External Audit Review
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THE HIGHLAND COUNCIL Agenda Item AUDIT AND STANDARDS COMMITTEE – 24 AUGUST 2006 Report No External Audit Reviews Report by Director of Finance SUMMARY The pages that follow contain reports from the Council's External Auditors, (Audit Scotland). It informs Members of the recommendations made in the activity reviewed and reported since the date of the last Committee. The Action Plan, agreed by the relevant Service Manager, is included within the report. REPORT DETAILS Ref No. Report Subject Report Date 175 Efficiency Government – Position Statement 17/07/06 RECOMMENDATION Members are invited to consider the above reports Signature: Designation: Director of Finance Date: 16 August 2006 The Highland Council 2005/06 Audit Efficient Government – Position Statement 17 July 2006 www.audit-scotland.gov.uk Audit Scotland, on behalf of the Accounts Commission for Scotland, is responsible for: • providing independent reports to the Commission and the wider public on how public money is spent, what it achieves and what improvements can be made • providing independent reports to public sector bodies on their finances, their corporate governance and how they manage their performance and secure value for money ...
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THE HIGHLAND COUNCIL Agenda Item AUDIT AND STANDARDS COMMITTEE 24 AUGUST 2006 Report No External Audit Reviews Report by Director of Finance
Report Date 17/07/06
SUMMARY The pages that follow contain reports from the Council's External Auditors, (Audit Scotland). It informs Members of the recommendations made in the activity reviewed and reported since the date of the last Committee. The Action Plan, agreed by the relevant Service Manager, is included within the report. REPORT DETAILS Ref No. Report Subject 175 Efficiency Government Position Statement RECOMMENDATION Members are invited to consider the above reports Signature: Designation: Director of Finance Date: 16 August 2006
The Highland Council 2005/06 Audit Efficient Government Position Statement
www.audit-scotland.gov.uk
17 July 2006
Audit Scotland, on behalf of the Accounts Commission for Scotland, is responsible for:
• providing independent reports to the Commission and the wider public on how public money is spent, what it achieves and what improvements can be made
• providing independent reports to public sector bodies on their finances, their corporate governance and how they manage their performance and secure value for money
• providing an independent opinion on whether the annual financial statements of public sector bodies have been prepared in accordance with statutory requirements
The Highland Council 2005/06 Audit Efficient Government Position Statement Executive Summary
Overall, Highland Council demonstrates commitment to the Efficient Government agenda. The Chief Executive has overall res onsibilit for the area, with ro ress re orted to elected members. The Bud et Working Group is charged with further developing the Councils efficiency and budget strategies to ensure sustainable efficiencies are identified. The Council estimates it will achieve efficiency gains of at least £13.229 million over the three years commencing 2005/06. Cashable savings are expected to exceed the target set by the Scottish Executive. Highland Council demonstrates a clear commitment to the Efficient Government Agenda and is seeking to find efficiencies internally through the budget process, review of political and managerial structures, business process improvement, procurement of goods and services and also externally through joint working with other public sector bodies. So far, the majority of the efficiency savings were identified through the budget process. Efficiencies include providing the same services with less money or enabling frontline services to deliver more or better services with the same money. The Council requires to develop a comprehensive performance management information system capable of confirming no loss of service quality, and tracking savings to ensure deployment to frontline services. Without clear baseline information covering cost and quality of service, the Council will find it difficult to demonstrate that claimed efficiencies have not impacted adversely on service provision.
The Highland Council 2005/06 Audit Efficient Government Position Statement
Contents
Context
Audit Findings
Management Action
Risk summary and action plan
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The Highland Council 2005/06 Audit Efficient Government Position Statement Context Introduction 1. Scottish local government has had a continuous improvement agenda for a number of years and the Local Government in Scotland Act 2003 and the Efficient Government initiative has given it added impetus. The 2003 Act established Best Value as a statutory duty of local authorities, following a period of voluntary commitment. The Minister for Finance and Public Services launched the Efficient Government initiative in June 2004 and it is a central part of a programme of investment, reform and modernisation of public services. 2. The actions of local government are crucial to the challenge of creating sustainable communities. With this goal in mind, it is in everyones interests (national, regional or local) to work in partnership to promote efficiency, getting the most from available resources to enhance services to local people. 3. A key feature of the Efficient Government initiative is that it focuses on the public sector as a whole, rather than individual organisations, with the intention of realising efficiencies across sectors. The primary objective is to deliver the same services with less money or to enable frontline services to deliver more or better services with the same money. 4. The Efficient Government Plan sets targets to achieve £745 million of cash-releasing savings, and £300 million of time-releasing savings, by 2007/08. It is anticipated that local government as a whole will contribute £326.8 million in cash-releasing savings to the overall target: £m Assumed local government efficiency savings (top sliced) 168.3 Efficiencies in supporting people programme (top sliced) 27.0 Modernising government & efficient government fund efficiency savings 40.0 Contribution to procurement savings 80.0 Fire service reform 1.5 Common police services 10.0
5. 6.
The Scottish Executive anticipates that Highland Councils contribution to the top-sliced target of £168.3 million will be £7.689 million over three years, equating to £2.449 million for 2005/06. Although this is a relatively small sum compared to the Councils budgeted gross revenue spend of £511 million in 2005/06, it requires to be considered alongside other financial pressures facing the Council such as the costs associated with the single status agreement and equal pay claims. The Council and Joint Boards require to contribute efficiencies towards the other targets outlined above. All Council activities and services should be explored to identify the scope for efficiencies. In addition, the Scottish Executive identified five workstreams in Building a Better Scotland : procurement • managing absence • • asset management • shared service support • streamlining bureaucracy
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The Highland Council 2005/06 Audit Efficient Government Position Statement Key issues and risks for councils 7. The Efficient Government initiative incorporates some assumed efficiency savings into annual financial settlements, presenting an immediate challenge as significant efficiency gains through service redesign are likely to take longer than one year to realise. Failure to achieve the level of savings anticipated increases financial pressures and may impact adversely on the quality of services provided. In order to claim an efficiency councils need to demonstrate that service outcomes are maintained or improved, presenting a real challenge to evidence the link between resources and performance measurement. 8. Councils need to embrace the Efficient Government agenda, establish a clear programme for delivering efficiency savings, ensure effective leadership throughout the process and monitor the effectiveness of change programmes. Councils need to consider: • what services to deliver and whether these are the right services to provide; • whether current levels of services add the most (or best) value to local communities; • whether they are delivering these services in the most appropriate and efficient way (including consideration of the scope for joint working). 9. As part of a comprehensive programme of Best Value reviews, councils need to review services to identify opportunities for delivering improved efficiency and plan for efficiency gains every year while continuing to improve performance and make best use of resources in the longer term. This requires an approach which allows easy or quick wins while simultaneously developing and delivering a strategy for the future. Underpinning this is a need for good baseline information on costs and service outputs and outcomes. Audit approach 10. In accordance with our Audit Risk Analysis and Plan for 2005/06, we undertook an initial review of the risks and management arrangements within the Council in relation to the Efficient Government initiative. The audit took place during January to March 2006 and involved: • discussion of the issues and risks identified in the 2005/06 Local Government Priorities and Risks Framework (PRF) with relevant officers. The PRF is an annual document which summarises the key national priorities and risks facing councils in the coming year. It is used as a tool by auditors, in conjunction with an assessment of local risks, to target audit work to key risk areas; • completion of a management arrangements diagnostic to provide baseline information across a range of efficient government related topics; • review of relevant documentation, including the Councils submissions to the Local Government Improvement Service. 11. We recognise that a number of the Councils efficiency projects will take some years to produce tangible results. In addition, the development of performance management systems to fully confirm and track efficiency savings will also take time to develop and embed. As a result, we will track the Councils progress on the Efficient Government initiative over the coming years.
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The Highland Council 2005/06 Audit Efficient Government Position Statement
The position across Scotland
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The 2005/06 PRFs for local government, health and central government have Efficient Government related matters as a key management challenge. With this in mind, Audit Scotland developed a strategy for monitoring the achievement of efficiency savings across the public sector. The strategy aims to: • establish a clear and systematic approach to the audit of Efficient Government; • ensure Audit Scotland has real time intelligence covering progress in implementing this important initiative; • join-up the audit across the public sector to inform client, sector and national reporting; • establish clear baseline information to highlight key risk areas and to inform considerations for further work.
Most public sector bodies completed an efficient government diagnostic and we will present comparative information to the Council in early summer. This will assist the Council to assess how the initiative is progressing relative to other councils and public sector bodies and will enable the dissemination of best practice.
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The Highland Council 2005/06 Audit Efficient Government Position Statement Audit Findings Planned savings 14. The following table sets out the Councils estimate of planned efficiency savings for 2005/06: rojected Projected Non Total Cashable P Cashable Cashable Savings Savings Savings antici ated b SE a ainst £ 000 £’000 ’ £168.3m target ’ £ 000 ’ £ 000 0 0 0 0 0 0 34 0 34 0 0 0 1,354 0 1,354 66 0 66 700 0 700 937 0 937 52 0 52 35 0 35 145 0 145 191 0 191 3,514 0 3,514 188 0 188 3,702 0 3,702 2,449
SE Workstreams Asset Management Managing Absence Streamlining Bureaucracy Shared Service Support Service Efficiencies Education, Culture & Sport Planning & Development Social Work Transport, Community & Environment Chief Executives Office Corporate Services Finance Property & Architectural Services Total (excluding procurement) Procurement Total
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The Highland Council 2005/06 Audit Efficient Government Position Statement 15. The Council has estimated the efficiencies it anticipates to generate during 2006/07 and 2007/08:
Projected Projected Non Total Cashable Cashable Cashable Savings Savings Savings anticipated by ag nst SE ai ’ ’ ’ £000 £000 £000£168.3’m target £ 000 2006/07 (excl procurement) 6,257 0 6,257 2006/07 procurement 618 0 618 Total 2006/07 6,875 0 6,875 2,681 2007/08 (excl procurement) 2,652 0 2,652 2007/08 procurement 0 0 0 Total 2007/08 2,652 0 2,652 2,559 16. Over the three years to 2007/08 the Council estimates it will achieve non-procurement related efficiency gains of at least £12.423 million, exceeding the top-sliced target set of £7.689 million. The Council has developed its approach based on local circumstances and its capacity to deliver rather than focusing on the five work streams identified by the Scottish Executive. Efficiencies in 2005/06 include: • generating savings of £1.143 million by delaying filling vacant posts; • saving £0.4 million in landfill tax through increased recycling; • saving £0.4 million in Education devolved budgets; • saving £0.32 million in Transport, Environmental and Community Services through removal of a provision for inflation on certain items. 17. Over the three years to 2007/08 the Council hope to realise £0.806 million of cash releasing efficiencies from e-procurement. This will make a small contribution to the overall target of £80 million of cash-releasing savings from procurement all Scottish councils are expected to generate. In addition, non cashable savings are anticipated from e-procurement. The Council is working with the Scottish Executive to produce national guidance on quantification on non cashable savings.
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The Highland Council 2005/06 Audit Efficient Government Position Statement Current position and risk exposure
We sought to ensure that the Council: • has a clear commitment to the Efficient Government agenda, with corporate leadership and scrutiny by elected members and senior management; • has a s stematic rocess to identif areas where the sco e for efficiencies mi ht exist for example, by re-organising or re-designing service delivery functions); • has a change programme which covers both the short and long term; • controls and monitors progress on efficiency projects (by both members and officers); • disseminated clear guidance on how to classify and calculate proposed efficiency gains; has robust erformance mana ement information s stems, which confirm no loss of service • ualit , to under in efficienc claims and can track efficienc savin s to ensure de lo ment to frontline services; • embedded Efficient Government aims within the budget setting process.
18. Overall responsibility for Efficient Government rests with the Chief Executive. Directors and Heads of Service are responsible for delivering efficiencies within their areas of responsibility. The Director of Finance is responsible for co-ordinating and quantifying efficiencies through service budgets and the budget process. 19. The Council is developing its approach to the Efficient Government Agenda through three key strands: • political and managerial structures; • business process improvements; procurement. • Political and managerial structures 20. During the 2005-06 financial year the Council started a review of its political and managerial structures prompted by the need to plan for electoral reform due in 2007 and affordability issues. It was supported by the findings from the Audit of Best Value and Community Planning. The Council has set a target of reducing management costs by 20% and other staffing costs by 5% to enable an affordable organisational structure. Directors are developing plans to meet these targets in a way that minimises any impact on front line services. Proposals for organisational reform will be presented to the Council in June and September 2007. The reform period is likely to span 2006 to 2009. 21. The Council has concerns about continued growth in the number of staff alongside a growing awareness of budget targets each service must achieve. It estimated that over the next two to three years anticipated budget levels would require a reduction of around 400 staff. In order to manage this reduction it was agreed that starting in the 2005-06 financial year that the number of posts would be reduced initially focusing on vacant posts and the opportunity to delete these if work could be re-allocated. The Councils Resources Committee is overseeing this process by considering the standing item of amendments to organisational structures. It was also agreed that to enable more member scrutiny the standard report would be reformatted to provide more detail.
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