Committee: Cabinet Date: 16th March 2009 Agenda item: 10 Subject: Financial Report 2008/09 Lead officer: Grant Miles Lead member: Samantha George Recommendations: A. That Cabinet note the financial reporting data relating to revenue budgetary control, capital reporting, miscellaneous debt and savings progress as at January 2009 and consider any relevant action that they wish to take in respect of variations. B. That Cabinet note that Spend Control will be switched on from April 2009 in order to assist with budgetary control. C. That Cabinet agree the Capital virements shown in Section 7 relating to Controlled Parking Zones, Bridge Repairs, Eastfields Youth Centre and Telephone PABX, totalling £613,408. 1. Purpose of report and executive summary 1.1 This is the regular financial monitoring report for 2008/09 presented to Cabinet in line with the financial reporting timetable. It is based on expenditure and income as at 31st January 2009 and represents ten months of the financial year. This financial monitoring report provides:- • The latest budgetary control information on revenue expenditure and income; • An update on the capital programme and detailed monitoring information; • An update on Corporate Items in the budget 2008/09; • Income and service indicators – impact of economic downturn; • Debt reporting and collection statistics; • Progress on the delivery of the 2008/09 revenue savings 149 2. The financial reporting process – changes to Proactis and improvements in financial control 2.1 In addition to streamlining of the purchase order to payment process, a key driver to the purchase of PROACTIS was the improvement of procurement practises. A key component of this is the prevention of overspending against budgets. 2.2 Proactis can be set up to perform a real-time check of available budget when raising an order. This is known as Spend Control. Currently, when an order is raised the person entering the order into PROACTIS is warned if there is insufficient budget. If the order processor submits the order for authorisation the authorisers are also warned before they accept the order. 2.3 From 1st April 2009, Spend Control will be tightened: if there is insufficient budget, the person entering the order will no longer be able to submit the order for authorisation. Clearly there is a need to strike a balance between enforcing budgetary control and virement rules and enabling normal business to be conducted as efficiently as possible. With this in mind, the level at which available budget will be checked is at a slightly higher level than that at which budgets are currently monitored, i.e. the budget at summary subjective level, rather than at code level, will be checked. In addition a streamlined virement request process will be introduced. 2.4 Initially the check will be against full year available budget, but there is scope to further tighten control to profiled available budget to date. 2.5 Special arrangements will be made available to waive these rules for critical service provision e.g. for urgent care package approvals for vulnerable clients subject to the specific approval of the Director of Corporate Services. 3. 2008/09 Forecast Outturn based upon latest available data 3.1 The revenue budgetary control information contained in the table below summarises the corporate position using the latest available information as at 31st January 2009. 3.2 Executive summary - As at January, there is a forecast overspend for the Council of £499,000. (£519,000 overspend in December). The table below summarises the position and Section 3 provides Chief Officer commentary on the pressures and variations. 150 Summary Position as at 31st January 2009 Department Forecast Forecast Management Use of Forecast Variance at Variance at Action Contingency Variance year end year end Proposals to at year (December) (January) date end before Management Action £000 £000 £000 £000 £000 Chief Executive’s 224 205 (205) 0 0 Corporate Services 316 340 (403) 0 (63) Children, Schools and Families 976 1,002 (695) 0 307 Community and Housing Adult Social Care 957 844 (259) (585) 0 Libraries & Adult Education 0 0 0 0 0 Housing General Fund 30 20 (20) 0 0 Environment & Regeneration 856 950 (694) 0 256 Corporate Provisions and Income Contingency (1,000) (1,069) 0 1,069 0 Inflation 330 330 0 0 330 Other (424) (331) 0 0 (331) Total General Fund 2,265 2,291 (2,276) 484 499 Housing Revenue Account 0 0 0 0 0 3.3 It is essential that the Council does not overspend its approved budget and where there are signs that this will be the case, positive and meaningful action must be put in place to avoid such overspends. Chief Officers, together with Departmental Financial Managers and budget managers are responsible for keeping budgets under close scrutiny and ensuring that expenditure within budgets which are overspending is being actively and vigorously controlled and where budgets are underspent, these underspends are retained until year end. Any overall overspend on the General Fund will result in a call on balances. 4. Departmental Summary of Current Position 4.1 This Section of the report provides a brief summary of each department’s current budgetary control position. (i) Chief Executive’s Department Overview: Although the departmental budgetary control position remains tight, there are no adverse variances to report at this stage. 151 Pressures: The Authority is aware of the following budgetary pressures, however, these are expected to be offset by current vacancies within the department : 1) Chief Executive’s Office: current forecasts estimate that there will be an overspend on subscriptions of around £102,000 due to an increase in the annual subscription to the London Councils Joint Committee and expenditure in relation to internal communications and initiatives. 2) 2nd floor Athena House: as part of the lease agreement, there will be repair and maintenance work to bring the condition of the building back to its original state. A schedule of repair works compiled by the leaseholder indicates that this work will cost around £48,000. However, the Council has made a counter proposal of around £25,000, so the final figure is still to be finalised. Although we are nearing the end of the financial year, the Estates Surveyor still considers there to be enough time to close this case. The funding for this is still to be determined. 3) The Place Survey : Merton has a statutory duty to conduct the Place survey, and will do so as part of a consortium arrangement through London Councils, to keep costs down. The tender process has now been completed and the survey is expected to cost Merton in the region of £13,000. There is currently no corporate contingency remaining as this has been earmarked for the Social Services demographic growth. Therefore, the cost of this survey will be funded from existing budgets within the Chief Executive’s Department. 4) Corporate Communications : as at the end of January, income relating to corporate sponsorship, advertising and filming was around £42,000 below its year to date target, if profiled over the year. However, as a new initiative, it was always anticipated that the first six months of the year would be used to set up systems and processes and agree an overall strategy. Income generation was therefore expected to be more successful in the second half of the financial year, but it would now appear that this has not materialised as hoped. The overall income target for 2008/09 is now unlikely to be met. Management Action to date Officers are monitoring the financial position of the areas identified above and will identify compensating savings as required. 152 (ii) Corporate Services Department Overview Although the departmental budgetary control position remains tight, there are no adverse variances at year end to report at this stage. Pressures 1) Legal Services – due to an increase in activity and a lack of current permanent staffing resources, counsel fees and external legal costs have increased significantly this financial year. As at the end of January, the current overspend in these areas stood at around £144,000. Current forecasts suggest that without compensating action, the year-end overspend will be in the region of £149,000. Compensating savings from elsewhere within the Corporate Services Department have been identified to offset this current level of forecast overspend. 2) Local Land Charge Income – as at the end of January, income levels were below the target budget by around £68,000. Income levels have also fallen below the monthly target for the seventh consecutive month, with January showing a shortfall of £22,000. Due to private sector competition and reduced activity, the income target for this area will not be met. Compensating savings have been identified to offset this current level of forecast overspend. 3) Mayor’s Office – due to a backdated job evaluation and other Mayoral expenditure, such as regalia costs, the section is expecting an overspend of around £14,000. Of this figure, £10,000 relates to the re- evaluation and to recruitment drag. 4) Members Services – expenditure in relation to refreshments at meetings and photocopying and telephone charges are leading to a likely overspend in this area of around £60,000, which have also been heightened by associated savings implemented in this area for this financial year. 5) The Risk and Insurance Budget is under pressure from two areas: a) Specific risks have been identified that should have been covered by the Authority’s insurance provision, whilst other premiums are expected to increase e.g. terrorism. The insurance contract has recently been re-tendered, which will include the additional insurance cover necessary. b) The cost of agency staff on the section is much higher than the cost of permanent staff.