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 views 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. Options are as follows :

(i) To accept the recommended actions in Appendix A for the control of the significant variances in the revenue budget

(ii) To accept the recommended actions in Appendix B for the control of the significant variances in the capital budget, including those of the Audit Committee held in January 2006

(iii) Not to accept any of the recommended actions in Appendices A and B

(iv) To vary all or some of the recommended actions in Appendices A and B.

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. That options (i) and (ii) are adopted

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]

MR PAUL WILKINSON

Assistant Chief Executive

COUNCILLOR 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	515,634	994,703	971,467	(455,833)	Management action to be taken to reduce the impact in the current financial year, either within the service cash or by using underspends from elsewhere. Consider as a significant element in medium term financial strategy for future years.
The budget pressure in homelessness remains due to our current dependence on B & B and temporary accommodation (TA). Successful initiatives are in place to reduce acceptances , as a result of which they have reduced by 20% quarter 1, 12% quarter 2 and 60% quarter 3 (10% is the year end target). Reductions in the number of homeless households in temporary accommodation are beginning to be achieved, however there remain 357 households in TA as at 31 December 2005. It should be noted that the contraction in the stock of temporary accommodation which is now starting to be realised is due to the loss of leased units funded through capital grant. This will require the continued provision of revenue funded properties and as such budgetary reduction should not be expected until towards the end of 2006/7. We are working with Registered Social Landlords (RSLS) to maximise the percentage of lettings going to people who are statutorily homeless. However a permanent resolution of this issue is dependent in large part on the adequate provision of new rented housing.
Agency Placements	1,211,444	1,650,273	1,732,389	(520,945)	Management action is being taken to cover this year’s overspend from reserves, but that is a strategy which can only be used as a one-off. For future years the likelihood of a recurrence needs to be considered as part of the medium term financial strategy.
Agency placements are by nature very volatile and very expensive, and for one child the annual cost can be £225,000. The average cost at present is around £140,000 per child. Often there is no warning that a mainland placement will be needed, hence it can be very difficult to plan for this eventuality. The current year’s budget appeared to be adequate until a particular placement was made half way through the year costing £233,750 per annum, whilst at the same time a number of other increases occurred which added pressure to the budget.
Bereavement Services	(256,998)	(35,417)	(51,998)	(205,000)	Management action to be taken to reduce the impact in the current financial year, either within the service cash or by using underspends from elsewhere. Policy Commission VFM study into operation of the crematorium will consider longer term options.
Cremation and burial figures were showing a slight decrease on 2004/5 in the first half of the year, however the figures for quarter 3 show an unexpected 16% reduction in numbers compared with the previous year which has had a detrimental impact on income projections. The cost of medical fees in both the Crematorium and Coroner’s budgets has increased well above the rate of inflation. Discussions are taking place with the external agencies responsible for providing those services, and discussions are also underway with the Cabinet member concerning recommended fee increases for 2006/7.
Coroner	242,163	216,340	317,163	(75,000)	Management action to be taken to reduce the impact in the current financial year, either within the service cash or by using underspends from elsewhere. Future options to be considered once the results of the negotiations with service providers are available.
The cost of medical fees in the Coroner’s budget has increased well above the rate of inflation, as has the cost of post-mortem facilities. Discussions are taking place with the external agencies responsible for providing those services about the nature of the increased costs, to ascertain whether there is any scope for adjustment.
Land Charges Income	(751,546)	(484,978)	(568,198)	(183,348)	Action has already been taken to reduce impact in current financial year by redeploying staff, and further action may be necessary either from within the service cash limit or from other resources. Assistant Chief Executive to consider other options for future years if the decline in the housing market continues, including raising fee levels.
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. There has been some recovery of income in quarter 3 with the predicted under-recovery reducing from £230,000 to the current figure of £183,000.
Cultural Services Income	(1,697,450)	(1,436,200)	(1,607,450)	(90,000)	Management action already being taken to identify savings elsewhere in Cultural Services to offset the potential under-recovery of income. Acting Assistant Chief Executive to review income projections and realign budgets where possible to prevent budget shortfalls in 2006/7.
Historically income budgets have been set at relatively high levels to balance the budget within Cultural Services; current economic conditions have led to a lower discretionary spend by user of our Libraries, Museums and other facilities. This issue, combined with occasionally unsuitable weather conditions, the lack of an Easter holiday period in this financial year, reduced library opening hours and the temporary closure of Ryde and Shanklin theatres for building works have all been factors in a general downturn in income receipts. Although the predicted shortfall represents around 5% of the total target income budget, measures are being taken to contain this under-recovery within the cash limit of Cultural Services by the end of the financial year.
Highways Maintenance	2,060,510	1,673,966	2,245,510	(185,000)	Potential to recharge structural maintenance to capital in the current year to be investigated, as in previous years. A revenue bid has been submitted for future years which should be considered as part of the medium term financial strategy, pending resolution of the Highway PFI submission.
The budget includes a number of contracts that have to be honoured, total approx £530,000; the remainder is used to ensure that the highway network is maintained to a safe standard; because of pressure on the budget only safety maintenance and emergency works are attended to. In previous years structural maintenance elements have been funded through recharge to capital to a level of approximately £250,000, but as the 2005-06 capital programme was more fully committed than previously this practice was not continued in this financial year. In order to address the projected revenue overspend in the current financial year, the potential for recharging relevant structural maintenance works to capital will now to be explored. However, because of the more limited capital resources available to the Council through its LTP programme, that is less likely to be an option in future years.
Car Parks Income	(3,342,990)	(2,904,887)	(3,202,000)	(140,900)	Management action already being taken to identify savings elsewhere in Engineering Services budgets to offset the potential under-recovery of income this year. It is not anticipated to recur in future.
The projected under-recovery of income 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 the issue of a cheaper Island residents’ parking permit; and lower than normal excess charge income due to recruitment difficulties with seasonal street inspectors. At present current year underspends within Waste and other areas of Engineering Services budgets should be sufficient to offset most of the projected deficit.

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	303,222	350,000	(350,000)	The Council’s Audit Committee received a report on these projects in January 2006. Their recommendations were as follows: · all capital expenditure should be risk evaluated · all capital projects judged high or medium risk should be recorded on the risk register · all such projects should be the subject of regular progress reports to the Cabinet · all major projects should be subject to a Gateway review process · all projects on the risk register to be referred to the Scrutiny Committee to consider the Council’s well-being and delivery of strategic objectives
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 extremely unlikely that this will occur in the current financial year, particularly as a compulsory purchase order may be necessary to make progress. Assuming the outcome of all necessary processes is eventually favourable, a retrospective application will be made to secure full funding for the project from GOSE. However, in the interim, the Head of Engineering Services must manage current expenditure from slippage in other parts of the capital programme, to be reimbursed once funding for the project is made available by the Government.
Ryde Interchange	97,870	322,746	350,000	(252,130)
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, and the project has now received planning approval. However, a considerable amount more is necessary to take the design forward and allow the project to reach the tendering process. Assuming the outcome of all these processes is favourable, a retrospective application will be made to secure the designated funding from GOSE. In the meantime this scheme should be dealt with in a similar manner to Undercliff Drive, with the current year’s overspend managed by using slippage in other parts of the capital programme. In this case it is anticipated that Government approval for the scheme will be given in late summer 2006.
Housing	4,705,105	2,405,922	2,974,105	1,731,000	Housing Manager to continue to monitor the situation and await an announcement from the Housing Corporation re approval of bids.
The deadline for bids to the Housing Corporation for external funding for housing schemes was October 2005. The Council provided budgets for contributions to the overall cost of housing capital needed for development, to support bids by the Housing Associations. Announcements were anticipated from the Housing Corporation in January 2006 regarding approval of bids but have been delayed, as a result of which the money is unspent, and will remain so until the outcome of the bids to the Housing Corporation is available. The particular schemes in question are at Oakfield, Ryde; Eddington Road, Nettlestone; Jellicoe House, Ryde; and Moira House, Cowes.
Education Administration and Inspection Service	6,469,694	3,428,760	3,719,694	2,750,000	Director of Children’s Services to take action to ensure that delays in the capital programme are corrected as projects are completed. As a significant part of this process, schools to be encouraged to undertake major condition and maintenance work in order to help clear the large underspend 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 (budgets are managed directly 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. The situation has improved slightly during quarter 3 to the extent that the predicted underspend has now been reduced by £250,000 since quarter 2. It is anticipated that the gap will be further reduced by the year end, but still there is likely to be an underspend, most of which is attributable to schools devolved capital budgets.
Middle Schools	3,921,564	2,444,963	2,911,564	1,010,000	Director of Children’s Services to take action to ensure that delays in the capital programme caused by uncertainties about schools restructuring and the ‘partnering’ approach to construction procurement 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 is for developments to Kitbridge Middle School. During quarter 3 expenditure and commitments have increased significantly, to the extent that the predicted underspend is now half of the figure at the end of quarter 2.
Primary Education	2,578,596	1,221,448	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 ‘partnering’ approach to construction procurement 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 are for two classroom extensions at Greenmount Primary and Nettlestone Primary. Both of these projects had been delayed by the introduction of ‘partnering’, the uncertainties over schools restructuring and land issues. They are now under construction, but with expenditure running into next financial year will require resources to be carried forward to allow their completion.

SUMMARY/PURPOSE

STRATEGIC CONTEXT

EVALUATION/RISK MANAGEMENT

APPENDICES