PAPER B2

Purpose : For Decision
REPORT TO CABINET

Date : 22 NOVEMBER 2005

Title : SECOND QUARTERLY PERFORMANCE MANAGEMENT REPORT (2005-06) - FINANCIAL EXCEPTION REPORT FOR PERIOD TO 31 OCTOBER 2005

REPORT OF THE CABINET MEMBER FOR RESOURCES, AUDIT, AN EFFICIENT COUNCIL AND CUSTOMER CHAMPION

IMPLEMENTATION DATE : 2 December 2005

SUMMARY/PURPOSE

1. This report concerns the financial performance of the Council in the period to 31 October 2005. It allows the Cabinet:

· To identify areas where there is evidence of a risk of significant under or over spending

· To identify actions which need immediate or future Cabinet decision

· To refer specific issues to other organs of governance (for example Policy Commission or Scrutiny Committee)

· To analyse whether the evidence requires any in year corrective action by Strategic Directors or Heads of Service

REVENUE BUDGETS

2. Revenue expenditure and income is generally in line with budget expectations at this stage of the financial year. A number of relatively minor budget pressures and savings have been identified which will be managed within existing service cash limits. However, in certain cases more significant variances have occurred which will be more difficult to contain within service cash limits unless remedial action is taken. Details of these budget areas, the current budget position, predicted outturn and comments on how the variance may be resolved, are shown at Appendix A.

CAPITAL BUDGETS

3. Capital expenditure in general is showing a significant underspend compared with budget up to the end of October. However, in contrast with the general trend, certain projects are recording overspends when compared with budget and, in at least a couple of cases, additional capital resources are required to be temporarily reallocated this year to ensure spending priorities can be met within the total resources available to the Council. This reallocation of resources in the current financial year can be resolved with retrospective adjustments in future years to ensure delivery of the approved capital programme remains broadly unaffected, year on year. Details of the main capital projects and programmes with significant budget variations are shown at Appendix B.

STRATEGIC CONTEXT

4. Good financial management is a fundamental element of the strategic management of the authority, and is critical to delivery of service improvement. It has an impact on the Council’s ability to deliver its corporate objectives, the availability of resources for investment in key projects and priority improvement areas, accountability and the delivery of cost-effective local services. Effective use of resources also forms a key part of the new CPA framework and will represent a significant factor in future CPA assessments of the Council’s ability to secure continuous service improvement.

CONSULTATION

5. The Council’s performance management framework has been developed through a process of full consultation with the Strategic Directors Group, Heads of Service and elected members. The views of the Audit Commission have also been sought, and recent comments in response to the Council’s Use of Resources Key Lines of Enquiry Self-assessment make it plain that the Audit Commission view the provision of relevant, up to date budget monitoring information as an essential part of effective performance management.

6. As far as the content of Appendices A and B are concerned, Heads of Service from all Directorates regularly receive budget monitoring reports identifying potential budget pressure areas and suggested methods of dealing with them. They are also aware of the Council’s approach to the management of significant financial risks i.e. identification of risk areas at the beginning of the financial year, which are then recorded on the Council’s intranet website, updated monthly and augmented with emerging risks during the course of the year should it prove necessary to do so. This approach allows potential risks to be monitored closely during the year and action taken at an early stage to mitigate their impact.

FINANCIAL/BUDGET IMPLICATIONS

7. Most of the financial management information included in this report is already collected and monitored on a monthly basis at officer level. The financial implications of providing details of significant exceptions in this format are minimal and will be met from existing resources.

LEGAL IMPLICATIONS

8. Improving financial management standards, as part of the Council’s performance management agenda, is an integral part of the corporate response to the CPA assessment, in particular the constituent elements of the Use of Resources block. Local authorities which are best value authorities have a statutory duty to put in place arrangements for securing continuous service improvement through a combination of economy, efficiency and effectiveness.

OPTIONS

9. Appendices A and B identify 6 revenue budgets and 5 capital programme areas where there is evidence of significant under or over spending. The recommendations below suggest suitable responses by the Cabinet.

EVALUATION/RISK MANAGEMENT

10. Deviation of service and financial plans from those included within the approved budget is a key risk area facing all Councils. If not monitored closely, with remedial action taken as necessary, significant variations can lead to service disruption and, in more extreme cases, failure to achieve corporate objectives. The financial management process, of which this report is a part, ensures that this risk to the achievement of objectives is continuously monitored, and that any necessary corrective action can be identified and delivered within an agreed timescale.

RECOMMENDATIONS

11. Recommendations are as follows:

a) General - Management action to be taken wherever possible to contain predicted overspends/under-recovery of income in the current financial year within existing service cash limits

b) Homelessness - Consider budget as a significant element of the medium term financial strategy

c) Bereavement Income - Await outcome of Policy Commission VFM study into operation of the crematorium

d) Land Charges Income - Assistant Chief Executive to consider options for future years if the decline in the housing market continues

e) Cultural Services Income - Associate Director to deliver service improvement plan and budget proposal for 2006/7 to avoid repeat of shortfall

f) Highway Maintenance - Head of Service to deliver service plan and budget proposal for 2006/7, maximising use of both revenue and capital resources, to ensure budget requirements can be contained within available resources

g) Car Parking Income - Cabinet and Head of Service to consider all options when recommending approval of the Car Parking Order for 2006/7

h) Undercliff Drive/Ryde Interchange - Refer to Audit Committee to receive a report assessing the risk associated with capital programmes spending significant sums in advance of funding being secured

i) Education Programmes – Director of Children’s Services to take action to ensure that delays in the capital programme are corrected as projects are completed. As part of this process, schools will be encouraged to undertake major condition and maintenance work to help clear the underspend held in their devolved capital budgets

BACKGROUND PAPERS

12. Council Publication – Budget 2005-06.

APPENDICES

13. Appendix A – Revenue Budget – Significant Variances.

Appendix B – Capital Budget – Significant Variances

Contact Point : Stuart Fraser, Accountancy Services Manager Telephone: 823657 Email: [email protected]

PAUL WILKINSON Assistant Chief Executive

CLLR JILLY WOOD Cabinet Member for Resources, Audit, An Efficient Council and Customer Champion

REVENUE BUDGET – SIGNIFICANT VARIANCES APPENDIX A

Service Area/Project	Current Budget £	Actual to Date £	Predicted Outturn £	Potential Variance (indicates overspend / under-recovery of income) £	Recommended Action
Homelessness	494,925	691,267	965,193	(470,268)	Management action to be taken to reduce the impact in the current financial year, either within the service cash limit or by using underspends from elsewhere. Consider as a significant element in medium term financial strategy for future years
Reducing overall costs will require permanent housing solutions to be found for those who are accepted as homeless. Whilst homeless acceptances are being reduced, the number of households awaiting permanent accommodation remains high as a result of the cumulative increase in acceptances in previous years. This is requiring relatively high levels of temporary accommodation to be provided, and can be expected to remain unchanged for the medium term. Options to consider include offering financial assistance towards private sector accommodation to reduce the need to procure temporary accommodation units.
Bereavement Income	(787,909)	(339,577)	(733,509)	(54,400)	Await outcome of Policy Commission VFM study into operation of the crematorium
Cremation and burial figures show a slight decrease on 2004-05. Close monitoring continues. One option is to consider raising the fees and charges before April 2006.
Land Charges Income	(751,546)	(347,850)	(521,649)	(229,897)	Management action to be taken to reduce impact in current financial year. Assistant Chief Executive to consider other options for future years if the decline in the housing market continues
Due to the overall decline in the housing market there is a significant reduction in the number of local searches being undertaken. The reduction in the number of Local Land Charge searches, which has lead to a reduction in income, has freed up staff time which has been redeployed as follows: · 0.5 FTE – to Freedom of Information and Information Management projects · 0.75 FTE – to capture of property extents for digitisation of Property Services Terrier · 0.25 FTE – to data cleansing enabling delivery of a Corporate Gazetteer · 0.25 FTE – to additional production/copies of Section 38 agreements/planning permissions/DIP reference number input Some of this activity will enable transfer of staff costs away from the Local Land Charges budget and partially offset the reduction in income. Raising fee levels is another possibility, but is not considered an option that will address the problem as it is likely to encourage service users to seek alternatives such as carrying out searches privately
Cultural Services Income	( 1,230,420 )	( 844,480 )	( 1,180,000 )	( 50,420 )	Management action to be taken to reduce impact in current financial year. Associate Director to deliver service improvement plan and budget proposal for 2006/7 to avoid repeat of shortfall
Historically income budgets have been set fairly high to balance budgets within the service – current economic conditions have led to a lower discretionary spend by users of these facilities. This combined with unsuitable weather conditions, the lack of an Easter holiday in this financial year, reduced Library opening hours and the closure of Ryde Theatre for building repairs have all been factors in a downturn in income receipts. Although the shortfall represents 4% of the target income budget measures are being taken to contain this within the overall cash limit budget of Cultural Services by the end of the financial year.
Highways Maintenance	2,060,103	1,194,960	2,245,103	(185,000)	Management action to be taken to reduce impact in current financial year. Head of Service to deliver service plan and budget proposal for 2006/7, maximising use of both revenue and capital resources, to ensure budget requirements can be contained within available resources
The budget includes a number of contracts that have to be honoured, total approx £530,000; the remainder is used to ensure that the network is maintained to a safe standard; only safety maintenance and emergencies are attended to. In previous years structural maintenance elements of these works have been funded through recharge to capital, to a level of approximately £250,000, but in the current financial year the capital resource is fully committed to specific schemes and so continuation of this practice is unlikely to be an option.
Car Parks Income	(2,555,467)	(1,795,605)	(2,426,467)	(129,000)	Management action to be taken to reduce impact in current financial year. Cabinet and Head of Service to consider all options when recommending approval of the Car Parking Order for 2006/7
The projected underspend is due to a combination of factors: removal of charges at a number of car parks early in the year; fall in demand for annual and 6 month permits in anticipation of cheaper Island residents parking permit; and lower than normal excess charge income due to recruitment difficulties with street inspectors. At present current year underspends within the waste areas of Engineering Services budgets could be sufficient to offset most of the projected overspend.

CAPITAL BUDGET – SIGNIFICANT VARIANCES APPENDIX B

Service Area/Project	Current Budget £	Actual to Date £	Predicted Outturn £	Potential Variance (indicates overspend / under-recovery of income) £	Recommended Action
Undercliff Drive	0	246,992	437,000	(437,000)	Refer to Audit Committee to receive a report assessing: · The risk associated with capital programmes spending significant sums in advance of funding being secured
The project has been approved in principle by GOSE, with designated funding to be released upon successful resolution of all statutory processes, including land acquisitions; it is now unlikely that this will occur in the current financial year. Assuming the outcome of all necessary processes is eventually favourable, a retrospective application will be made to secure funding for the project from GOSE. However, in the interim, the Head of Engineering Services should draft a report for Cabinet seeking formal approval to fund the additional costs from likely slippage in other parts of the Council’s capital programme, to be reimbursed once funding for the project is made available.
Ryde Interchange	95,000	246,988	700,000	(605,000)	Refer to Audit Committee to receive a report assessing: · The risk associated with capital programmes spending significant sums in advance of funding being secured
As above, this project has been approved in principle by GOSE, but new DfT regulations on this type of scheme mean that the necessary processes now extend further than planning approval stage to include full tendering process. A modest capital budget has been identified from within existing resources to enable initial design works to be undertaken; however a considerable amount more is necessary to take the design forward and allow a full Planning application to be made and tendering process undertaken. Assuming the outcome of all statutory processes is favourable, a retrospective application will be made to secure the designated funding from GOSE. In the interim this scheme should be included with the one above in the proposed draft report from the Head of Engineering Services for Cabinet seeking approval for funding through potential slippage.
Education Administration and Inspection Service	6,250,484	2,816,404	3,250,484	3,000,000	Director of Children’s Services to take action to ensure that delays in the capital programme are corrected as projects are completed. As part of this process, schools will be encouraged to undertake major condition and maintenance work in order to help clear the large underspend held in their devolved capital budgets
The Education Administration and Inspection capital programme includes devolved school capital budgets built up over 3 years and programmes for improving infrastructure to schools, particularly provision of ongoing ICT developments (these budgets are managed by schools). The current underspend arises largely from a wide range of devolved capital budgets, but also from the general furniture and equipment and professional fees on schools projects budgets. It is currently anticipated that this gap will be reduced by the year end, particularly as the design of future schools projects gets under way. However there is likely to be an underspend, most of which is attributable to schools devolved capital budgets.
Middle Schools	4,140,774	1,935,000	2,140,774	2,000,000	Director of Children’s Services to take action to ensure that delays in the capital programme caused by uncertainties about schools restructuring and the tendering procedure for ‘partnering’ are corrected as projects are completed
The Middle Schools capital programme has been delayed over 15 months due to uncertainties about schools restructuring and the introduction of a ‘partnering’ approach to construction procurement. The most significant project in the programme is for developments to Kitbridge Middle School, and although the project is now almost completed, it is currently anticipated that it will not be fully complete this financial year, and that it will be necessary for a budget of £600,000 to be carried forward into next financial year to allow the project to be completed.
Primary Education	2,578,596	539,738	1,558,596	1,020,000	Director of Children’s Services to take action to ensure that delays in the capital programme caused by uncertainties about schools restructuring and the tendering procedure for ‘partnering’ are corrected as projects are completed
The Primary Schools capital programme includes a number of smaller projects at schools throughout the Island. The largest of the projects, both awaiting commencement, are for two classroom extensions at Greenmount Primary and Nettlestone Primary. These projects have been delayed by the introduction of ‘partnering’, the uncertainties over schools restructuring and land issues. Both projects will start/have been started during this financial year, but with expenditure running into next financial year they will require resources to be carried forward to allow their completion.