorities fit:

􀀻 Economic development and regeneration

􀂅 Healthier communities and older people

􀂆 Safer communities

􀂆 Children and young people

Community strategy:

DATE OF INITIATION

September 2006

PROPOSED DATE OF COMPLETION

December 2006

Appendix 2

AUDIT SERVICES

VALUE FOR MONEY REPORT ON THE ISLE OF WIGHT ECONOMIC PARTNERSHIP

1. At the request of the Audit and Performance Committee an investigation into the value for money received by the Council in respect of it’s funding of the Isle of Wight Economic Partnership (IWEP) was carried out. The objectives of the investigation were to provide: -

· Assurance that the Contract/SLA with IWEP is appropriately managed, or that processes have been put in place to appropriately manage the Contract/SLA.

· Assurance that the Council is receiving value for money in respect of the financial contribution to IWEP.

2. As part of the investigation we were requested to look at: -

· What the IWEP is contracted to deliver on behalf of the Council

· What other outcomes and outputs the IWEP is contracted to deliver on behalf of other funding bodies

· How the Council determines what to contract IWEP to deliver

· To what extent the Council can influence the outcomes agreed by the IWEP with other funding bodies

· How well does the council contract/performance manage the delivery of agreed outcomes by the IWEP.

3 The investigation was carried out by interviewing council and IWEP officers and further information was obtained from the South East England Development Agency (SEEDA) and the Audit Commission.

4. BACKGROUND

4.1 The IWEP has delivered the economic development function for the Isle of Wight
since 1996. The last six years have been covered by a Service Level Agreement. The Council provides financial support to IWEP in the sum of £90,000 (financial year 2006-07) and currently seconds three members of staff, two full time and one part time at an additional cost of £85,000.(financial year 2006-07)

4.2 IWEP was originally set up to attract funding to the Island and as a result the Council provide core funding and SEEDA do the same (£80,000). SEEDA also support various initiatives, programmes and projects for which the partnership draws down management fees.

4.3 The Council undertake the banking role for the programmes managed by IWEP which includes keeping appropriate financial records and making authorised payments relating to regeneration programmes. The Council also act as the accountable body and as such are responsible for ensuring monies are used appropriately.

4.4 The IWEP is an independent company with its own board of Directors and is a company limited by guarantee.

5 FINDINGS

What IWEP is contracted to deliver on behalf of the Council

5.1 The Service Level Agreement (SLA) for the period 1 April 2002 to 31 March 2005, signed by both IWEP and the Council, outlines the responsibilities for both parties and those for IWEP are set out below.

5.2 Inward Investment and Marketing.
The IWEP is responsible for activities aimed at attracting and generating new jobs and investment to the Isle of Wight. In particular the IWEP will: -

a)         Provide a ‘one stop’ handling service for new and existing businesses,
b)         Strategically market the Isle of Wight as an investment opportunity,
c)         Facilitate the provision of sites and premises for new and existing businesses
            in liaison with the Council’s planning department,
d)         Manage the Innovation Centre,
e)         Act as lead agent and co-ordinator for the Island Branding initiative,
f)          Deliver agreed PSA targets on behalf of the Council.
g)         Promote the tenets of social, economic and environmental sustainability in all
            economic development and regeneration activities.

5.3 Regeneration

The IWEP is responsible for the delivery of the following regeneration programmes for the Isle of Wight

a)         Single Regeneration Budget (SRB) programmes approved under rounds 5 and 6 of the National SRB initiative,
b)         Rural Development Programme,
c)         Market Towns Initiatives,
d)         Leader+,
e)         Such other initiatives as may from time to time be developed,
f)          Support for development of sustainable local regeneration partnerships,
g)         Delivery of agreed PSA targets on behalf of the Council,
h)         Promoting the tenets of social, economic and environmental sustainability in
            all economic development and regeneration activities.

5.4 This agreement has been extended for periods of six months at a time pending the development of a more appropriate agreement reflecting the current developments such as the LAA and the Council’s Aim High agenda. In each letter extending the agreement, reference is made to continuing the funding in line with the existing arrangement.

5.5 There have been a number of discussions about the new role of IWEP but these had, until recently, been inconclusive because of the change in strategic direction by the Council when considering the Local Delivery Vehicle and latterly the proposed joint venture with Tourism.

5.6 One of the key issues that is facing the Council and IWEP is the availability of adequate resources to deliver the activities recommended by the IWEP to deliver the economic strategy

What other outcomes and outputs the IWEP is contracted to deliver on behalf of other funding bodies.

5.7       IWEP receives funding from a number of sources other than the Council and manages a number of programmes and services on their behalf. The funding for these programmes is held by the Council and paid direct to the approved project and IWEP receive management fees These sources are:

Source                           Activity                                                          Funding           Management
                                                                                                                                    Fee/Income

SEEDA               Economic Development                                          £900,000         £283,500
                           Enterprise Hub
                           INSPIRE Programme
                           Delivery of grant programmes
                           (Area Investment Framework, Single
                           Regeneration Budget, Market Towns
                           Initiative, Small Rural Towns Initiative)

GOSE/DEFRA   Leader+                                                                   £700,000         £70,000

European 5^th    Virtual Institute for Composites                                                        £60,000
Framework
Private Sector    Rental income from Innovation Centre                                            £242,000

5.8 IWEP is also funded to influence the economy of the Region and the Island by SEEDA.

5.9 IWEP has been audited on these activities by SEEDA and the National Audit Office.

How the Council determines what to contract the IWEP to deliver and to what extent the Council can influence the outcomes agreed by the IWEP with other funding bodies

5.10 The Council does not on its own determine what IWEP are contracted to deliver. Representatives from the Council are on the Board of the Island Strategic Partnership (ISP) which brings together all of the main public, private, voluntary and community bodies on the island. The purpose of the ISP is to deliver a Community Strategy which is a plan of action to address the vision for the local area and the work of IWEP is part of the overall strategy.

5.11 The ISP set the policy and the Public Services Board (PSB) which is made up of the Chief Executives of the relevant bodies including the Council approve the detailed proposals. These are forwarded to IWEP as the delivery vehicle.

5.12 The Board of Directors for the IWEP consists of twelve members, three of whom are from the Council. They are Cllrs Sutton, Hunter-Henderson and Brown. The remainder of the board is made up of representatives from other parties such as Chamber of Commerce, Business Link Wessex, Rural Community Council, together with private sector representatives. The Council’s Director of Regeneration and Development and the Area Manager from SEEDA also attend as observers.

5.13 The Funding Approvals Board was established as an approvals mechanism for project funding and Cllr Hunter-Henderson is on the board with the chair of the ISP attending as an observer.

5.14 The Council are therefore in a position to influence decisions made at all levels as they are represented on the boards of ISP, PSB and IWEP and also on the sub group approvals board.

How well does the Council contract/performance manage the delivery of agreed outcomes by the IWEP

5.15 The SLA sets out the monitoring arrangements as agreed by the Council and IWEP. Briefly the arrangements are: -

a) three monthly reports from IWEP to the Council’s Executive on

                        - IWEP’s activities
                        - Summary of grant awards made through IWEP regeneration
                        programmes
                        - Progress towards annual performance targets
                        - Financial standing of IWEP

b) Regular meetings between IWEP’s Managing Director and the Council’s Client Officer to be agreed but not less than once every three months.

c) Regular meetings between IWEP’s Managing Director and the Council’s Head of Business and Finance Services to be agreed but not less than once every three months.

d) Annual performance targets to be set at the beginning of each year. Targets can be revised during year with written consent by both parties.

5.16 During the term of the SLA and the subsequent extensions, the monitoring arrangements have not been followed as set out but regular meetings are held with the Managing Director of IWEP to identify progress with key issues affecting the economy. These have been held with the Cabinet Members, the Managing Director of IWEP, the Head of Tourism and the Head of Regeneration in attendance.

5.17 Under the SLA the Council was responsible for conducting economic research which, inter alia, would have provided the data necessary to set meaningful targets for measuring the performance of the partnership. This research was not carried out due to other priorities taking precedence and therefore Council defined performance targets for IWEP have never been agreed by the two parties. This has hampered the development of performance measures other than those identified as part of the LPSA1 and the Local Area Agreement (LAA). Recently independent consultants have been appointed and have performed the required research which will allow the development of meaningful targets for the future. However, performance targets have been and are set and monitored by the main funding agencies, SEEDA and GOSE.

5.18 IWEP’s Managing Director prepares a monthly report which he discusses with Cllr Hunter-Henderson who then presents it to Cabinet. The Council are therefore aware of the projects and programmes IWEP are involved in. IWEP also prepare quarterly reports which are forwarded to Financial Services.

5.19 All grants and awards from the various funding bodies are paid to the Council with the exception of Enterprise Hub (£80,000) which is paid directly to IWEP from SEEDA. When payment on a project or programme is due, IWEP approach the relevant funding body who check the validity of the claim and authorise payment of funds to the approved project by the Council.

6 Outcomes

6.1 One of IWEP’s main objectives is to attract and generate new jobs and investments to the Island and increase the Gross Value Added (GVA) which is a measure of the increase in wealth for the Island. So far twenty six inward investments have been attracted to the island. These are businesses new to the Island established with the assistance of IWEP. The numbers of jobs created and safeguarded since the SLA was signed are as follows: -

Financial Year Created/Safeguarded Jobs

2002-03 409

2003-04 187

2004-05 441

2005-06 147

2006-07 81 to date
Total 1265

6.2 The figures vary considerably from year to year due to the timing of inward investments which may take one or two years to set up. It should be pointed out that the above job totals will not necessarily agree with those on the LSPA1 reward claim due to the different criteria set by the different bodies. For example LPSA1 required the number of new businesses from April 2004 to March 2006 and the number of new jobs related to those new businesses, whereas the above figures include all jobs created including those created through expansion and not just those in new businesses.

6.3 Over the last five years the growth of the GVA for the Isle of Wight is the highest in the south east region

IOW – 4.5%, South east – 2.9%, UK – 2.5%

Within the LAA is a GVA per capita target of 58% of the South East of England average. The actual already achieved is a per capita GVA of 61% when compared to the average per capita GVA for the South East of England.

6.4 The Council was able to claim a reward grant of £277,000 (subject to Government ratification) for achieving target 3 set by the Local Public Service Agreement 1 which ran from 1 April 2003 – 31 March 2006. These targets related to new businesses set up with the assistance of IWEP and to the number of full time equivalent jobs in those businesses that subsist for at least twelve months. Target 11 which was concerned with increasing the number of workless people over 50 obtaining permanent employment proved to be difficult to meet as there was incomplete understanding of the influence the partnership could bring over a small cohort.

6.5 The responsibilities for IWEP as set out in the original SLA are listed below in a table with the current position of each objective.

Inward Investment and Marketing
Objective	Outcome
Provide a ‘one stop’ handling service for new and existing businesses	Ongoing. Enquiries received from many sources such as existing trading partners and via the website.
Strategically market the Isle of Wight as an investment opportunity	Ongoing – Inspire programme aimed at raising aspirations and improving self belief Island Branding which is a re-branding programme for IOW Gypsy Moth project – education programme which is part of the Marine Heritage Centre project. To achieve this objective IWEP receive £250,000 from SEEDA which ends in 2008.
Facilitate the provision of sites and premises for new and existing businesses in liaison with the Council’s planning department	Ongoing. Provides a link to match up private sector requirements to public sector availability. Influencing the Council and SEEDA to make the right land available for development
Manage the Innovation Centre	Funded initially by SEEDA. Pump primed and ultimate aim is to be self financing via rents.
Act as lead agent and co-ordinator for the Island Branding initiative	Ongoing – Inspire programme funded by AIF
Deliver agreed PSA targets on behalf of the Council	Two targets set under LPSA1 a) Jobs created and companies established/expanded. b) Increase number of workless people over 50 getting sustained jobs. Target a) was achieved and resulted in the Council receiving additional funding of £277,000 subject to government ratification. Target b) The target was set at 120 and it soon became apparent that this target would be impossible to meet due to the small number of eligible candidates estimated to be only 80 or so in total.
Promote the tenets of social, economic and environmental sustainability in all economic development and regeneration activities	IWEP adhere to best possible practice.
Regeneration
Single Regeneration Budget (SRB) programmes approved under rounds 5 and 6 of the National SRB initiative	Completed
Rural Development Programme	Completed
Market Towns Initiatives	Completed
Leader+	Ongoing , runs until December 2008
Such other initiatives as may from time to time be developed	Area Investment Framework (AIF) Small Rural Towns Initiative (SRTI)
Support for development of sustainable local regeneration partnerships	Learning partnerships, Rural Social Community Programme ISP PSB
Delivery of agreed PSA targets on behalf of the Council	See above
Promoting the tenets of social, economic and environmental sustainability in all economic development and regeneration activities	See above

7 OVERALL VALUE FOR MONEY JUDGEMENT

7.1 Statistics to benchmark the achievements of IWEP against other authorities responsible for economic development are not available and our opinion is not therefore based on comparative data. We contacted SEEDA, the Audit Commission and the New Unitary Benchmarking Group. None of them had any comparative data for economic development performance. However, from discussions with them it is likely that the information will be available within the next twelve months. SEEDA are undertaking a study of Economic Partnerships and the Audit Commission are developing a number of Performance Indicators which will be completed at local level. Information should therefore become available to carry out meaningful inter-authority comparisons.

7.2 However based upon the information available it can be shown that for an annual cost to the Council of £175,000 which equates to £1.25 per head of population the following has been achieved: -

· the Isle of Wight has the fastest growing economy in the South East as shown by the GVA statistics

· 26 inward investments

· 1265 new jobs since the SLA agreement was signed

· LPSA1 reward grant of £277,000 subject to government ratification

· Lowest unemployment figures ever recorded on IOW

It is not suggested that these figures are all due to the efforts of IWEP but it is clear that there is a causal link.

7.3 A best value review of the IWEP was carried out in March 2002 concluded that IWEP
performed well producing the following comparisons: -

· Council expenditure on economic development equates to £3.99 per head of population, 49% below the average for England and Wales.

· The cost per job created by IWEP is £121, the third lowest amongst the group of nine authorities examined

· SRB funding equivalent to £118.25 per head has been secured compared to the regional average of £47.

· ESF funding equivalent to £14.32 per head has been secured compared to the regional average of £4.75

8 CONCLUSIONS

8.1 Whilst the Contract/SLA with IWEP has not been monitored in accordance with the arrangements set out in the SLA, we are of the opinion that the Contract/SLA has been appropriately managed. The Council is represented at all levels from the ISP to the Funding Approvals Board and is therefore aware of all of the programmes and projects undertaken by IWEP and is able to influence outcomes and outputs contracted to IWEP. It is clear that there is a necessity to incorporate targets in the new SLA when it is agreed and for the SLA to be formally monitored.

8.2 Problems were encountered regarding the collection of comparative data to assist in the assessment of value for money. However, from the information available we are of the opinion that the Council does receive value for money from its financial support to IWEP. As there is likely to be useful information available in the next twelve months we would recommend that this issue is re-visited at that time when meaningful inter-authority comparisons can be made.

9 RECOMMENDATIONS

9.1 That a new SLA should be developed that reflects the latest expectations of IWEP incorporating targets to enable performance to be monitored and managed.

9.2 That the new SLA should be formally monitored.

9.3 That the issue of value for money provided to the Council by IWEP be revisited in twelve months when comparative information should be available to enable meaningful comparisons to be made.

PURPOSE