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					Finance Services
   Review Report




     May 2001




         1
                         CONTENTS
                                              Pages
Part 1   Executive Summary                     2-5

Part 2   Detailed Report

         1. Introduction                       6 - 10

         2. Accountancy                       11 - 34

         3. Audit                             35 - 52
         4. Technical Services                53 - 59

         5. Sustainability                          60

         6. Equal Opportunities               61 - 62

         7. Conclusions and Recommendations   63 - 68
Part 3   Service Improvement Plans
         8.   Introduction                    69 -70
         9.   Recent Achievements             71 -75
         10. Performance Improvement           75

         11. Detailed Service Plans            76-116
Part 4   Appendices                            117

         1.   Review Team Structure
         2.   Cost of Service Provision

         3.   Staffing Structures

         4.   Consultation

         5.   Focus Group Summary Document

         6.   Schedule of Tables

         7.   Schedule of Charts
         8.   Glossary of terms

                                  2
              FINANCE SERVICES BEST VALUE REVIEW

                         PART 1: EXECUTIVE SUMMARY
Introduction
The key conclusions and recommendations of the best value review of financial services
are summarised below. Part 2 of the report sets out the findings in more detail and
detailed service improvement plans are attached in Part 3 of this report.

The Service under Review

Three main areas of financial services were considered as part of the review.
 Accountancy, Cityworks Business Management Services, including budget preparation
  and monitoring; maintenance and preparation of accounts; financial information,
  financial advice; grant application and claims; and the appraisal of tenderers.
 Audit and Inspection includes internal and external audit.
 Technical Finance includes Risk Management and Insurance, Treasury Management,
  and Housing Benefit Fraud Inspection.

Exchequer and transaction processing functions, such as income and tax collection,
payment of invoices, payroll and housing benefit payments are not included in this review.
These services are being considered separately as part of a proposed strategic partnering
arrangement.

Legislative Basis

The Council's statutory finance officer must ensure that there is a minimum level of service to
fulfil statutory requirements. However, there is an element of choice and judgement about
the level of service provided and about the way in which it is provided. The service aims to
meet both directorate and corporate needs for professional financial services. Internal Audit
Services are provided in line with a risk assessed plan agreed at Corporate Team.

Service Demand

There is a growing demand for financial services, particularly in respect of new forms of
funding such as Private Finance; new initiatives, such as Local Public Service Agreements
(LPSA), and a wide range new government grant regimes (particularly in education and
social services). This often puts pressure on existing staff to deliver new services and
initiatives while continuing to deliver core finance functions such as budget monitoring and
the provision of financial management information.

The introduction of information technology and more automated financial systems for
payments and charging combined with an increasing demand for higher level strategic and
professional advice means that there is a pressure to move from information processing
services to a more professional and technical finance service.


                                               3
Cost and Resources
The net budget for 2000/01 for finance services in this review amounts to £5.8m per
annum, with an additional annual cost of £0.5m for external audit. Services are provided
by 180.89 fte (full time equivalent) staff. Information Technology plays an important role in
service provision. While I.T. skills, computing hardware and financial systems are
generally considered to be good, there is a need for additional training and to develop
more integrated performance management information systems.

Method of Service Provision
The services are provided by staff employed by four Directorates. The majority of staff are
in the Strategic Support (Finance Division), but there are also a significant number of staff
employed directly by Cityworks, Community and Housing and Social Services, as
summarised in Table 1 below.
Table 1: Summary of Staff Numbers
 Directorate                        Accountancy     Audit     Technical       Total
                                     & Business               Services
                                    Management
                                       Fte posts      Fte            Fte         Fte
 Strategic Support                         72.1      20.5           11.0       103.6
 Cityworks                                 38.3                                 38.3
 Community and Housing                     17.5                     15.0        32.5
 Social Services                             6.5                                 6.5
 Total                                    134.4      20.5           26.0       180.9
Fte = Full time equivalent posts.

External Audit is provided by the Audit Commission through the District Audit Service.
Some specialist technical services are provided by the private sector working in
partnership with internal staff, e.g. insurance and treasury management. Technical
financial advice and consultancy for special projects, such as PFI schemes, is procured on
an ad hoc basis to support specific projects or initiatives.

Focus Of Review
The review focused primarily on the two largest service areas of accountancy and internal
audit, which account for 80% of the cost of the service. The technical services of
Insurance, Treasury Management and Housing benefit Fraud Investigation have been
given a lighter touch in the work carried out to date.
Insurance and treasury management already works in partnership with the private sector to
provide elements of the service. The insurance service has been the subject of a recent
internal review. The improvement plans include recommendations for improvement, but
further work is planned to review any issues identified when comparable benchmarking
information becomes available. The Housing Benefit Fraud Function has recently been the
subject of independent inspection, which resulted in a positive report on the service.



                                               4
 Key Issues
 Key issues identified during the review were the need to -
     make an even stronger contribution to achieving the strategic and corporate
      objectives of the Council;
     streamline accounting processes and make better use of technology;
     improve the quality and accessibility of financial and management information;
     strengthen financial accountability, audit and risk management arrangements;
     greater value by improving income generation and cost effectiveness; and
     enhance the planning and performance management of the finance function.


Key Conclusions
 The cost of financial services is marginally above average compared with similar types
  of Authority in a benchmarking survey.
 On the basis of the views of stakeholders and evidence of performance, the quality and
  standard of financial services is generally good.
 The existing devolved nature of accountancy services is preferred to a more centralised
  one by service users.
 Additional capacity and flexibility is needed to respond quickly to provide financial
  support for strategic initiatives and securing funding for major projects.
 Increased effectiveness and cost reduction could be achieved by streamlining
  processes, by better use of technology to provide management information, and by
  additional training of finance staff and Service Managers.
 Financial accountability needed to be clarified and strengthened and there was a need
  for greater consistency in service provision across the Council.
 Additional measures were needed to improve cash flow, income collection and income
  generation in partnership with service Directorates and Exchequer Services.
 The service needed to enhance its service planning and performance monitoring and
  management arrangements in order to secure continuous improvement.
 The service should be able to improve its efficiency and effectiveness by more than 2%
  per annum over the five-year period. While some of the financial savings will needed to
  be reinvested in service improvement and addressing the additional demand for
  strategic support the additional the service aims to identify net annual cost savings of at
  least £400,000 by the end of the period. A saving target of £87,000 has been set for
  2001/02.
Achieving some of the improvements identified in the Action Plan will depend significantly
on the actions and support of Directorates and Service Managers, particularly in terms of
proposed changes to budget monitoring arrangements and accountability arrangements.




                                               5
Key Recommendations
 The Section 151 responsibility for proper financial administration is transferred to the
  Head of Finance.
 The financial accountability and responsibilities of Directorates and of Service
  Managers is clarified and strengthened -
     with a stronger role given to the Senior Finance Officer in each directorate, who will
       attend Directorate Management Teams;
     by Principal Accountants and a core staff in each Directorate being employed by the
       Head of Finance, (which will involve the transfer of some staff in Cityworks);
     by better financial training and the enforcement of financial regulations.
 Capacity to respond to strategic developments is improved by :-
      creating a core financial consultancy section within the Finance Division by
       restructuring the current service provision and making additional resources
       available, to be funded by project income.
      freeing up capacity of Principal Accountants and Senior Finance Staff working in
       Directorates, increasing the mix of professional graded staff in audit; and
      by a partnering arrangement with a leading accounting and auditing firm.
 Service planning and performance monitoring and management are enhanced by the
  use of dedicated resources within the Strategic Support Directorate and within the new
  financial consultancy section.
 The effectiveness of the service is improved by -
      Improving co-ordination of the financial service within Directorates;
      Streamlining processes and data handling, challenging activities that do not add
       value to the Council and introducing specialisation where appropriate;
      Increasing the proportion of qualified finance staff and additional finance training and
       development for finance staff and Service Managers;
      Making better use of information technology systems, for example by providing more
       financial information on line to managers.
 Detailed reviews of the accounting arrangements and procedures for, income collection,
  income generation, improvements in cash flow and opportunities for VAT and Tax
  savings are carried out.
 Opportunities for improved co-ordination of income generation and bidding for
  resources are investigated, including the role of staff in other Directorates dealing with
  European, regeneration and lottery schemes.
 Improve risk management and asset management by introducing greater incentives to
  Directorates to reduce risk and improve asset management.
 The service can make an important contribution to sustainability and equal opportunities
  issues through its own operations and influence on corporate finance.




                                                6
             FINANCE SERVICES BEST VALUE REVIEW
                         PART 2: DETAILED REPORT
1     INTRODUCTION
1.1   The finance service best value review is a cross cutting review covering
      services that are delivered by four Directorates within the Council: –
       Strategic Support Directorate – Finance Division
       Cityworks Directorate
       Community and Housing Directorate
         Social Services Directorate
      Scope of the Review
1.2   The services included in the scope of the review are summarised below
      under three main categories –
      Accountancy Services
       Capital and revenue budget preparation and monitoring;
       Provision of financial information and advice;
       Maintenance and preparation of the financial accounts;
       Financial Management Information Systems;
       Grant applications, financial monitoring and claims;
       Financial appraisal of prospective tenderers, and
       Cityworks business management.
      Audit and Inspection Services
       Audit functions, including Internal Audit and any audit functions with
        Directorates; and
         Related aspects of the External Audit service;
      Technical Finance Services
       Risk management and insurance;
       Housing Benefit Fraud Investigation and
       Treasury management.

      Transaction processing activities such as bill payment, income collection and
      payroll will not themselves be part of this review. However, information links
      with these processes will be covered by the review.




                                                7
      Service Objectives
1.3   The objective of providing Financial Services to the Council can be
      summarised as follows: -
       Contribute to the achievement to the Council‟s Corporate Policy Priorities;
       Comply with legal duties, statutes and codes of practice, such as –
          Completion of an annual budget by the financial deadlines set by
           Government\statute which sets out the planned activities of the Council
           for the coming year and sets the level of the Council tax;
          Closure of the accounts by the deadlines set by Government\statute.
       Implementation of a 3-year medium term planning process to help plan
        the effective application of resources to meet the Council's objectives;
       Provide timely, accurate and effective advice and management
        information to client Directorates;
       Maximising resources available to the Council, through income
        generation and identifying and preparing bids for new funding initiatives;
       Identification and management of financial risks facing the Council,
        through risk assessed audit, insurance, fraud investigation; and
       Achieve high levels of customer care and satisfaction with the service.

      Statutory and Local Authority Basis for Service

1.4   Section 151 of the Local Government Act 1972 requires that every Local
      Authority in England and Wales should “… make arrangements for the
      proper administration of their financial affairs and shall secure that one of
      their officers has responsibility for the administration of those affairs”.
      CIPFA has obtained a legal opinion, that the term „administration‟ in these
      statutes means responsibility for managing the totality of the financial affairs
      of a Local Authority, in all of its dealings.

1.5   The Responsible Financial Officer's role was significantly extended by
      Section 114 of the Local Government Finance Act 1988, which requires a
      report to all the Local Authority‟s members to be made by that Officer, in
      consultation with the Monitoring Officer, if there is or is likely to be unlawful
      expenditure or an unbalanced budget.

1.6   The Local Government Finance Act requires the Council to set a balanced
      budget and agree its Council Tax by March in advance of the financial year.

1.7   The main legal requirements covering the preparation, publication and audit
      of accounts are contained in section 27(b) of the Audit Commission Act 1998
      and the Accounts and Audit Regulations 1996. They require the Council to
      prepare its financial accounts within six months of the year-end and to
      publish them by 31st December in a heavily prescribed format. Accounts,
      grant claims and statistical returns must meet the requirements of the law
      and of other regulatory Authorities and be accurate, complete and timely.

                                              8
       Links to City Council’s Corporate Strategic Plan

1.8    Proper and effective administration of the Council's finances underpins all of
       the Council's Corporate Policy Priorities and management principles. They
       all require the effective, efficient and economic application of financial
       resources. Effective financial administration is particularly important to the
       „good stewardship‟ of assets principle.

1.9    Over the last three years the Council has sought to make significant
       improvements in its services and organisational development as part of a co-
       ordinated approach to „Wake the Sleeping Giant‟. This has involved the
       Council in establishing a clear set of Corporate Policy Priorities and
       embarking on a number of key initiatives, in particular a 20 year „Going for
       Growth‟ social and regeneration policy aimed at reversing the decline in
       population in recent years. The finance function has played an important
       part of the development of this and other important strategic initiatives within
       existing resources.

1.10   The current contribution to the Council's strategic objectives has partly been
       achieved by additional input from senior staff which has reduced their
       capacity to plan the strategic development of the finance function. The
       growing workload flowing from new strategic initiatives must also be met. It
       is necessary to address this issue in the Service Improvement Plans if
       continuing performance improvement is to be secured and the Council‟s
       strategic objectives are to be met effectively.

       Overall Cost of Finance Services

1.11   The gross estimated cost of the service for 2000/01 is £6.2m, including
       External Audit Costs of £458,000. The breakdown of the cost between the
       main functions is shown in Chart 1 and Table 2 overleaf. This shows that
       70% of the cost of the service relates to the Accountancy and Business
       Management function.

            Chart 1: Analysis of Overall Service Cost by Main Function


                            Treasury
                           Management
                                                                  Accountancy and
                              2%
                                                                     Business
                                                                   Management
              Insurance 4%                                             70%

         Housing Benefit
             Fraud
          Investigation
              6%



                 External Audit     Internal Audit
                      7%                 11%
                                                 9
       Table 2: Analysis of Overall Service Cost by Main Function

                                                          £000
        Accountancy and Business Management              4,273 70%
        Internal Audit                                     707 11%
        External Audit                                     458 7%
        Housing Benefit Fraud Investigation                342 6%
        Insurance                                          273 4%
        Treasury Management                                146 2%
                                                         6,199 100%



        Challenge Hypothesis
1.12    As part of the challenge process, the review considered three corporate and
        two service hypotheses –
        Corporate Hypotheses
           Could the service be delivered more effectively to better meet the needs
            and aspirations of its stakeholders?
           Could the service be delivered in a more cost effective way to better
            utilise the resources available to it or to enable the service to meet the
            requirements of the Medium Term Plan and other cost pressures in a
            more structured way?
           How can the service better align itself to the City Council's Corporate
            Strategy?
        Service Hypotheses
           How can the service contribute to the maximisation of funding to help
            achieve the corporate aims of the Council?
           How can the skills, knowledge, expertise and potential of staff be better
            harnessed to provide a continuously improving service?

       Focus of the Review
1.13   The main focus of the review was on the two largest service areas of
       accountancy and Internal Audit, which account for over 80% of the cost of
       the service and where the review team was able to collect reasonable
       benchmarking data by involvement in benchmarking clubs and site visits.




                                              10
1.14   Other areas such as Insurance, Treasury Management and Housing
       Benefit Fraud Investigation have been given a 'lighter touch' examination in
       the work carried out to date. The prime reason being the limited availability
       of benchmarking data and it is proposed to carry out a more detailed
       review of specific issues as part of the Action Plan as benchmarking data
       is generated. Additional reasons for adopting a 'lighter touch' were –
          the insurance and treasury management functions already works in
           partnership with the private sector to provide elements of the service,
           and we receive feedback from brokers on the service;
          the insurance service was the subject of a comprehensive staffing
           review early in 2000;
          both the treasury management and insurance service have made
           recent contributions to medium term plan savings; and
       The Housing Benefit Fraud function was the subject of independent
       inspection during the review period and the Housing Benefit Service is
       being considered as part of a strategic partnering arrangement.




                                              11
2       ACCOUNTANCY

2.1     BACKGROUND

2.1.1   The accountancy service, including Cityworks business management
        support and debit control has a gross cost of £4.3m – some 70% of the
        total cost of the finance services considered by this review.

2.1.2   The service is provided by 134.4 fte staff that work in 4 Directorates. The
        service is a devolved one with finance staff working in Directorates close to
        their service customers. The structure of the service has evolved over a
        period of time as opportunities have arisen to make changes within each
        Directorate. Over the last ten years the trend has been to merge the role of
        the Departmental Finance Officer and the Principal Accountant as
        opportunities have arisen, through Departmental reorganisation or when
        staff have left the Council. This has happened in Education, EEC and
        Social Services Directorates.

2.1.3   The incremental changes in the structure of the accounting service have
        resulted in differences in the balance between staff employed directly by
        Directorates and the staff employed by what used to be the Treasurer‟s
        Department and is now the Finance Division of Strategic Support
        Directorate. The difference in this balance is illustrated in Chart 2 below.

        Chart 2: Mix of Directorate and Strategic Support Accountancy Staff

                  Mix of Directorate\Strategic Support Staff
           45
                   39.1
           40
           35                                                               Directorate
           30                                                               Strategic Support
           25                                                21.5
           20      38.3
           15                                                                     9.1
                                  23.2                    17.5
           10                                 20.3
            5                                                        11.5         6.5        9.7
                          0.8                                4.0                  2.6
           -
         fte
         Staff   Cityworks      Corporate   Education & Community Enterprise     Social    Strategic
                                             Libraries  & Housing Environment   Services   Support
                                                                   & Culture

2.1.4   Corporate staff include those working on SRB and Regeneration, Financial
        and Management Information system support, capital and revenue co-
        ordination, staff training and the Head of Finance and Chief Accountant.



                                                        12
2.1.5   Chart 2 shows that the service is provided in by different models, with three
        different combinations of Strategic Support and Directorate Staff. The
        Education, EEC and Strategic Support Directorate service is provided
        entirely by Strategic Support staff. The Social Services and Community
        and Housing Directorates have a combination of Strategic Support and
        Directorate staff. The service to Cityworks is almost entirely provided by
        Directorate staff. The structure of the service has been identified as an
        issue that needs to be considered as part of the review.

2.1.6   Although there are variations in the way in which the service is provided, all
        Directorates receive a devolved service. This approach was adopted many
        years‟ ago because it was seen to provide a more effective and customer
        focussed service. While a more centralised service may produce some
        cost savings, service users expressed clear views that a devolved service
        was the preferred approach to service delivery.



        Main Findings:

         The accountancy services involves staff in 4 Directorates and the
          balance between strategic support and Directorate staff is
          inconsistent and needs to be examined as part of the review; and

         The service is a devolved one, with staff working close to service
          customers in the Directorates. Service users have expressed a
          strong preference for retaining a devolved service.



2.2     COMPARE

2.2.1   There are no national performance indicators for the service to help assess
        its performance. To establish a consistent set of data to allow cost
        comparisons, Newcastle signed up to the CIPFA benchmarking club for
        Accountancy. All of the Tyne and Wear Authorities subscribed to this club.
        The review was therefore able to acquire information so that comparisons
        with neighbouring Authorities that are operating in a similar economic and
        social environment could be made.

2.2.2   The total gross cost of accountancy was divided by the size of each
        Authority's revenue and capital budgets to arrive at a comparator figure. The
        results, which are summarised in Chart 3 below, showed that Newcastle‟s
        budgeted costs for 2000/01 were 3.8% above the average for the 53
        comparator Authorities (multi service Authorities and County Councils).




                                               13
                                                     Chart 3: Comparative Gross Accountancy Costs (2000/01 Budget)


                                                                   Accountancy Costs per £1m Budget
                                                     9,000

                                                     8,000
Cost of Service per £1m Budget (Revenue & Capital)




                                                     7,000                    Newcastle
                                                                                5,927
                                                                                   /                             Average = £5,710
                                                     6,000

                                                     5,000

                                                     4,000

                                                     3,000

                                                     2,000

                                                     1,000

                                                         0
                                                               53 Unitary and upper tier Authorities ranked by cost
2.2.3                                                 As it is generally thought that larger Authorities will have less cost per
                                                      expenditure, due to economies of scale, a regression analysis was carried
                                                      out on cost of service against expenditure1. Unsurprisingly, the analysis
                                                      showed a significant relationship between cost of service and Authority
                                                      size.
                                                      Although slightly above the line of best fit the cost of the service is
                                                      approximately what would be predicted from the regression (as shown in
                                                      Chart 4). The red lines on either side of the line of best fit show one
                                                      standard deviation above and below the lines.




1
 Regression Analysis estimates the linear relationship between a dependent variable (in this case
cost of service) and one or more independent variables (e.g. Gross Revenue Turnover and Capital).
The line of best fit represents the least squared deviations from each of the points.


                                                                                             14
         Chart 4: Accountancy Costs (Budget 2000/01) Showing Impact of Economies of
                                               Scale
                                            Cost of Accountancy v Total Expenditure


                           8000
                           7000
                           6000
         Cost of Service




                           5000
                                                                               y = 5.2201x + 179.75
                           4000                                                      2
                                                                                   R = 0.8568
                           3000
                           2000
                           1000
                             0
                                  0   200       400    600     800      1000    1200         1400   1600

                                                Gross Revenue Turnover and Capital


         Comparison of Total Costs with Tyne and Wear Districts
2.2.4    A comparison with the accountancy costs of the other four Tyne and Wear
         Districts, revealed that Newcastle has the second highest relative cost for
         the provision of accountancy services within Tyne and Wear in relation to the
         size of revenue and capital budget (see Chart 5 below).

        Chart 5: Accountancy Costs in Tyne and Wear per £1m Budget (2000/01)

                           7,000
                                       6,260
                                                       5,927           5,776
                           6,000                                                   5,721
                                                                                                    5,509

                           5,000

                           4,000

                           3,000

                           2,000

                           1,000

                              -
                                            A         Newcastle         B                D            C




                                                                  15
2.2.5   Visits were organised with the higher and lowest cost Authorities, to
        investigate the differences in cost. Both Authorities had a more centralised
        service than Newcastle, with Principal Accountants being responsible for
        more than one Directorate or service. The higher costs in Authority A were
        mainly due to the higher cost of their IT system. In both Authorities the
        support for budget holders appeared to be much less than in Newcastle,
        with managers being more responsible for their own budget monitoring.
        This compares to Newcastle where the service is decentralised and where
        detailed budget monitoring reports\trading statements are produced
        regularly for budget holders. The Authority with the lowest cost achieved
        this by providing a centralised service and by providing a more limited
        service to customers. They recognised that they may need to provide a
        more customer focussed service in future following their best value review.
        Comparison of Total Costs with Core Cities
2.2.6   Unfortunately only Manchester took part in the CIPFA benchmarking
        exercise. Their gross cost per turnover (budget for 2000/01) was £5,533,
        some 7% lower than Newcastle's. This may be due in part to the
        economies of scale that a larger Authority should be able to achieve as
        Manchester has a budget that is twice the size of Newcastle's. Previous
        comparisons of cost with Core Cities have indicated that Newcastle is
        above average in terms of cost per £1m budget. Again this may be partly
        due Newcastle being the smallest Core City.
        Accountancy Costs by Service
2.2.7   The CIPFA benchmarking study provided a more detailed comparison of
        cost by service and by type of activity.
2.2.8   The service analysis indicated that the cost of accountancy services
        provided to social services and housing were significantly below average.
        The cost of services to education was below average, and that the cost of
        accountancy support to DLO/DSO and other services was above average
        for the Authorities in the benchmarking sample. However, with the much
        larger and wider range of services provided in Newcastle by Cityworks
        beyond the standard range of DLO/DSO services the Newcastle figures are
        likely to be distorted and further work is needed to clarify the data
        comparisons for 'other services, recreation, and DLO/DSO services'.




                                            16
         Accounting Processes

2.2.9    The CIPFA benchmark club data was used to identify how the resources of
         Accountancy sections were used in the provision of a service to customers.
         To this end the services supplied were split into 9 categories plus an
         additional category for services to outside bodies. It became apparent from
         the analysis that the greatest percentage of resources (65.3%) was
         concentrated on budget preparation, monitoring and revenue\capital final
         accounts. Comparisons with other Authorities identified that Newcastle
         were slightly above the average for the provision of these services which
         stood at 57%. This indicates that the service provided to users revolves
         around budget preparation and monitoring and the closedown of accounts.

2.2.10   With such a high percentage of resources targeted at dealing with statutory
         and core services there is little left to address more strategic issues such as
         financial planning or the provision of strategic advice to senior officers. As a
         result Newcastle are below the average in the resources targeted to these
         areas (1.7% and 6.09% against an average of 3.32% and 6.87%
         respectively). In addition the resources put into dealing with new initiatives
         and the support provided for the main accountancy system are below
         average (4.19% and 14.24% against an average of 6.54% and 18.02%
         respectively). Newcastle does, however, provide above average coverage
         in terms of treasury management and other functions which include
         reconciliation of debtors\creditors\payroll with the main accountancy system
         etc.

         Main Findings :
          No national performance indicators exist for this service;
          Newcastle's cost per £1m budget was 3.8% higher than the average
           for the 53 comparable Authorities in the CIPFA benchmarking club;
          Newcastle has the second highest cost per £1m budget in Tyne
           and Wear;
          Accountancy costs for Housing, Social Services and Education
           were below the average for the comparable Authorities in the
           CIPFA benchmarking club, while the cost for other services and
           DSO/DLO services was above average. Such costs can in part be
           linked to the Internal Charging mechanisms that can cause
           duplication of work. Service Improvement Plan 6 sets out solutions
           to streamline internal charging systems;
          In terms of accounting functions Newcastle spends more on
           budget preparation and monitoring and less than average on
           financial planning and strategic financial advice. Service
           Improvement Plans 2 and 3 seek to address this area.




                                               17
                            Staffing
2.2.11                  The CIPFA benchmarking club looked at a number of specific categories of
                        tasks undertaken by the accountancy function and as a result a number of
                        staff have been excluded from the benchmarking club data. Comparisons
                        using this data show that Newcastle is above average with 114.74 fte
                        (79.08 fte) amongst unitary Authorities, County Councils and London
                        Boroughs making returns to the CIPFA benchmarking club. The Newcastle
                        figure of 114.74 fte staff excludes staff that were not consistent with the
                        guidelines given for the CIPFA benchmarking exercise. Analysis shows
                        that only 9 Authorities in the return employ more staff than Newcastle. This
                        is borne out when comparing other Tyne and Wear Authority staffing levels.
                            Qualifications and Experience
2.2.12                      Newcastle has an above average percentage of staff that are not qualified
                            to CCAB standards\CCAB trainees in Accountancy (see chart below). This
                            is reflected in the number of staff paid below £15,000, with Newcastle
                            paying 34% of its Accountancy staff less than £15,000 against an average
                            of 23% in unitary, London Boroughs and County Councils.

    Chart 6: Percentage of Qualified Staff with CCAB\ AAT Qualifications\CCAB\AAT
                              Trainees - Accountancy




                                                                 100%
         Percentage of CCAB / AAT Qualified Staff / CCAB / AAT




                                                                 90%

                                                                 80%                         Average = 71.04%
                                                                                         Newcastle
                                                                 70%
                                                                                         60.59%
                                                                 60%                     /
                               Trainees




                                                                 50%

                                                                 40%

                                                                 30%

                                                                 20%

                                                                 10%

                                                                  0%
                                                                         Authorities

                                         Accountancy Staff by Directorate and Function




                                                                        18
2.2.13    The following chart provides a comparison of number of accounting staff
          and the size of the budget for each Directorate or Function (e.g.
          regeneration). The total numbers of staff set out in Chart 2 have been
          divided by the size of the revenue and capital budgets that they
          manage. The figures have then been shown as relative numbers of fte
          staff numbers per £10m budget looked after.

          Chart 7: FTE Accountancy Staff per £10m budget.



           fte                               FTE STAFF PER £10M BUDGET
          3.5                    3.3
          3.0
                                                                                     Average = 1.7
          2.5                                                              2.1                       2.2
                    2.0
          2.0
                                                1.4
          1.5                                                 1.3                       1.3
          1.0
          0.5
          -
                  Cityworks   Regeneration   Education &   Community & Enterprise Social Services   Strategic
                                              Libraries      Housing Environment &                  Support
                                                                        Culture

2.2.14   The average is 1.7 fte per £10m budget. Community and Housing, Social
         Services and Education are below average, which is due in part to
         economies of scale in managing large budgets. Other services, such as
         Regeneration, Strategic Support, EEC and Cityworks have above
         average staffing when simply compared to the total size of the budgets
         managed. However, size of budget is only one of the factors that
         influences workload, others include the complexity of the workload and
         the extent to which staff provide additional services to their customers.

2.2.15   For example, Regeneration has the highest cost per budget, but it is a
         function that requires detailed quarterly monitoring statements to external
         agencies, involvement in complex appraisals and preparation of reports
         to a large number of local partnerships. Staff also work on European
         grant claims and support for other corporate initiatives, such as the recent
         Local Public Service Agreement bid and the Going for Growth Initiative.
         The EEC Directorate has a relatively small net budget but has a more
         complex management structure and budget monitoring arrangements,
         which means that the accountancy team manage the highest number of
         cost centres per fte staff (137 compared to an average of 60).

2.2.16   The comparative information of staffing level and costs will be taken into

                                                            19
account in planning the allocation of resources and the identification of
opportunities for achieving further efficiency savings.




                                    20
         Outputs

2.2.17   Outputs of the accountancy service are driven from three key sources:-
          Statutory requirements
          Internal needs – corporate team and corporate policies
          Internal needs – Directorate\service driven
         The outputs however exclude some key areas of financial management,
         e.g. debt collection and exchequer services, which are delivered by
         exchequer services.
         Statutory
2.2.18   The core business arises from the statutory framework. As far as closure of
         accounts is concerned, the Council consistently considers and approves the
         accounts in advance of the statutory deadline of 30 September. The
         accounts are produced showing a high level of compliance to accounting
         practice and are not qualified. A balanced budget is produced within
         statutory deadlines. The budget process includes consultation with senior
         officers, members, citizens‟ panel and area committees. Improvements
         have been made to link budget decision with corporate policy priorities. For
         2002-2003 further improvements are proposed to integrate the budget and
         BVPP process. A Core City benchmarking exercise has however indicated
         that a higher priority needs to be given to statutory returns.
         Internal
2.2.19   The Authority‟s internal accounting arrangement reflects the Authority‟s
         approach to financial management. Particular outputs include:-
            The operation of devolved cash limited budgets with the ability to carry
             forward surpluses and deficits between years, reinforcing accountability
             and reducing artificial year end spending pressures;
            Strategic management of the capital programme to ensure
             maximisation of resources, e.g. maximising take up of external grants
             and maximising usable capital receipts and borrowing approvals;
            The management of an internal loans facility (the Corporate Resource
             Pool) to provide additional capital resources or short-term revenue
             support to Directorates (e.g. for internal invest to save schemes);
            The management of Capital Loans‟ Fund to schools;
            The operation of a risk management fund to encourage projects aimed
             at enabling the Council to minimise insurance premiums and\or
             successfully defend claims;
            a Medium Term Plan process which enables the Authority to fund new
             initiatives while maintaining Council Tax increases to an amount below
             the Government guidelines and national average within a context of
             reducing population and grant;


            successful investigative and lobbying work at both national and local
             level to improve the Council‟s SSA and external funding;
                                             21
   key involvement in both corporate and Directorate initiatives, e.g.
    presence at Going for Growth consultation, leading Directorate
    Implementation Team on Single Status, co-ordinating the Council's
    successful Local Public Service Agreement;
   input into the development and implementation of the City‟s financial
    systems strategy;
   co-ordinating and development of new forms of procurement, e.g.
    Private Finance Initiatives, ITRS strategic partnership; and
   a good track record of responding to individual Directorate financial
    requirements.



Main Conclusions:

 Newcastle employs above average numbers of lower paid and less
  qualified staff than average, in part to deal with labour intensive
  transaction processing and to provide service to budget holders
  and meet budget monitoring needs. Service Improvement Plan 9
  provides a formal process for identifying and addressing staff
  development and training needs. Service Improvement Plan 2
  shows the means by which costs are to be reduced in terms of the
  main labour intensive transaction processing and the provision of
  a budget monitoring service;

 Although the costs per member of staff are below average, the
  numbers employed push the cost of the service to above average
  when compared with the Authorities in the CIPFA benchmarking
  exercise;

 A comparison with other Tyne and Wear Authorities identified that
  the nature of the service within Newcastle is significantly different.
  Newcastle provides a devolved service whilst other Tyne and Wear
  Authorities have a more traditional centralised service.




                                   22
2.3
                                           CONSULT
2.3.1                                      The consultation exercise identified 5 groups of stakeholders: -
                                                Members
                                                Directors
                                                Service Budget Managers
                                                Staff
                                                District Auditor
                                           The method of consultation used was questionnaires targeted to the roles /
                                           perceived needs of the stakeholders. In addition a staff focus group was
                                           created as a means of consulting staff at all stages of the review and to
                                           provide a forum for staff ideas to be raised and presented to the review
                                           team.
2.3.2                                      Members
                                           We received 25 responses to the member‟s questionnaire, which at 32% of
                                           all 78 members, is considered to be a good response rate to a
                                           questionnaire. The results of the survey showed that 75% of the responses
                                           gave a rating of satisfactory or better. The Chart below summarised the
                                           results for each of the nine key questions that required a qualitative
                                           response. Financial stability and probity received the higher rating with over
                                           90% satisfaction. The lowest scores were for financial information on
                                           capital (just under 60% satisfaction) and general financial information (64%
                                           satisfied) and the Council‟s ability to generate resources (66% satisfied).


                                           Chart 8: Summary of results of Members’ Questionnaire



                                                                             Results of Member's Questionnaire

                                               Very Good                Good              Satisfactory                   Poor            Very Poor
                                   100%
Rating of Responses From Members




                                   90%

                                   80%

                                   70%

                                   60%

                                   50%

                                   40%

                                   30%

                                   20%

                                   10%

                                    0%
                                           Financial      Rating of     Financial     Council's       Financial       Capital       Quality and Speed of     Level of
                                          Information   Budget Book /    stability    Ability to   Information on    Resource       Content of Response to   Financial
                                          and Advice      Financial                    Attract        Capital /     Allocation /   Responses to  Queries      Probity
                                           Received      Information                 Resources         Leasing       Strategy        Queries
                                                                                                    Question's
                                                                                                        23
2.3.3   The member‟s questionnaire identified a clear split in satisfaction between
        front and backbench members. The new democratic framework has removed
        the Committee structure with the result that financial information is now only
        reported to Cabinet and Select Committees. No new system has been
        implemented to keep backbench members up to date with the financial
        position of the Council leading to a sense of frustration. This is reflected in
        the questionnaire results that show that where the service is rated less than
        satisfactory, it was generally the backbench members who were dissatisfied.
        Issues raised by the members are now being dealt with, as a training
        programme to address new members\backbenchers requirements is already
        in operation.

2.3.4   The main issues arising and comments from the questionnaires were: -
         Information is not easily accessible
         Information available is too complex and not user friendly
         Information not timely to allow more than a cursory glance
         Lack of briefings about new funding initiatives such as SRB etc
         Lack of knowledge about finance and little training available


        Main Findings:
         75% of the responses from members showed satisfaction with the
          quality of the service;
         There was a need to improve training and briefing of members on
          key financial issues;
         There was a need for improved presentation of financial information
          and a need to make information more accessible, particularly for
          members outside of the cabinet.

2.3.5   District Auditor
        The Council‟s external auditor (District Audit) have an important contribution
        to make on determining the effectiveness of accountancy services in terms of
        reliance, probity and whether the accounts show a true and fair view. The
        results of the questionnaire indicate that the District Auditor rates
        Accountancy as providing a good level of service as the chart overleaf
        illustrates. Accounting Standard Compliance rates as „Very Good‟. The
        standard of budget preparation working papers, information on budget
        preparation and closedown of accounts, FMS information reliability and grant
        claims information and timing all rated „Good‟. The information reliability of
        FAMIS was rated satisfactory. The results of the questionnaire are
        summarised in Table 3 below.




                                              24
        Table 3: Summary of the Results of the District Audit Questionnaire
                                                Very        Good   Satisfactory   Poor   Very
                                                Good                                     poor
        Budget prep working papers                            
        Info re: budget preparation/closedown                 
        Accounting standards compliance           
        Famis: info provision/reliability                               
        FMS:info provision/reliability                        
        Grant claims: info and timing                         
2.3.6    Comments received from the District Auditor indicate that the following
         issues need to be addressed: -
         Improved co-ordination of closedown procedures.
         Direct access for District Audit to the Council‟s general ledger\financial
          information systems.
         Improved reconciliations between the general ledger and feeder systems
          such as payroll, creditors etc.
         FEFC information provided to District Audit to allow certification of grant
          claims was poor in terms of accuracy and completeness.
         Concerns over procedures in place to account for new special grants
          such as FEFC grants, Asylum Seeker and Youth Justice Board Grants.




         Main Findings

         The District Auditor rates the quality of the service as good.

2.3.7    Service Budget Managers
         As the main users of the service the views of Service Managers are vitally
         important to the finance function to identify areas of improvement. The
         results of the survey indicate that 89% of responses showed a satisfactory to
         very good rating, only 11% of responses rated the services as poor or very
         poor (see chart overleaf for detailed breakdown of responses).




                                                       25
                                   Chart 9: Results of Service Budget Managers’ Questionnaire


                                                    Results of Service Managers’ Survey
  Rating of Responses Received




                                 100%
                                  90%
                                  80%                                                                         Very Poor
                                  70%
                                  60%                                                                         Poor
                                  50%                                                                         Satisfactory
                                  40%                                                                         Good
                                  30%
                                  20%                                                                         Very good
                                  10%
                                   0%
                                         Rating of Guidance re    Certifying        Quality of    Speed of
                                         Financial    Capital      capital          Financial    Response
                                        Information Expenditure   Proposals          Advice      for Advice
                                          Systems                                    Given
                                                            Questions asked



2.3.8                              The survey did indicate that 2/3rds of Service Managers responding did feel
                                   that they were not sufficiently trained for their role. Specific areas of
                                   weakness identified included: -
                                   Budgeting – specifically how to identify and monitor budgets (where is
                                    information held, how can I access it).
                                   New funding streams such as SRB and Health Action Zones and how
                                    they interface with the Authority.
                                   How to identify and attract new sources of funds
                                   Capital – monitoring and appraisal.



                                   Main Findings:
                                    89% of Service Managers rated the quality of the service as
                                     satisfactory or better. However, 66% did feel that they were not
                                     sufficiently trained to undertake their role as budget holders. This
                                     will be addressed as set out in Service Improvement Plan 5.




                                                                               26
2.3.9                        Service Team Staff
                             An important element of the consultation process is the staff that actual
                             provide the service. They are often in the best position to identify problems
                             and propose solutions to improve the service they provide. The results of the
                             survey identified that there was a 75% satisfaction rate or better in terms of
                             the questions asked. The main areas of dissatisfaction occur around the
                             support provided by technical staff and the capital processes, procedures
                             and guidance notes (see chart below for full detail). Staff have identified the
                             following as the main issues: -
                        Procedure for authorising capital payments needs to be streamlined;
                        Lack of training in the budgetary and final accounts processes;
                        Poor guidance and lack of availability/help support from central teams;
                        The SLA process\internal charging as the main charging mechanism;
                        A lack of standardisation in the approach and documentation of the
                         budgeting\closedown processes between service teams;
                        Unrealistic deadlines re budgeting and closedown timetabling, coupled
                         with the late distribution of the said timetables;
                        Poor communication between service and technical teams; and
                        User friendly financial information systems that are able to respond
                         quickly to the demands of users.
                             In addition a Staff Focus Group was established to comment upon the
                             findings arising from the review and to work at specific areas identified by the
                             review team (see appendices for Focus Group findings).
         Chart 10: Summary Results of Staff Questionnaire
                                                                                                                                                                  Staff in Service Team
                                              Very Good                                                                         Good                                                                  Satisfactory                                                                                                    Poor                                                      Very Poor
                                       100%
        Rating of Responses Received




                                       90%
                                       80%
                                       70%
                                       60%
                                       50%
                                       40%
                                       30%
                                       20%
                                       10%
                                        0%
                                                                                        Communication Between Financial Teams




                                                                                                                                                                   Coverage of Closedown Timetables




                                                                                                                                                                                                                                               Capital Closedown Manual Usefulness
                                                Support / Guidance from Central Staff




                                                                                                                                                                                                                                                                                     Financial Information System Effectiveness




                                                                                                                                                                                                                                                                                                                                                                                 Capital Guidance
                                                                                                                                                                                                        Non-service Team Support During




                                                                                                                                                                                                                                                                                                                                  IT support for Financial Information System
                                                                                                                                Clarity of Closedown Timetables




                                                                                                                                                                                                                                                                                                                                                                                                    Certifying Capital Proposals Re
                                                                                                                                                                                                                                                                                                                                                                                                       Commitment procedures
                                                                                                                                                                                                                   Closedown




                                                                                                                                                                                                                                                                                                                                              Queries / Problems




                                                                                                                                                                                                                                          27
                                                                                                                                                                                                       Questions Asked
         Main Findings:

          75% of staff returned a rating of satisfactory or better to the
           questions asked. Staff dissatisfaction centres on support provided
           by technical staff and capital, poor communication between teams
           and a need for training. Service Improvement Plan 9 sets out the
           actions to be implemented to deal with areas of dissatisfaction
           amongst staff.

2.3.10    Directors
          The questionnaire completed by Directors and subsequent interviews
          showed a high degree of satisfaction with the accountancy service currently
          being provided. Directors gave a high priority to core accountancy services
          such as budget preparation and monitoring and did not support any major
          changes to the service they currently receive. Key issues raised were -
          the need for improved consistency, accountability and transparency in
           the accounting arrangements of all Directorates; and
          the need for additional higher level advice and support on
           Strategic\Corporate Initiatives.


         Main Findings:

          Directors showed a high degree of satisfaction with the quality of
           the service they receive. Directors did not support any major
           changes to the service they received but they did see a need for
           more strategic\corporate advice.

          Main Conclusions:
          The majority of stakeholders questioned rated the service as
           satisfactory to very good;
          The new political structure means that greater attention needs to
           be given to providing all members with the financial information
           that they require;
          Customers are happy with the devolved nature of the service, with
           recognised contact points working alongside their directorate
           colleagues;
          Some Service Managers lack the necessary financial training and
           must rely upon Accountancy to provide a comprehensive financial
           service; and
          There is a lack of standardisation in the budgeting\closedown
           processes\documentation between Accountancy teams. The link
           between technical teams and service teams suffers from poor
           communication.


                                              28
2.4     COMPETE

2.4.1   Newcastle joined a CIPFA\CAS market analysis survey to identify what
        has been happening in other local Authorities. The results indicate that
        from 113 Authorities replying to the survey 28 had an element of
        contracted out work. These contracts related either to the provision of IT
        (Financial Information systems) or specialist services such as investment
        management, PFI advice, VAT advice or leasing as the table below shows.
        The survey revealed no contracts for the provision of core Accountancy
        services. A summary of the results are shown in Table 4 overleaf.

2.4.2   Last year a number of London Authorities took part in a major
        benchmarking exercise conducted by Arthur Anderson that looked at the
        market for external provision. The report made the following comment about
        the market –

            “Under best value the service review team is required to determine
            whether a market exists for the provision of services and to ascertain
            whether the in-house service is competitive in terms of quality and
            cost and what, if anything, would be the added benefits of seeking an
            external provider”.
            To this end the service review team has had meetings with Capita,
            Price Waterhouse Coopers, (PWC) and IT Net. It has emerged from
            these meetings that the private sector are most interested in packages
            of services where there are opportunities for significant process re-
            engineering and considerable capital investment in IT. Of less interest
            are individual professional elements of financial services.

        Table 4: Showing contracts awarded for the provision of financial services:
                     taken from the CIPFA\CAS market survey

                     Type of service – contracted out                   Contracts
                                                                         issued
        General Ledger Support                                              6
        Integrated Financial Management Systems Support                     5
        Financial Information System Support                                2
        Accountancy System Support                                          2
        PFI – Financial Advice                                              2
        VAT Advice                                                          2
        Pensions Investment Management                                      2
        Tax Advice                                                          1
        Financial Advice                                                    1
        FMS Software Support                                                1
        General Software Support                                            1
        VAT Consulting                                                      1
        Leasing                                                             1
        Investment Management                                               1

                                            29
2.4.3     As the review has progressed the review team became aware of 2
          Authorities, Lincolnshire County Council and Middlesbrough Metropolitan
          Borough Council have since outsourced parts of their financial services
          within a much larger support service contract. In both cases the contract
          was won by Hyder and entailed the wholesale transfer of accountancy to
          that company. Both Authorities were contacted to discuss the contracts
          and the decisions to outpost services.
2.4.4     In the case of both Lincolnshire and Middlesbrough, the accountancy
          services were part of a much bigger package of services and although
          there was a significant overall saving on the contract there is inadequate
          information to be clear how much of that saving if any related to the
          accountancy services, particularly given that the service benefited from the
          introduction of a new accounting package. The need for significant capital
          investment in IT systems appeared to be an important factor in the decision
          to include the accounting service in the outsourcing package.
2.4.5     While the gross cost of Newcastle's accounting services is marginally
          above average, this is due to the level of activity and the devolved nature of
          the service. Cost per member of staff is below average. Staff costs for
          higher levels of accountancy work and advice are very competitive when
          compared to rates charged by private firms. The following Table 5 shows
          how hourly rates for internal advice are considerably cheaper than external
          rates on current financial consultancy contracts.


        Table 5: Comparative Hourly Rates for Higher Level Financial Advice


        In-House – Accountancy      Financial Consultants 1        Financial Consultants 2
           – SLA Charge (inc.
               overhead)
                         Hourly                          Hourly                      Hourly
                          Rates                          Rates                       Rates
        Head of              £54 Partner             /   £ 250 Partner               £ 230
        Finance                  Manager                          Director            £180
        Chief                £47 Senior                   £210 Senior                £ 140
        Accountant               Professional                  Consultant        /
                                                               Specialist
        Principal            £33 Professional             £180 Financial             £ 120
        Accountant                                             Consultant
        Senior               £28 Senior                   £195
        Accountant               Technician
        Accountant           £24 Technician               £100




                                                30
2.4.6   Newcastle City Council is currently has started a procurement process for a
        large strategic partnering arrangement covering Information Technology
        and Related Services (ITRS) including exchequer services. Corporate
        Team has decided not to include accounting services in this arrangement or
        to market test the service at this stage. This is mainly due the strategic
        nature of the service, its current performance, the lack of significant IT
        investment needs in accounting systems and the internal improvements
        that will be made in cost effectiveness.
2.4.7   A three year partnering arrangement is proposed with a leading private
        sector accounting and audit firm to supplement internal financial expertise
        in specialist areas (e.g. Corporation Tax, private finance initiative support),
        dealing with unexpected peaks in workload that cannot be met in-house.
        This will replace current ad hoc arrangements and will allow the
        competitiveness of elements of the internal service to be assessed as well
        as assisting with training, performance improvement and knowledge
        transfer. Market soundings showed support for this approach.


        Main Findings;
         A CIPFA\CAS survey identified little competitive activity in the
          contracting out\outsourcing of Accountancy services. Where such
          activity existed it centred on specialist services such as PFI, VAT
          advice or the provision IT (Financial Information systems);
         During the review two Authorities arranged to contract out parts of
          their accountancy services as part of larger packages of services,
          driven in part by IT investment needs. The information available
          does not allow an identification of the savings such contracts have
          produced for the provision of accountancy services (although
          overall the contract has shown significant savings);
         Comparisons of in-house charges to consultant charges for
          specialist advice show the in-house charges to be considerably
          cheaper;
         The option of including accounting service in the Council's ITRS
          strategic partnering arrangement was considered but Corporate
          Team decided against this in view of the low IT investment needs of
          the service, its strategic nature, its performance and plans for
          improvement; and
         A three year partnering arrangement with a leading firm of
          accountancy and auditors is proposed to supplement internal
          financial expertise in specialist areas and to help dealing with
          unexpected peaks in workload that cannot be met in-house (see
          Service Improvement Plan 1).




                                               31
2.5     CHALLENGE
        Could the service be delivered more effectively to better meet the
        needs and aspirations of its stakeholders?
2.5.1   The survey of members and other key stakeholders rated the service
        provided as good, but a number of suggested improvements were
        identified that should be introduced to improve the effectiveness of the
        service. These included -
         Improved presentation of financial information;
         More financial training and briefing for members and service users;
         Improvements to the capital approval and monitoring processes;
         Greater standardisation in the approach and documentation of the
          budgeting\closedown processes between service teams;
         Improved communication between service teams and with the technical
          finance teams;
         Improved consistency in the service provided to users;
         More user friendly financial information systems that are able to
          provide performance management information; and
        The ability to respond quickly to the demands of users and to provide
        more strategic financial advice'
2.5.2   One of the issues identified by Corporate Team was the lack of
        consistency in the method of service delivery in terms of the mix of
        strategic support and departmental finance staff, although individual
        Directors expressed a general satisfaction with the method of service
        delivered to their own Directorate. Options for revising the structure and
        improving the transparency and consistency of service delivery were
        considered. There was a consensus that a devolved rather than a
        centralised approach to service delivery would be more effective for
        stakeholders. The general approach taken in most Authorities is a
        combination of central and departmentally based staff, although the mix
        varies between Authorities.
2.5.3   After considering the issues and options the review team agreed that there
        was a need to increase consistency and harmonisation of staffing
        arrangements within the function across all Directorates. As a minimum
        standard approach it was decided that key finance staff within each
        Directorate would be employed by Strategic Support, which means that a
        small number of finance staff will transfer from Cityworks to Strategic
        Support and that standard accountability and reporting arrangements
        would be introduced.
2.5.4   A Human Resources review of grades and job descriptions would take
        place. The option of a major restructuring exercise was considered but
        there was insufficient evidence to support the need for major change and
        it was considered unlikely to add significant value. Indeed it was
        considered that it could detract from the achievement of more significant

                                            32
        process, cost effectiveness and service improvements.
2.5.5   It is recommended that there is a greater clarity in the allocation of Section
        151 responsibility to the Head of Finance and in the role of the key finance
        staff in Directorates.
        Could the service be delivered in a more cost-effective way to better
        utilise the resources available to it or to enable the service to meet
        the requirements of the Medium Term Plan and other cost pressures
        in a more structured way?
2.5.6   With costs slightly (3.6%) above average for the sample of Authorities in
        the benchmarking exercise there is clearly scope for achieving cost
        improvements.
2.5.7   One of the key accountancy functions is budget preparation and
        monitoring. This was identified as a particularly important function by
        service users, but it was also a function that had a higher than average
        resource input. The service could be delivered in a more cost effective
        way by making greater use of technology and increasing the use of on-line
        financial information systems to provide Service Managers with more of
        their management information needs. This can only be achieved with
        adequate training and support for managers and with their acceptance of
        their financial responsibilities.
2.5.8   Part of the reason for examining the service structure was to see whether
        cost savings could be achieved by avoiding any duplication between
        different groups of staff. The current structures had generally evolved over
        a number of years to avoid duplication between central and departmental
        organisations and this had resulted in cost savings being achieved in
        previous years.
2.5.9   However, opportunities for cost saving have been identified through -

         the streamlining of processes, which often involve double handling of
          data, and where the added value to the organisation is unclear or does
          not warrant a considerable input of resources, and

         the introduction of internal and external specialist service providers,
          where this cannot be provided by the in-house workforce, for example
          by avoiding some tasks being carried out in all sections where
          specialisation would produce cost savings without significantly reducing
          the effectiveness of the service.




                                              33
         How can the service better align itself to the City Council's Corporate
         Strategy?

2.5.10   The key issue identified by Corporate Team and Directors was the need to
         be able to provide sufficient resources to meet the needs of the
         organisation for strategic and higher level financial advice. The current
         structure means that senior finance staff and professional officers have
         limited flexibility to provide the necessary financial support for major
         strategic issues. In several cases (in particular PFI\capital option analysis)
         external specialist financial advice has been commissioned from financial
         consultants on an ad hoc basis. The commissioning process was time
         consuming and costly in terms of staff time in particular and the
         involvement of a number of different external consultants has resulted in
         additional being spent for consultants to develop knowledge of the Council
         and for staff to work with different consultants. For example, each
         consultant has their own set of financial models for PFI etc and it takes
         time to analyse and understand different models and to identify and
         explain differences between the results produced by different models.
         To address this issue it is proposed to -
          seek to free up time of existing staff so that they are more able to be
           involved in strategic finance issues;
          create a small internal financial consultancy section with a core staffing
           within the Strategic Support Directorate that is able to provide
           additional support for major strategic activities ; and
          appoint a specialist financial advisor as a partner for a period of between
           3 and 5 years, subject to their performance. This should give
           advantages in terms of filling gaps in specialist technical expertise,
           improve the response to customer needs and offer opportunities for
           knowledge transfer.

2.5.11   The Council's corporate strategy is highlighted in service plans and staff
         contribute to the strategies directly by involvement in corporate strategies
         and indirectly through the provision of services, support and advice.
         However, there is a need to identify the positive actions that finance staff
         can make to the achievement of Corporate Strategies in their own right.




                                               34
         How can the service contribute to the maximisation of funding to help
         achieve the corporate aims of the Council?

2.5.12   The Council has a good track record of attracting resources and finance
         staff have played an important role in areas such as maximising revenue
         support grant, specific grants, regeneration grants such as SRB. For
         example, Newcastle had by 2000 attracted the highest regeneration grant
         per head of population of the Core Cities. The finance function offers
         information on grants to Directorates drawing on the "Grant finder"
         software, but has been limited in resources to promote "grant finding" in a
         more active way. In recent years however the Council does not appear to
         be as successful in attracting resources from new Government
         programmes (for example the "Invest to Save" programme).
2.5.13   The service can contribute to maximising funding by allocating more of its
         time and resources to actively assist Directorates in developing new funding
         and resource opportunities.

2.5.14   There have been incidents in recent years that have highlighted areas
         where income has not been effectively collected and the Council's high
         level of debtors and arrears have been highlighted by the district auditor in
         his management letter. While income collection is carried out by other
         functions (mainly exchequer services), the finance function has a
         responsibility to work with colleagues from exchequer services and other
         directorate staff to maximise income collection.

2.5.15   Improvement in cash flow is an area where the Council can also increase
         its resources in terms of net interest on its revenue balances. There is
         evidence of different levels of awareness of the importance of good cash
         flow to the Council. The function has an important role in promoting a
         greater awareness of cash flow and taking a lead in introducing initiatives
         aimed at improving cash flow.

         How can the skills, knowledge, expertise and potential of staff be
         better harnessed to provide a continuously improving service?
2.5.16   The results of the staff survey and the feedback from staff focus groups
         have highlighted the additional contribution that staff believe that they can
         make to improving he service if their skills are used more effectively.




                                              35
2.5.17   Key areas highlighted by staff where the skills, knowledge, expertise and
         potential of staff could be better harnessed to provide a continuously
         improving service are: -

            Improved training and development of staff;

            Improved communications between staff and management and between
             Directorates;

            Improved recognition for successful tasks;

            More use of flexible working as part of a family friendly policy; and

            Improved briefing of staff about their key tasks and greater involvement
             of staff in task setting.




                                               36
3                                     AUDIT

                                      BACKGROUND
3.1                                   The Internal Audit Service is provided by 20.5 fte staff at a gross cost of
                                      £712K (net cost £672K).
3.2                                   Internal Audit operates a 2 team structure, one team having responsibility for
                                      corporate     systems     and    the    second     team    for   directorate
                                      systems\establishments and fraud and corruption investigations.
3.3                                   The section is managed by a Chief Internal Auditor and is the responsibility
                                      of the Head of Finance. It reports quarterly on performance and significant
                                      findings to the corporate team made up of the 6 Directorate Chief Officers
                                      and the Chief Executive and on an ad hoc basis to the Audit and Standards
                                      Committee made up of 11 members (8 from the ruling group and 3
                                      independent members).

                                      COMPARE
3.4                                   No statutory performance indicators exist for the service. In addition
                                      performance information that was available at the outset of the review was
                                      informal and based upon subjective criteria which varied between
                                      benchmarking exercises.
3.5                                   In an effort to establish a consistent set of data to allow comparisons,
                                      Newcastle signed up to the CIPFA benchmarking club for Internal Audit. As
                                      all of the Tyne and Wear Authorities subscribed to this club, the review was
                                      able to acquire information so that comparisons with neighbouring Authorities
                                      that are operating in a similar environment could be made.
3.6                                   The benchmarking club based its financial comparisons upon gross revenue
                                      expenditure. However, as Audit have a role in auditing capital spending it
                                      was felt appropriate to undertake a similar exercise based upon capital and
                                      revenue expenditure. The results indicated that using both revenue and
                                      revenue and capital expenditure the provision of Internal Audit Services was
                                      slightly below the average as the following chart and table shows.

                             Chart 11: Comparative Audit Costs per £m Expenditure

                                               Cost Per £m Expenditure (inc. Capital): Audit
                                      3500
      Cost per £m Expenditure (inc.




                                      3000

                                      2500
                                                                      Newcastle
                 Capital)




                                      2000
                                                                      £1110.74
                                      1500                            /                 Average = £ £1184.93
                                                                      /
                                      1000

                                       500

                                         0
                                                                            37
                                                                      Authorities
3.7   The above comparisons are based solely upon unitary, County Council and
      London boroughs. However, the benchmarking information also includes
      returns from small district, Welsh and Scottish Authorities.         The
      benchmarking club produced a range of comparative data from all
      Authorities. The following table shows how Newcastle compares against the
      benchmarking data average and the average based upon unitary, county
      Councils and London boroughs.

      Table 6: Comparison of costs, Newcastle, all Authorities and unitary,
      County Council and London Boroughs for 2000/01
                                         Newcastle     Average all       Average
                                                       Authorities    Unitary, County
                                                                       Councils and
                                                                          London
                                                                        Boroughs
      Cost Per £m Gross Turnover          £1, 292         £1,565           £1,298
      Audit days per £m                     7.3             7.9              7.1
      Cost per audit day                   £178            £203             £200
      Cost per auditor                    £34,390        £34,903          £35,029
      Audit days per auditor                187            173              175


3.8   Economies of scale comparisons compare the cost of providing a service
      against the level of expenditure for that service. The theory is that the
      additional cost for each increase in expenditure should reduce past a certain
      point as resources available can cope with increased workloads etc. without
      the need for like on like increases. Regression analysis will produce a line of
      best fit that indicates the cost that should be incurred for a given level of
      expenditure. While slightly above the line of best fit, as with accountancy
      services, the cost of the service is approximately what would be predicted
      from the regression (as shown in Chart 12). (The red lines on either side of
      the line of best fit show one standard deviation above and below the line.)




                                            38
                     Chart 12: Audit Economies of Scale


                                               1,400

                                               1,200
                       Total cost of service




                                               1,000

                                                800                                New castle upon Tyne


                                                600
                                                                                                                 y = 0.7999x + 148
                                                400
                                                                                                                    R2 = 0.7681

                                                200

                                                  0
                                                       0            200          400            600            800         1000      1200
                                                                              Turnover & Capital Expenditure


3.9                  An analysis of internal audit costs of the Tyne and Wear Authorities showed
                     that Newcastle were the middle of the 5 Authorities in terms of cost per £m of
                     turnover (see Chart 13 below).

                                               Chart 13: Cost of Audit Services per £m Turnover

                     £1,400                                                                           £1,271
                                                                                  £1,167                               £1,182
                     £1,200                                £1,096

                     £1,000                                            £841
       Audit costs




                      £800

                      £600

                      £400

                      £200

                                         £0
                                                    North           Sunderland    Newcastle       Gateshead           South
                                                   Tyneside                                                          Tyneside



3.10        An up to date set of Core City data was unavailable at the time that the review
            was undertaken. As a result, the analysis focused on Tyne and data and
            information available from the CIPFA benchmarking exercise. There is
            however close links with Core City auditors. Comparative benchmarking data
            will be developed and a peer review of core city auditors is proposed to
            compare procedures and practices.


                                                                                           39
       Main Findings:

        Budget Audit costs for 2000/2001 are 6.3% below the average when
         compared against unitary, London Boroughs and County Councils
         returning to the CIPFA benchmarking club.

        A comparison of several specific indicators shows that in all bar
         one Newcastle are below average when compared against unitary,
         London boroughs and County Councils and all Authorities
         (inclusive of district, shire, Welsh and Scottish Authorities) making
         a return to the CIPFA benchmarking club.

        When compared against Tyne and Wear Authorities Newcastle is
         ranked 3rd of the 5 Authorities.

        Using economy of scale comparisons Audit is above the regression
         line, which suggests that for the level of expenditure of the
         Authority the cost of audit provision is above average but within
         one standard deviation of the line of best fit.



       Staffing
3.11   With 20.5 fte staff Internal Audit staffing levels are above the average (15 fte)
       for the unitary Authorities, London Boroughs and County Councils making a
       return. 11 other Authorities out of 81 Authorities equalled or exceeded the
       number of staff employed by Newcastle. In terms of cost per auditor,
       Newcastle costs slightly below average of the 81 Authorities for each
       member of staff employed £34,390 against an average cost of £34,903.
       Qualifications and Experience
3.12   Internal Audit has a greater than average percentage of staff not qualified to
       CCAB standards\CCAB trainees (37% against and average of 14%). This is
       reflected in the number of staff paid below £15,000, 32% in Newcastle
       against an average of 20% amongst other Authorities making a return.
3.13   Despite having a high percentage of unqualified staff the Audit benchmark
       club identified that Newcastle Internal Audit was staffed with experienced
       auditors having a higher than average number of staff with 6 or more years
       experience (66% against 63%).




                                              40
         Main findings:

          Staffing levels are above average compared with the other unitary,
           London Boroughs and County Councils in the benchmarking
           survey;

          The cost per auditor is lower than the average,

          Newcastle has a greater percentage of unqualified staff but a higher
           percentage of staff with 6 or more years’ experience. This area is to
           be addressed as set out in Service Improvement Plan 14.


3.14     A comparison of the productivity of Internal Audit identified that Newcastle
         are above average with 74% of an auditors time being used in productive
         work against an average of 68%. Comparisons against the Tyne and Wear
         Authorities show that Newcastle are above the average of 68% and only
         Gateshead have a better figure.
3.15     An analysis of how audit resources are used identified that Newcastle
         concentrate on main corporate financial systems such as payroll, creditors,
         debtors etc. However, no one area dominates with time being distributed
         among all the functions identified. This compares favourably with other Tyne
         and Wear Authorities as shown in the graph below where other system
         audits dominate at the expense of areas such as Value for Money work.
         Chart 14: Comparison of Chargeable days per category of Tyne and
         Wear Authorities

                               Chargeable Days per Category

       60%
                                                                           M ain financial system s

                                                                           O ther system s audit

       50%                                                                 Establishm ent audit

                                                                           Com puter audit

                                                                           O ther audits

       40%                                                                 Fraud

                                                                           VFM

                                                                           Consultancy
       30%
                                                                           Planning




       20%




       10%




       0%

              North       Sunderland         41
                                       Newcastle   Gateshead     South
             Tyneside                                           Tyneside
3.16   The above chart shows that Newcastle concentrate on the traditional core
       business that is dealing with fundamental systems auditing. Work of a more
       strategic nature such as consultancy accounts for a very small part of the
       resources of the Internal Audit Section as does performance based work
       such as value for money investigations. One of the main reasons for this is
       that Internal Audit have taken on some of the external audit role in terms of
       establishing the adequacy of main financial systems as part of the auditing of
       the final accounts of the Council. This allows external audit to concentrate
       more time on value for money projects. This is an example of how internal
       and external audit are co-operating to make the best use of their finite
       resources. In addition the weaknesses with the core corporate systems (the
       District auditor highlighted major problems with the payroll system in his last
       management letter) requires additional resources to be utilised in this area.

3.17   The core corporate systems are in the process of being replaced and it is
       anticipated that once the new systems are running effectively, the level of
       risk will reduce as well the need for audit input. At that stage (likely to be
       2003 or 2004) it should be possible to consider either reducing the size of
       the audit section and achieving financial savings, or applying the audit
       resources to other areas of priority work.



       Main findings:
        Productivity of audit staff is higher when compared against Tyne
         and Wear and unitary, London Boroughs and County Councils.
        Newcastle concentrates resources on traditional fundamental core
         business; little time is spent providing strategic advice. A
         reassessment of audit coverage and Audit's role is set out in
         Service Improvement Plan 12.



       Section Conclusions:
        Internal Audit costs are below average against a specified selection
         of indicators, below average in total, before taking into account of
         potential economies of scale;
        Taking account of potential economies of scale, the analysis
         suggests that for the level of budget for the Authority the costs for
         the provision of Internal Audit is above average;
        The majority of staff are experienced but many do not back this up
         with formal training\qualifications;
        Internal audit resources are used more productively than the
         average and concentrate primarily on the main corporate and
         Directorate systems.



                                             42
           CONSULT
3.18       As with the Accountancy a consultation exercise was undertaken. Internal
           Audit identified 5 groups of stakeholders as follows
                   Members
                   Heads of Directorates
                   Internal Audit Clients
                   Service Managers
                   District Auditor
           The method of consultation used was questionnaires targeted to the roles /
           perceived needs of the stakeholders. A staff focus group was created as a
           means of consulting staff at all stages of the review and as a forum to
           present staff views on issues to the review team.

3.19       In addition District Audit have conducted the second annual survey among
           audit staff to determine their views about the section. A questionnaire was
           issued to all graded below 2nd tier managers, the results being analysed and
           collated by District Audit. Meetings were held to discuss the main issues
           arising, the comments and suggested improvements in the form of an action
           plan being presented to managers.

           Members
3.20       Members questioned have had little contact with Internal Audit (only 1 out of
           25 who returned a questionnaire have had dealings with Internal Audit). This
           goes someway to explaining a lack of awareness of the general role and
           function of Internal Audit amongst members (40% not aware of Audits
           role\function). Although the results are of little value the member who had
           contact rated it very good.


           Main findings:

           There is a lack of awareness amongst members of the role\function of
           Internal Audit.


           Service Managers

3.21       Thirty four of 48 managers who returned a questionnaire had had some
           contact with Internal Audit in the 12 months‟ prior to the review. The chart
           below shows the managers opinion of that contact. Comments received
           revolved around improving response on requests for information, closer
           liaison with clients and some improvement in reporting on findings in terms of
           the time between completing the fieldwork and the issuing of the report and
           the practicality of the recommendations.



                                                 43
       Chart 15: Results from Service Managers’ Questionnaire

                  The rating for the outcome from contact with
                                   Internal Audit
                                 2   0   3




                   9                                             Very Good
                                                                 Good
                                                                 Satisfactory
                                                                 Poor
                                                                 Very Poor



                                               20




       Main findings:

       94% of the 34 Service Managers that responded rated the outcome of
       contact with Internal Audit as satisfactory or better.

        Internal Audit Clients
3.22    A post audit survey was conducted on customers who had received an audit
        in 1999/2000 to determine how clients perceived the service they received
        and to determine the effectiveness of audit staff in determining practical
        improvements in the service audited.
3.23    A 43% response rate (13/30 questionnaires sent out) indicated that the
        service provided was viewed as satisfactory to very good in terms of the way
        in which clients are briefed, the professionalism of audit staff, the timeliness
        of audit reports and the practicalities of proposed system improvements. The
        only negative areas identified was one client felt that the pre audit briefing
        was poor and one client was not informed of the results of the audit within an
        expected timescale.

        Main findings:

       Audit clients rate the service they received as satisfactory or better. A
       small number of critical comments revolved around time delays in
       reporting findings and poor briefing of the work to be carried out.




                                               44
       District Audit
3.24   District Audit as the Council‟s external auditor works closely with Internal
       Audit to ensure maximum coverage of the Council‟s internal controls. This
       makes it an important stakeholder whose views and comments are pertinent
       to the effective operation of the Internal Audit Function. In the main the
       results of the survey indicate that District Audit have a high opinion of Internal
       Audit.


       Main findings:

       District Audit has a high opinion of the work carried out by Internal
       Audit.


       Audit staff
3.25   An annual survey undertaken by District Audit of Internal Audit staff was
       instituted in 1999/2000. The second audit survey undertaken in
       November\December 2000 covered 20 processes\categories. The results of
       the survey indicated that staff felt there had been improvements in 16 of the
       processes from the last survey

       The key issues arising from the survey were: -

        Follow up of recommendations can be ad hoc with little time being
         allocated within the plan to follow up work. As a result there is no
         assurance that action has been taken by clients on implementing the
         recommendations agreed;

        Whilst improvements have been made in promoting the image and profile
         of Internal Audit there is still a feeling amongst staff that this is an ongoing
         need to ensure that Directorates are aware of the service that audit can
         provide;

        There is a need to update the risk assessed audit plan to improve the
         planning and scheduling of work to target resources at the main
         perceived weaknesses identified;

        Communications between the two audit teams could be improved and
         some staff felt that the segregated team structure may prohibit staff from
         improving their skills\experience in particular audit areas such as
         establishment audits or fraud work;

        Improvements are needed in staff training and the provision of specific
         professional training for audit staff;

        Managed audit work undertaken on behalf of the District Audit could be
         improved in terms of when it is done and what work should be
                                               45
          undertaken.

       Main findings:

       The audit staff survey indicated improvements had been made in the
       service in the last year. However, issues still exist that staff feel need to
       be addressed to promote an improved service for the client. Service
       Improvement Plans 16 and 17 set out how such concerns are to be
       addressed.

       Main Conclusions:

        In general stakeholders rate the service they receive as satisfactory
         or better;

        Members have little contact with Internal Audit and so have little
         awareness of the role of the section;

        Where performance could be measured against a previous year
         (staff survey) the results showed that the section was improving;

        Issues identified from the consultation revolve around:

             Delays in producing final report;

             Follow up of recommendations to ensure implementation;

             Continue working to improve Audit’s image with clients;

             Update risk assessed plan to ensure audit resources used
              effectively;

             Staff training and development.

       COMPETE
3.26   Unlike accountancy, which does not exhibit a ready market for the provision
       of core services, the market for the provision of internal audit is more,
       developed.
3.27   CIPFA have produced information on 22 Local Authority Internal Audit
       Services fully or partly externalised who had responded to a market analysis
       questionnaire. Review team members have contacted a number of these
       Authorities and have discussed with the London Borough of Haringey their
       plans for externalising all or part of the service and the options available.
3.28   An analysis of the 22 Authorities has determined that the majority are small
       shire districts where it would appear that the size of the Authority make it
       more problematical to maintain an adequate and effective internal audit.
3.29   The findings of the discussions with the larger Authorities from the above 22
       are recorded below: -


                                            46
3.30   York City Council
       Have an audit partnership with Scarborough, Selby and Ryedale District
       Councils. The rationale behind the partnership was to provide a credible audit
       presence for all 4 Authorities with expertise in specialist areas such as Computer
       audit. The partnership provides economies of scale with the need to appoint only
       1 Audit Manager\Chief Internal Auditor and reduced accommodation costs etc.
       York has been in the partnership for approximately 2 years and is still learning.
       They have identified both good and bad aspects to the arrangement. Since the
       commencement of this review, York has pulled out of the partnership as the
       supposed benefits in terms of improving staff development, access to more
       specialist knowledge (e.g. computer audit staff), cross fertilisation of ideas and
       working practices did not materialise. They are now in an interim situation
       awaiting the findings of the best value review on audit services planned to
       commence in April to determine the way forward.

3.31   London Borough of Kensington and Chelsea

       Has outsourced the specialist areas of Computer and Contract Audit. The main
       reason for this is the problem of recruiting and retaining staff with expertise in
       these areas. Open competition was the method used for obtaining a service
       provider with the contract being won again in April 2000 by Deloittes who have
       provided the service for a number of years. The contract is small being for 200
       audit days per annum.

       The performance of contract staff is monitored monthly and Deloittes will provide
       additional staff to cover shortfall in general audit resources caused by absence or
       vacancy.

3.32   Westminster City Council

       Westminster put out its Internal Audit Service to competitive tender in the mid
       1990‟s which was won by the in-house Internal Audit Section. Encouraged to
       externalise by the Council a limited company was set up (management buy out)
       which provided the audit function to the Council. This company has successfully
       held the contract that lasts for 7 years. In addition the company have been
       successful in providing audit services to neighbouring Authorities

       A client officer exists to whom the contractor reports re performance etc. and who
       agrees the annual audit plan. Departments can request specific work from the
       contractor outside of this agreed plan where circumstances warrant.




                                             47
3.33   Barrow in Furness
       In the mid 1990‟s a District Audit review came to the view that due to managerial
       weaknesses and the lack of adequately qualified\experienced staff the Internal
       Audit function did not provide a credible service. The main recommendation from
       this review was that the Council should put the service out to competitive tender.
       The initial tender was won by CSL but Deloittes replaced them. The cost of the
       service has fallen as the in-house service was overstaffed, certainly fewer audit
       days are now provided. Barrow also provides audit services to Eden District
       Council.
3.34   London Borough of Haringey
       Several options have been investigated with officers favouring a partnership to
       take over a part of the service with the same level of audit time as currently
       provided in-house but at a reduced cost. This would permit audit to contribute
       savings to budget reductions required by the Authority without a corresponding
       reduction in resources. The plan is to externalise the work covered by the audit
       plan but hold onto fraud\irregularity\special investigative work.


3.35   Middlesborough

       Middlesborough has recently outsourced a large number of financial services but
       decided to retain Internal Audit Services in-house as opposed to including in the
       outsourcing contract, mainly on the grounds of the strategic and corporate nature
       of the service.

3.36   Birmingham

       Birmingham City Council have an arrangement with an external provider to carry
       out a proportion of their audit work (approximately 10%). This arrangement was
       entered into following the shortage of specialist skills in areas such as computer
       auditing.




                                            48
       Section Conclusions:

        A market for the provision of Internal Audit Services exists;

        Findings from a review of Authorities that had externalised part of
         their audit service identified the main reasons for this as follows:
            A lack of specialist expertise and a difficulty of recruiting\retaining
             that expertise;
            Size - small Authorities can find it difficult to provide an effective
             audit presence;
            Flexibility,
                        to acquire resources to                   cover     long    term
             absences\undertake one off projects; and
            Political direction to outsource services.

           In other cases Authorities that have outsourced other financial
            services have decided to retain audit services in-house because of
            its strategic nature.



       CHALLENGE
       Corporate Hypotheses
       Could the Service be delivered more effectively to better meet the
       needs and aspirations of its stakeholders?

3.37   The Section 151 officer‟s responsibilities in relation to the accounts and
       assets of the Authority are set out in the Accounts and Audit Regulations
       1996. One of the tools available to the Section 151 officer in meeting those
       responsibilities is an efficient and effective Internal Audit Section. The need
       to ensure that this officer meets the responsibilities of the post will dictate the
       way in which the Internal Audit Section targets and uses resources. As a
       result clients may feel that they cannot influence the audit work to be
       undertaken.
3.38   A new approach whereby a named representative from Audit will liase with a
       directorate\staff responsible for corporate systems is to be introduced. This
       will allow full and frank discussions around audit work needed and allow
       flexibility as work can be deferred or requests considered from client officers.
       In this way clients can contribute to the audit planning whilst audit can still
       ensure that it‟s responsibilities to the Section 151 officer are met.

3.39   Consultation with clients and staff identified that the time between the audit
       being undertaken and the report being produced can be pronounced. This
       may be due to a number of factors such as non-availability of clients or
       problems with the review of audit work. To be effective reports need to be
       issued as quickly as possible after the fieldwork to ensure weaknesses are
       corrected in as short a time as possible.


                                               49
3.40   This issue has been recognised and managers are currently looking at
       suggestions put forward including issuing informal interim reports so that the
       auditee is informed as soon as possible of the main audit findings.

3.41   Follow-ups of audit findings and recommendations are not undertaken
       effectively. As a result there is little guarantee that recommendations are
       being implemented and that weaknesses identified have been corrected.
       Chief Officers therefore may feel assured that potential weaknesses
       identified in audit reports have been dealt with when this is not the case.

3.42   The constitution of a corporate team made up of Directorate Chief Officers
       and the Chief Executive provide a forum by which Internal Audit can
       communicate lack of response by clients to Internal Audit reports. This
       ensures that Chief Officers are aware of and can deal with non-responses to
       audit reports. In addition a Standards and Audit Group consisting of 11
       members exists to which Internal Audit report on performance and significant
       issues arising from work undertaken.

3.43   In addition Internal Audit has recognised the need to undertake follow-up
       audits particularly where the weaknesses identified are significant. To this
       end a structured approach is being implemented and recognised within the
       audit plan. Thus actual follow up work will be programmed into the plan for
       significantly weak systems whilst systems with minor weaknesses may be
       followed up by a questionnaire etc. This is already in place for schools with
       this 2-tier approach already in operation.

3.44   Comments received from the consultation exercise indicate a need for closer
       liaison with Audit and the need to progress requests received. The plan to
       make a member of audit responsible for liasing with a particular
       Directorate\Corporate System is an attempt to deal with the requirements of
       stakeholders\customers. By having a contact point stakeholders can pass
       comments\requests through one person with the knowledge that
       investigations and follow up action is more likely to be forthcoming.

       Could the service be delivered in a more cost-effective way to better
       utilise resources available to it or to enable the service to meet the
       requirements of the Medium Term Plan and other cost pressures in a
       more structured way?

3.45   The level of service required is based upon the determination of the risk to
       the Council of the systems in operation. The fact that many of the corporate
       systems such as payroll and creditors utilise computer applications that are
       now outdated means that the risk of error and fraud from these systems is
       heightened. As a result the level of resources currently available is justified
       and must remain in place in the short term.




                                             50
3.46   The Council has recognised the need to replace such outdated systems and
       a replacement programme is now in place. This will require a reassessment
       of risk and the level of Internal Audit coverage assigned to such systems. In
       the short term the level of resources needed in these areas may increase to
       monitor the performance of the new systems to provide assurance that the
       objectives of the new systems are being met. Once the systems have been
       bedded down resources may be freed to use in other areas.

3.47   In an effort to make more efficient use of current resources a number of
       initiatives have been identified and are being assessed: -

        Using self-assessment questionnaires. This will provide information about
         how a system / establishment is operating allowing the audit section to
         determine the risks arising and whether to target resources at that system
         / establishment. A draft school questionnaire has already been produced
         and management are consulting upon the final version and how it should
         be used;

        Developing partnerships with in-house and external review bodies such
         as District Audit and Housing Benefit and Fraud Team. Such partnerships
         will ensure that resources are not duplicated. A good working relationship
         already exists with District Audit and Internal Audit are to provide training
         to other review groups to ensure that the section can rely upon work
         undertaken (e.g. Social Services Inspection Unit who review residential
         homes).

        Using technology. Innovations such as Computer Aided Audit Techniques
         will enhance the efficiency of the service by enabling audit staff to more
         easily interrogate computer systems, tailoring enquiries for specific tests
         etc or producing information from mainframe and server systems. As a
         result the long laborious manual testing of information will be removed
         allowing the auditor to undertake the test in a fraction of the time. Training
         is required to ensure that all audit staff can become proficient in the use
         of such techniques and a start has already been made with staff being
         trained in the use of interrogation programmes such as Centrelink and
         GQL.




                                              51
       How can the service better align itself to the City Council’s Corporate
       Strategy?

3.48   Continuous improvement is a cornerstone of corporate principles designed to
       ensure that priorities are met. Performance monitoring\measurement
       systems are required as well as a means of challenging how and why certain
       jobs are undertaken and to determine areas of best practice need to be
       developed and implemented. The Core City Audit Benchmarking Group is
       drawing up a set of performance targets that will allow each audit section to
       judge their performance against one another. In addition a peer review
       initiative is being developed whereby at least 2 Chief Internal Auditors / audit
       staff from other Core Cities will evaluate structures, audit plans, etc., this will
       start in 2001/2002.

3.49   One of the main planks upon which corporate priorities are based is the good
       stewardship of resources for the benefit of the City. This is fundamental to
       Internal Audit both in its statutory role as a tool of the Section 151 officer and
       undertaking work requested by clients. By linking the allocation of audit
       resources to a risk assessed plan and introducing a structured method of
       constantly updating the plan based upon audit findings and other
       circumstances arising will ensure that the systems where a material risk
       could arise or weaknesses are more probable are targeted. This will ensure
       that any loss is minimised.

3.50   Managers see staff as a valuable resource in ensuring that corporate
       priorities are met. A staff development programme linked to the provision of
       resources to meet training needs is in operation showing management‟s
       commitment to audit staff. The staff survey produced an action plan of
       changes\improvements that staff feel would improve both the service offered
       to clients and staff skills\experience etc. Managers are currently considering
       the action plan and meetings have been arranged with staff to discuss their
       response etc.

       Service Hypotheses
       How can the service contribute to the maximisation of funding to help
       achieve the corporate aims of the Council?
3.51   Whilst not directly contributing to the identification and maximisation of
       funding, Internal Audit have an important role to play in assessing the
       systems in place for ensuring that all income / funding due is collected and
       accounted for within desired timescales. In addition where funding is reliant
       upon the production of returns / documentation setting out how agreed
       targets have been achieved Internal Audit can contribute by ensuring that
       systems are in place for recording and reporting outcomes and that claims
       for funding are made on time, are accurate and complete.




                                               52
3.52   Internal Audit already has an auditor dedicated to looking at the controls in
       place governing SRB schemes. This work is ensuring that the above
       requirements in relation to recording and reporting outcomes and ensuring
       claims are completed by specified deadlines are being met. A structured
       programme of visits is being produced based upon a number of criteria
       including cost and Council officer involvement in the projects. This will ensure
       that coverage concentrates on the more important schemes generating /
       managing the higher levels of funding.

3.53   Internal Audit‟s expertise in value for money and performance review can be
       utilised to measure the performance of systems by which the Council identify
       and bid for additional funding either from Government, Europe or
       independent bodies such as the lottery commissioners. Improvements
       identified could lead to increases in funding etc. Such areas need to be
       recognised in the audit risk assessed plan and resources allocated.
       How can the skills, knowledge, expertise and potential of staff be better
       harnessed to provide a continuously improving service?
3.54   The annual staff survey conducted recently by District Audit identified issues
       with the way the current service is structured. The current 2 team structure
       ensures that staff are segregated and cover work within the remit of their
       team (corporate or Directorate systems). This can preclude staff from
       enhancing their experience in types of audit work such as fraud or
       establishments whilst also preventing audit staff gaining an insight into how
       the City operates both at a corporate level, and within different Directorates.
       Managers have taken account of staff concerns and have identified changes
       and the 2-team structure is currently being reviewed.

3.55   The expertise, experience and skill of staff on PO grades will be utilised to
       provide a better service to clients and help raise the profile of audit. Each
       Principal Officer is to be given a Directorate and a selection of corporate
       systems for which they will provide a contact point for clients. It is anticipated
       that closer liaison in this way will allow Internal Audit to aid Directorates in
       identifying risk areas in their own processes, and hence make the audit plan
       more focussed on areas of concern to management and the organisation. In
       time each officer will become an expert in their area of responsibility, forging
       links with clients that will hopefully ensure a more harmonious working
       relationship in which clients can feel confident in asking for advice and help.




                                               53
3.56   Increasing numbers of audit staff are now undertaking formal training that is
       both accountancy and audited accredited. Currently 2 staff are in their
       second year and one in the final year of the Association of Accounting
       Technicians course and 2 staff are undertaking the Institute of Internal
       Auditors. A further 2 members of staff are in the process or would like to start
       a formal training programme. In addition 2 members of staff have been
       through the NEBS management training structure and are qualified to
       certificate stage, a third member of staff is undertaking the introductory
       course. A number of ad hoc training courses have also been arranged to
       deal with gaps in the skills of audit staff. For example, 4 audit staff have
       attended a risk management course.
3.57   A more structure approach to formal and in-house training needs to be
       developed to ensure that resources are targeted effectively. The aim is to
       ensure that all audit staff receive the required training to allow them to
       function efficiently. This has been recognised by managers and a process
       that centres on staff development is in operation, backed by a common
       approach to identifying and implementing a formal training structure.
       Management have recognised this and have established a training focus
       group to help deliver such a structured approach to training.




                                              54
4.      TECHNICAL SERVICES
4.1     Housing Benefit and Fraud
4.1.1   The Housing Benefit and Fraud Team comprises 15 fte staff and is estimated
        to cost £342k in 2000/2001. The service deals with fraud referrals from
        Housing Benefit and Council Tax Benefit staff as well as undertaking data
        matching exercises against other Council systems such as payroll etc. and
        other agency systems such as those operated by the DSS, working closely
        with Internal Audit and the police. In addition the service is becoming more
        involved in claimant clarification work such as pre-award visits and in claim
        residency visits.
4.1.2   The Benefit Fraud Inspectorate inspected the service in 2000. The report on
        the whole Housing benefit service was positive. The inspectors reported that
        major improvements had been implemented since the last inspection in
        1997.
4.1.3   As the section is only a small percentage of the total cost of the service,
        comparative information about the cost of Housing Benefit Fraud is lacking
        and the service was going through an inspection it was decided to defer the
        detailed analysis needed under the best value review until after the
        inspection was complete and when benchmarking data becomes available.
        It is proposed that a cost benchmarking exercise be carried out by 31 March
        2002.
4.1.4   The results of the inspection identified major improvements in the system
        from the last inspection in 1997. In particular: -
         Better management of the workload;
         Improved liaison and communication with private landlords and housing
          associations;
         Security improvements in respect of payments (e.g. crossed cheques
          etc.);
         Limiting benefit periods of transient claimants and undertaking
          prepayment visits;
         Good recovery of overpayments due to overpayments being properly
          identified and effectively controlled;
         Improvements in the standard of fraud investigations due to improved
          guidance notes, training, management of workload and improvements in
          documentation and case management;
         Increased internal audit involvement based upon a risk assessment of
          the work required; and
         Joint protocol with District Audit to avoid duplication of work ensuring
          effective use of resources available.




                                               55
4.1.5   Despite the above improvements the inspection identified aspects of the
        work that require further attention as follows: -
         There is a tendency to visit claimants before clerical checks have been
          completed;
         No clear programme of proactive work exists; and
         Inspectors under Section 110A of SSA 1992 have yet to be appointed.

4.2     Treasury Management

        Background

4.2.1   This review covered three key treasury management activities -
         borrowing arrangements, involving short term borrowing to fund day to
          day cash flow deficits and medium and long term borrowing to fund
          capital investment and the management of the Council's debt portfolio;
         investment arrangements, involving the short term investment of cash
          flow surpluses and the medium term investment of the Council's reserves
          and balances; and
         leasing arrangements for the funding of equipment, vehicles and
          movable plant, (but not the leasing of land and buildings).

4.2.2   The treasury management function is undertaken in accordance with the
        duty of ensuring the proper administration of the Council's affairs (Section
        151 of the local Government Act 1972) and specific borrowing and
        investment powers contained in the Local Government and Housing Act
        1989. Relevant codes of practice and professional standards include the
        CIPFA code of practice on Treasury Management in local Government and
        the CIPFA Standard of Professional Practice on Treasury Management.

4.2.3   The function is carried out by a small team of 3.1 fte staff within the Finance
        Division of the Strategic Support Directorate, reporting through a principal
        accountant to the Head of Finance. The in-house team receive external
        professional advice on borrowing and investing from a firm of brokers
        (Butlers), who were appointed after a competitive tendering exercise. An
        external fund manager (Investec Asset Management) manages part of the
        Investment portfolio (£12m).

4.2.4   The overall objective of treasury management is to minimise the cost of the
        Council's borrowing and maximise the return from its investment of cash. In
        both cases this should be consistent with statutory constraints, minimising
        the risk the Council is exposed to and not achieving short-term gain at the
        expense of longer-term costs. The achievement of Best Value is dependent
        on managers responding appropriately to market conditions, having regard
        to potential and actual past movements in interest rates. The manager does
        not have a free hand but will be constrained by the state of the market and


                                               56
        also by the pre-existing portfolio of debt and investments.

4.2.5   The cost of the function at £146,000 is relatively small and insignificant in
        comparison to the scale of the financial transactions undertaken. While the
        costs of the function have been examined the main focus of the review must
        be to ensure that best value is achieved in respect of the borrowing,
        investment and leasing transactions that are carried out.

4.2.6   Key Statistics in respect of the Function are set out below

        Table 7: Treasury Management Indicators
         ACTIVITY           INDICATOR                                          VALUE
         Borrowing     External Debt outstanding @ 31.3.00                    £444.9m
                       Number of loans @ 31.3.00                                    212
                       Value of loans taken in 1999/00                        £136.4m
                       Number of loans taken in 1999/00                              60
                       Number of loan repayments in 1999/00                          82
                       Value of loan repayments in 1999/00                    £118.3m
                       Value of Interest Payments in 1999/00                    £39.1m
                       Average Rate of Interest for 1999/00                      8.98%
         Investments   Number of investments placed in 1999/00                      404
                       Value of investments placed in 1999/00                 £897.6m
                       Cash invested @ 31.3.00                                  £64.7m
                       Average daily cash invested in 1999/00                   £64.3m
                       Average Interest rate on Investments 1999/00              5.44%
         Leasing       Value of assets leased in 1999/00                         £5.4m
                       Number of current lease agreements @ 31.3.01                  46
                       Number of assets on leasing database @ 31.3.00             5,116
4.2.7   Work was carried out by the Head of Finance, supported by the other
        members of the treasury management team. The service was examined in
        relation to the four C's. The results are set out below.
        Consult

4.2.8   Identification of the service's customers\stakeholders was not clear-cut.
        Service provision is the responsibility of the Head of Finance, who annually
        reports a proposed strategy and subsequently outturn details to the Cabinet.
        Apart from the direct impact on the Housing Revenue Account and housing
        subsidy calculations, the regular interface with other service providers is
        very limited in respect of borrowing and investment (because their use of
        capital assets is charged for via an asset rental and is not directly related to
        the costs of funding borrowing). A more direct relationship exists with
        respect to the leasing of assets where services have to bear the actual cost

                                               57
of leasing agreements.




                         58
4.2.9    Key Service Managers were asked questions about the service received
         from the finance function and 22 managers responded to the section of the
         questionnaire that dealt with corporate financial management, which
         included treasury management. Scores ranged from 1=Excellent, 2=good,
         3=satisfactory, 4=poor, 5=very poor. The aggregate scores for the following
         questions were generally good (a score of around 2) -


         Table 8: Customer Satisfaction Survey Results for Treasury Management
                 Question                                                    Score
         a)      Speed of response to telephone queries                      2.00
         b)      Speed of response to written correspondence                 1.94
         c)      Speed of response to electronic communication               2.05
         d)      Level of support provided                                   2.10
         e)      Range of skill/services on offer within the team            2.00
         f)      Competence/ability of staff                                 1.95
         g)      Helpfulness of staff                                        1.82
         h)      Level of communication (how informed you felt)              2.24


           Compare

4.2.10     Comparison of performance was undertaken with the Core Cities.
           Questionnaires were drawn up and agreed between the various Authorities
           and the agreed data then collected and shared in respect of 1999/2000.
           The data collected is set out in the Appendix.
4.2.11     The Authority's in-house investment performance was compared to the
           LIBID 7 day rate and to that of its external investment manager who invests
           a portfolio (originally a £10m portfolio, which has now increased in value to
           £12m) on behalf of the City Council.
4.2.12     Wider information was more limited at the start of the review, the CIPFA
           Benchmarking arrangements did not cover Treasury Management, but a
           new club has now been formed for 2001. This will only focus on returns
           earned on Authorities' funds as opposed to the cost of the function and the
           cost of borrowing. Towards the end of the review period additional
           comparative information was made available by our District Auditor in
           respect of interest on investments and borrowing costs.

4.2.13     In terms of the running costs of the section there is limited comparative
           information on the cost for a wide range of Authorities. In a comparison of
           the costs of Treasury management for Core Cities Newcastle had the
           second lowest cost in cash terms, the lowest being Bristol. However,
           Newcastle is the smallest Core City and comparison of Debt Management
           Costs in relation to debt shows Newcastle to have the highest unit cost,
                                                59
           which is likely to reflects economies of scale of larger Council's.

4.2.14     In terms of Interest on Investments the following analysis shows that
           Newcastle return on investment for 1999/2000 of 5.44% was broadly in line
           with the average for Unitary Council's London Boroughs, Metropolitan
           Authorities that formed part of the database collected by District Audit.

         Chart 16: Average Interest Rate Earned on Investments 1999/2000


                                                  9                         Unitary
           Key ratio - Interest rate average on




                                                                            LB
                                                  8
                                                                            Met
                                                  7   Newcastle = 5.44%     Newcastle City Council
                     investments %




                                                  6
                                                  5
                                                  4
                                                  3
                                                  2
                                                  1
                                                  0
                                                               Rank order




4.2.15     In terms of the average rate of interest on borrowing, the Council's pool
           rate Interest of 8.98% in 1999/2000 was high, well into the upper quartile of
           interest rates for Metropolitan Authorities. The Council's high pooled
           interest rate reflect historical policy decisions to reduce potential risk of
           fluctuating interest rates by having a relatively flat long term maturity profile
           of fixed interest debt. The Council has been actively managing its debt
           portfolio with regular external advice from Butlers and new debt over the
           last 3 years has been secured at very low market rates. A report on the
           current level of the rate of interest on debt, and actions that have and could
           be taken to reduce it will be prepared for Cabinet in October 2001.

           Compete

4.2.16     The function is provided by a combination of in-house staff and external
           treasury management advice, external fund management and leasing
           funding contracts also subject to competitive tendering. The external annual
           Brokerage fee amounted to approximately £16,200 in 2000/01. The contract
           was won by Butlers following a competitive tendering exercise. The contract
           is due for renewal later this year and a new competitive tendering exercise
           will begin shortly. The external fund management arrangement was also
           subject to competitive tender and was won by Investec Asset Management
           in 1998. Given the performance of the external investment manager it is
           proposed to increase the level of externally managed funds to £20m.




                                                          60
4.2.17   It was noted that a small number of Authorities (4) had outsourced part of
         treasury management as part of a wider outsourcing of finance functions.
         Others following that route had not included the treasury management
         functions and no examples of externalising in isolation had been identified.
         Even where the service had been outsourced it was a core strategic function
         of the Council and there was a need for a strong client role.

4.2.18   The existing combination of external arrangements and a small in-house
         team appears to be working well and will be continued and extended as
         highlighted in section 4.2.15 above.

         Challenge

4.2.19   It was established that there was no option but to provide a treasury
         management function. The Council has some £440m of existing long term
         debt, which it has to manage actively. The day-to-day financial transactions
         of the Council inevitably result in a mismatch of payments and receipts on a
         daily basis, which require short term borrowing or investment to fulfil the
         Chief Finance Officer's Section 151 responsibilities. Without treasury
         management the Council simply could not function. Proactive management
         of both short and long term cash flow, and of the associated borrowing and
         investment of funds, is essential to ensure unnecessary costs are not
         incurred.

4.2.20   The current partnership arrangement is seen to offer a way of accessing
         market intelligence and specialist expertise in a cost-effective manner (the
         current annual contract is £16K-£18k per annum). This also provides the
         Head of Finance with a form of insurance in an area beset by potential risk
         and consequently potentially huge financial costs. On balance the current
         status quo was agreed to be the optimum approach, with the potential for
         some extension in the amount of investments place with external fund
         managers from £12m-£20m.

4.2.21   A key issue to be considered is the high pool rate of interest on the Council's
         borrowings. This should not be used as a simple indicator of the
         effectiveness of the function as it reflects a number of factors, particular past
         decisions about the balance of risk and the maturity profile of fixed interest
         debt. Over the last three years new borrowings have been secured at
         relatively low interest rates and significant revenue savings have been
         secured through debt restructuring - annual savings of over £250,000 were
         secured in 2000/01.




                                               61
4.3     Insurance

4.3.1   The Insurance Section consists of 8.2 fte with a gross cost of £207k. There
        is no net cost to the service as costs are borne in the main from
        contributions made from the insurance fund of the Council. In addition a
        further £68k is included in the services identified by Community and Housing
        for dealing with insurance claims within that Directorate.

4.3.2   Given the relative size of the section and the fact that comparative data did
        not seem to be readily available in a structured format to allow comparison it
        was deemed appropriate to undertake a separate review in subsequent
        years, especially as the section has recently been subject to a staffing
        review.

4.3.3   The review needs to take account of staff in other Directorates that
        undertake Insurance work (see above for example). Improvements identified
        for the Insurance Section may not generate savings for that Section but for
        the Authority as a whole. For example, rationalisation of insurance
        processes with Cityworks has resulted in the Section now contacting the
        trading divisions directly and not through an insurance officer employed by
        Cityworks thereby increasing productivity.

4.3.4   The Section has over recent years identified work done externally that could
        be done in-house making use of employee‟s experience and skills. In this
        way small property damage claims are now undertaken in-house. This has
        produced an estimated saving of £50,000 in fees.




                                             62
5.    SUSTAINABILITY

5.1   In line with other first year best value reviews the Finance review liased
      closely with the LA 21 officer to draw up our response to sustainability
      issues. Common issues requiring a corporate response identified by the
      review will be reported separately by the LA 21 Team Leader.

5.2   The review did identify a number of environmental improvements that could
      be achieved solely by the efforts of the Finance Division as follows (see
      Improvement Plan for full detail): -
       Substitute items with low energy equivalents when replacement is due;
       Establish a system to pass old IT equipment to community groups;
       Develop recycling policies with the aim of recycling 100% of waste paper;
       Develop Division wide policy of only purchasing recycled items;
       Examine the feasibility of providing electric or LPG vehicles for staff to
        use when undertaking duties away from the Civic Centre, by acquiring
        one vehicle for a 12 month pilot exercise;
       Use Council facilities to hold meetings seminars not external venues
        requiring longer distance travel. Make staff aware of the facilities on offer;
       Establish the feasibility of teleworking and home working initiatives;
       At a strategic level, review capital project appraisals to build in
        sustainability clause(s) re capital projects that must be satisfied before
        project starts\is let and seek to make capital funding available to fund
        energy efficient initiatives;
       Request that services provided by Cityworks re accommodation are
        energy efficient and ask for proof that such water and energy reduction
        schemes as determined by the LA 21\corporate sustainability policies
        have been adopted;
       Duplex printers set to double sided printing as default unless single sided
        prints are specifically needed;
       Staff training to raise awareness of sustainability policies as advocated by
        EMAS such as using e-mail for communicating\sending reports, making
        use of used paper to print draft copies of documents etc;
       Training for auditors so that they can look at such issues as part of audit
        work;
       Realign FAMIS and POPs to ensure that only relevant information is
        produced e.g. deletes from print zero lines; and
       Introduce a for sale page in Citylife to advertise redundant but useable
        equipment.

5.3   The improvements outlined above have been discussed with the LA 21 Team

                                             63
Leader and have been incorporated into the corporate sustainability report.




                                      64
6.    EQUAL OPPORTUNITIES

6.1   Finance Division as part of the Strategic Support Directorate is signed up to
      level 2 of the CRE standard. The review considered the Finance Division‟s
      current position against the targets outlined by that standard and identified
      action required to deal with weaknesses. In addition information was
      produced by other Directorates involved in the review and fed into the
      proforma action plan (see attached action plan for the detail).

6.2   In the main the Finance Review meets most of the requirements of the action
      plan. The issues arising where corrective action is required are as follows:-
       Clearer directorate statement on the equal opportunity policy required;
       Need to update the equality action plans for new legislation etc;
       Ensure that the Equal Opportunities working group is representative and
        priorities are appropriate and effective;
       Monitoring systems need to be revised to capture a more comprehensive
        level of data to demonstrate changes in trends, and identify problem
        areas;
       Whilst information taken from HR recruitment monitoring is reported,
        consultations etc. the consultation process needs to be embedded as a
        fundamental part of the process on equal opportunities;
       Targets on equal opportunities have been agreed and are reviewed
        annually but the performance against the targets must feed into the
        planning process for the Divisional\Directorate service plans;
       Staff will by the end of the 2000/2001 financial year have received an
        equality awareness briefing. However, such training must stand alone and
        not be subsumed into other modules such as customer care;
       There is a need to ensure that the Council‟s equal opportunity policy is
        effectively incorporated in service plans etc;
       Ensure that performance monitoring is reported to all relevant members
        not just cabinet or Corporate Affairs Select Committee;
       Benchmarking processes to measure performance need to be identified
        and considered;
       Service plans should take account of community involvement plans;
       Family friendly policies need to be progressed and integrated into
        personnel practices and procedures;
       Networks and support groups to be established; bullying and harassment
        policy etc. to be built into the corporate induction scheme, the above to be
        updated in light of the Stephen Lawrence enquiry;
       Staff development scheme currently being introduced to incorporate
        equal opportunity principles;

                                            65
       A survey of the Civic Centre is progressing to identify issues (e.g. access)
        to ensure a fair, non-discriminatory working environment exists; this
        review needs to be extended to outlying offices of the Council in which
        staff affected by the review work; and
       Use Internet to advertise the basic provisions of equal opportunity
        legislation.

6.3   Many of the issues above will be dealt with as corporate policy but will impact
      upon the Finance review as they feed into the planning process and may
      impact upon resources and the way in which services are provided to clients.
      For example, family friendly policies and teleworking will produce changes in
      working practices and could impact upon the way in which staff communicate
      / deal with customers.




                                            66
7.    SUMMARY OF KEY CONCLUSIONS AND RECOMMENDATIONS

      ACCOUNTANCY

7.1   Accountancy provides a devolved service with staff located in service
      departments to be close to the service providers. This devolved service is
      something that customers see as having significant service benefits and
      Directors see this as essential. It is proposed to continue the devolved
      service, although some specialisation to increase efficiency and
      effectiveness is being explored (for example in the area of capital programme
      monitoring and funding arrangements for major projects).

7.2   Finance staff are employed either directly by the Finance Division in Strategic
      Support, by client departments or usually a combination of both. This non
      standard service delivery developed over time to take advantage of
      opportunities to make cost efficiency savings and achieve a devolved
      service. Each director preferred his or her existing method of service
      delivery. There is a need to harmonise pay grades, policies and practices,
      ensure effective co-ordination and adopt common reporting and
      accountability arrangements to the Chief Finance Officer and
      recommendations are made to address these issues. However, the case for
      a major restructuring of the service was not strong and was this was not
      considered to be a priority at this time.

7.3   Basic cost comparisons show accountancy slightly above average (+3.6%),
      as does economy of scale comparisons. This is partly due to the devolved
      rather than centralised nature of the service and also to the above average
      cost of budget preparation and monitoring. While budget preparation and
      monitoring is considered a priority by customers, opportunities for service
      improvements and increased cost effectiveness by making better use of
      technology and streamlining processes have been identified and included in
      local improvement plans.




                                            67
7.4   On the basis of the views of stakeholders and evidence of performance,
      the quality and standard of financial services is considered to be generally
      good. However there are opportunities to improve the quality of service
      provided including financial information and advice and to make efficiency
      and effectiveness savings over the next four years. The effectiveness of
      the service is to be improved by -
         Improving co-ordination of the financial service within Directorates;
         Streamlining processes and data handling, challenging activities that do
          not add value to the Council and introducing specialisation where
          appropriate;
         Increasing the proportion of qualified finance staff and additional
          finance training and development for finance staff and Service
          Managers;
         Making better use of information technology systems, for example by
          providing more financial information on line to managers.

7.5   The services makes a significant strategic contribution in areas such as
      resource allocation, developing new funding and procurement opportunities
      and policy priorities such as 'Going for Growth'. However, the service does
      need to increase its capacity to support a growing number of important
      strategic initiatives and to respond quickly and flexibly to provide financial
      support. Key recommendations for achieving this involve -
         Creating a core financial consultancy section within the Finance
          Division, which will involve restructuring the current service provision;
         Freeing up capacity of service principal accountants and senior finance
          staff working in Directorates; and
         Seeking a medium term (3-year) partnering arrangement with a leading
          accounting firm to fill gaps in technical expertise.

7.6   Newcastle has a below average proportion of qualified staff and a higher
      proportion of staff on lower grades (when compared to similar Authorities in
      the CIPDFA benchmarking survey). Increased effectiveness could be
      achieved by increasing the proportion of qualified staff and by additional
      training and development of finance staff.          Recommendations for
      improvement are set out in improvement plan and a budget of £120,000
      over the next three years has been set aside to help fund this.




                                              68
7.7    Financial accountability needed to be clarified and strengthened
       particularly the role of the Section 151 officer. The Section 151
       responsibility is to be transferred to the Head of Finance and -
          a stronger role given to the senior finance officer in each directorate,
          who will attend Directorate Management Teams;
          the principal accountants and a core staff in each Directorate being
          employed by the Head of Finance, (which will involve the transfer of
          some staff in Cityworks); and
          Better financial training and the enforcement of financial regulations.

7.8    Additional measures are needed to improve cash flow, income collection and
       income generation in partnership with Directorates and Exchequer Services.
       Recommendations to improve cash flow are set out in improvement plan 5.
       The Council is recommended to consider a more co-ordinated approach to
       the bidding for external funding, with finance staff working more closely with
       staff from other Directorates in either a virtual or a real bidding unit.

7.9    While the external market for accountancy services is limited, it is
       developing. Some services are now being included in outsourcing packages,
       particularly where major investment is needed in core accounting IT systems.
       However, given the strategic nature of the service, its current performance,
       the general satisfaction with the existing core accounting system, and the
       opportunity for improvement in the in-house service, Corporate Team agreed
       not proposed to carry out a full market testing exercise or to include the
       service in the council's proposed Information Technology and Transaction
       Related services strategic partnering arrangement. The service will however
       improve its competitiveness by reducing costs over the period.

7.10   Hourly rates for external high level financial consultancy advice are between
       three and five times higher than the rates for internal financial advice. It is
       proposed to reduce the net cost of specialist advice and support by the
       creation of the in-house consultancy section and by the partnering
       arrangement with a leading accountancy firm.

       AUDIT

7.11   The cost of internal audit is marginally below average (-6.3%) on simple cost
       comparisons used by CIPFA and when comparing against specific indicators
       Internal Audit was below average in all bar one. However, using a more
       refined analysis that attempts to take account of potential economies of
       scale, the cost of Internal Audit appear to be above average for an Authority
       with our size of budget.




                                              69
7.12   The CIPFA benchmarking results show that staffing levels are above
       average, yet cost per member of staff is below average and Newcastle has a
       higher than average percentage of unqualified staff. Productivity of audit staff
       is high which helps to produce a below average cost per productive hour.
       Internal Audit hourly rates are less than half the hourly rates of external audit.

7.13   Audit resources concentrate on traditional core business is particularly high
       for core financial systems due to the weaknesses of these systems. The
       provision of strategic advice and support is relatively low.

7.14   Clients that took part in a user survey rated the service provided as
       satisfactory or better.

7.15   While a more developed external market exists for internal audit than for
       accountancy services, Authorities that have externalised audit services have
       tended to do so for specific reasons - such procuring specialist audit
       resources that they do not have in-house, poor current performance, or
       smaller Authorities grouping together to provide a more effective service.

7.16   Newcastle is not proposing to subject the Internal Audit Service to
       competitive tender, because cost per productive audit hour is low and
       competitive, most specialist services, such as computer audit, can be
       provided in-house, performance is satisfactory/good, there is opportunity for
       improvement and core audit services are considered to be strategic.

7.17   The proposed partnering arrangement with an external accounting and
       auditing company will provide an opportunity to provide any specialised
       services that are not available in-house or which cannot be effectively
       provided in-house, to assist with training and knowledge transfer in these
       specialist areas. It will also provide a benchmark against which the
       competitiveness of the in-house service can be demonstrated.

7.18   There is a need to improve staff skills and to increase the proportion of
       professionally qualified staff within a structured staff development scheme.
       Additional training resources and the development of a structured training
       programme are recommended to help achieve this.
7.19   Internal audit has to redefine its role in relation to the risk management
       function, both in terms of promoting risk management as part of the culture of
       the organisation and including it within the work plan of the audit section.
7.20   New government initiatives, such as best value and e-government, are
       impacting upon the way in which Authorities operate. This is changing the
       focus and role of internal audit. The work plans of Internal Audit will be
       revised to take account of clients needs, bets value and other new initiatives,
       as well as the risks determined by a risk management approach.




                                               70
       TECHNICAL

       Housing Benefit and Fraud Team

7.21   An inspection in 2000 by the Benefit Fraud Inspectorate. The Council was
       given a good report by the inspectorate, which is a significant achievement.
       The Housing Benefit Service is proposed to be included in the Council's
       strategic partnering arrangement.     The inspectors concluded that the
       Housing Benefit and Fraud Team has made significant improvements since
       the previous inspection in 1997.

7.22   Given this ongoing inspection, the development of strategic partnering
       arrangements for the main service, and the lack of comparative data on
       costs, it was decided to defer a review of the cost of this function in 2002. At
       this stage the position of the main service should be clearer and more
       benchmarking data should be available.

       Treasury Management

7.23   The service is provided by a combination of in-house staff and external
       professional advice on borrowing and investing from a firm of brokers. In
       addition an external fund manager manages part of the investment portfolio
       amounting to £12 million. The contract for external brokering services is due
       to be re-tendered later this year and the level of investments managed
       externally is to be increased to £20m.

7.24   The number of service stakeholders is limited. Nevertheless key Service
       Managers surveyed stated the service provided ranged from satisfactory to
       good in a directorate customer survey.

7.25   Although comparative data is limited the information available points to unit
       costs even though in cash terms Newcastle is second lowest of the core
       cities. In terms of performance, treasury management performs in line with
       other Authorities (interest on investments). While the pooled interest rate on
       debt is well above average (in the upper quartile) this reflects historic
       decisions about reducing and spreading risk. New borrowing have been
       undertaken at competitive rates and last year the section more than achieved
       a medium term plan revenue budget saving of £250,000 through the
       implementation of debt restructuring proposals.

7.26   The service is necessary to manage the long-term debt of the Authority and
       to ensure sufficient funds are available to meet the short-term liabilities
       incurred. The potential saving in the running cost of this function are
       marginal and relatively low in comparison with potential net cost savings
       through effective and active management of debt and the investment of
       funds.




                                              71
       Insurance

7.27   The section completed a major staffing review in 2000, which considered the
       balance of work carried out in-house and externally. The workload was
       rationalised with more work being undertaken in-house producing a net
       financial saving of £50,000. Significant further improvements in terms of a
       major investment in new technology and systems‟ improvements are being
       implemented. This together with the paupacy of reliable comparative data
       has resulted in a decision to defer a more detailed benchmarking exercise on
       the cost of insurance until reliable benchmarking data can be developed.

7.28   An improvement plan has been developed which focuses on the
       improvement of risk management and asset management arrangements
       within the Council by introducing greater incentives to Directorates to reduce
       risk and provide support for better asset management initiatives.

       Strategic Direction and Securing Performance Improvement

7.29   Greater co-ordination of senior finance staff within the Authority will be
       achieved through the establishment of a Chief Finance Officer group to focus
       specifically at strategic financial issues. This group will complement and work
       closely with other strategic groups such as the capital advisory group and will
       be supported by the key officers involved in implementing the proposals in
       the service improvement plan.

7.30   Additional resources are needed to help secure effective performance
       management and to deliver the improvements set out in the Service
       Improvement Plans.     These will be found by dedicated performance
       management resources to support the finance management team and assist
       the Chief Finance Officer Group over the next 12 months, drawing on the
       new resources business support resources being developed within strategic
       support and using resources from the balance on the finance services trading
       account to fund a dedicated resource within the new Financial Consultancy
       Section.

7.31   Savings have been identified to secure the medium term plan financial target
       set for the service in the 2001/02 budget. Provisional opportunities for
       efficiency improvements in future years are being developed to secure a
       minimum 2.25& annual effectiveness target and to contribute to medium term
       financial savings targets of around £400,000 over he next four years.
       Resources have also been secured to fund a £60,000 increase in direct
       training costs over the next three years, to extend the current temporary
       contract of the training officer, to fund additional performance management
       support over the next 18 months and to fund the ongoing investment in new
       equipment.




                                             72
            FINANCE SERVICES BEST VALUE REVIEW
             PART 3: SERVICE IMPROVEMENT PLANS



8     Introduction

8.1   This part of the report sets out the proposed Service Improvement Plans in
      more detail.

8.2   The format for the service plans is based on the standard layout provided by
      the Best Value Unit.

8.3   The Finance Service has not national performance targets, so all of the
      improvements plans are local targets.

8.4   A background to the improvement plans provided for the accountancy
      service plans is set out in section 9 below.

8.5   Section 10 outlines the approach that will be adopted to help secure the
      performance improvement targets.

8.6   Section 11 sets out the following detailed Service Improvement Plans -

      Service Improvement Plans


      1        Developing Strategic Finance
      2        Budget Monitoring (Revenue)
      3        Budget Monitoring (Capital)
      4        Cash Flow
      5        Use of IT for Systems and Service Improvement
      6        Internal Charging
      7        Services to Schools and Education
      8        Management and Monitoring Process
      9        Training and Development including a Training Matrix
      10       Treasury Management
      11       Audit – Training
      12       Audit – Future Work
      13       Audit – Partnerships
      14       Audit – Increasing Qualified Staff
      15       Audit – Risk Management
      16       Audit – Systems‟ Documentation
      17       Internal Audit – Follow-Up of Recommendations
      18       Equal Opportunities
      19       Sustainability



                                           73
       Accountancy Service Improvement Plan
       The bench marking material and site visits have demonstrated that the
8.7
       current service is delivered at a high level in terms of volume. An area
       which the review team has therefore focused on is to:

        examine what processes are being used;

        examine the use of technology; and

        examine the level of service provided.

8.8    An element of the service improvement plan covering these issues has been
       drawn up which:

        builds upon existing improvements to processes.

        reflects the change agenda which the Authority has adopted in relation to
         modernisation of services, moving forward from the CCT era and
         developing E-commerce;

        reflects the comments made by corporate team when they considered the
         initial findings of the review relevant to this section namely:-

        a fundamental look at roles and relationships – managers need to become
         financial managers and accountants need to become strategic advisers;

          consideration of bringing more expertise in-house and growing the
           business than using external experts.

        reflects the vision the Authority has adopted in terms of its financial
         systems (review of Financial Systems to Corporate Team September
         1998). This review recommended to replace key core financial systems
         with an integrated suite of systems.

8.9    The Authority had already replaced its ledger in 1996/97 with a state of the
       art relational database using QSP‟s universal OLAS. This was a major
       investment. In addition to this however the Authority still maintains a
       separate ledger for Building Services and Environmental Services, areas of
       Cityworks.

8.10   The review identified the need to work towards moving to one ledger,
       adopt up to date functionality, document imaging workflow, etc. The
       intention behind the strategy was to provide the catalyst for potential
       business re-engineering and cultural change over and above purely
       functional benefits. The action plan must also reflect the results of the
       consultation process.




                                             74
9.    Recent Improvements

9.1   Over the past 2 years the service has developed a number of initiatives to
      improve the processing of some of the basic core accounting functions of the
      service. These have majored on the following

      Utilisation of Improved Technology

       The compilation of the Authority‟s budget, the final accounts and all the
        statutory forms which hang off these core functions are a considerable
        workload for the service.

9.2   Since 1999 the way in which the data is collated and summarised has been
      improved. The aim of the improvements has been to ensure that
       Data remains balanced
       Is as far as possible input once only
       Is consistent for all purposes
       Is self checking
       Minimises the need for re-analysis
9.3   The technological platform provided by a dedicated fileserver has provided
      Accountancy the opportunity to better co-ordinate and integrate budget
      information provided by decentralised teams. For the City budget this
      process began in 1999-2000 and has developed since. For the 2001/2002
      budget round the spreadsheets common to all teams, once completed will
      produce Directorate and citywide financial summaries the RA (estimate)
      returns required by DETR, and the financial information required by the
      BVPP. Because data is entered only once on a form serving a number of
      different purposes there is greater internal consistency in the financial
      information and duplicate effort is minimised.


9.4   A parallel process has also occurred with regard to the production of the
      Annual Report and the completion of the RO forms. For the year ended 31
      March 2000 these two processes were fully integrated.
      Before the commencement of each major process the documentation and
9.5
      working instructions are discussed at a focus group of staff and then
      individual teams also meet separately with the co-ordinator.
9.6   Use of Staff Focus Groups
      Since 1999 staff focus groups have been operating covering the following
      major work areas
       Closure of accounts
       budget preparation
       capital
9.7   These groups meet generally on a weekly basis and include whichever staff
      are appropriate to the subject matter. Staff from both strategic support and
      the service Directorates attend. As the aim of the meeting is to agree
      timetables monitor progress and chase up outstanding issues staff from all
      levels attend these meetings.

                                         75
9.8   Improvements to Financial Systems
      Since implementation the City's General Ledger has been developed. Most
      recent developments include:
      Modifications:
       Period 13: we can now produce transaction enquiries for an entire year
        instead of having to produce enquiries for periods 1 to 12 and then
        separately identify the closedown period (period 13).


      Drill down on Analysis Code:            whereas previously we were only
                                              able to drill down on the analysis
                                              code element of the code structure
                                              using a separate enquiry (which
                                              produced totally different results to
                                              the standard transaction enquiry),
                                              we can now use the normal enquiry
                                              route to produce the same results
                                              so making the enquiries more
                                              consistent.



      Combined Standard Journal Entry Screen:       this removes the need to
                                                    move between two screens
                                                    when inputting journals so
                                                    makes the screens more user
                                                    friendly and speeds up the
                                                    process.                Other
                                                    improvements to this screen
                                                    include the use of buttons to
                                                    make the input of manual
                                                    commitments easier once
                                                    they go on-line.



      Validation on Standard Journals:        prior to this modification we had no
                                              way of forcing users to complete the
                                              department or the week number
                                              when inputting journals.       These
                                              fields are now mandatory and the
                                              validation behind them ensures they
                                              are in the correct format.

9.9   New Functionality:

      The following has been developed and now needs to be rolled out for
      implementation.

      Web User Interface (WUI): moving as many users as possible onto the WUI
      will as well as improving access, reduce the overhead of upgrades and
      maintenance. External offices requiring access to the General Ledger used
      to have to make significant improvements to their telephone access to the

                                         76
       Civic Centre network in order to get access to FAMIS. With the WUI this is
       no longer necessary and means that more budget managers (including
       schools) can have direct access to the system if required.

9.10   Manual Commitments:       A facility whereby commitments can be raised for
       areas that are not covered by the POP system, such as income. We can
       now raise manual commitments on-line using the standard data entry
       screens.

9.11   Document Imaging: A by product of the microfiche production of the creditors
       invoices means that we can have an electronic copy of all invoices paid. The
       intention is to publish these images on the intranet, which will make retrieval
       of these images a lot easier.

9.12   The implementation of POPS and the purchase ledger will also have a
       significant impact on the accountancy Function. This will necessitate a
       complete review of budget monitoring procedures.

9.13   The main impact arises from the full automatic creation of and reversal of
       commitments and at the year-end the automatic generation of sundry
       creditors.

9.14   Movement towards one General Ledger

       From April 2000 the non-costing areas of Cityworks activities have
       transferred onto FAMIS. This has led to a reduction in double handling and
       duplication as follows. (Job costing functions relating to Building Services
       and Environmental Services remain on FMS).

          Reduction of double handling of Sundry Income transactions

           Pre transfer – Sundry income credited to FAMIS control account.
           Postings checked to ensure amounts had been punched correctly and
           VAT had been accounted for correctly. FMS Sundry Income documents
           punched into FMS. Postings checked to ensure correct amounts had
           been punched to correct code and VAT had been accounted for correctly.
           Ongoing/year end reconciliation required of FAMIS/FMS control accounts.

       Post transfer – Sundry income credited to FAMIS cost centre/subjective from
       deposit slip (via Sundry Income system). Postings checked to ensure correct
       amounts have been punched to correct cost centre/subjective and VAT has
       been accounted for correctly.       No requirement for ongoing/year end
       reconciliation of FAMIS/FMS control accounts.

          Reduction of double handling of Petty Cash transactions

           Similar to Sundry Income in that items were posted to a FAMIS control
           account and then allocated and reconciled into FMS. Items are now
           allocated directly to FAMIS cost centre subjective by creditors system and
           postings checked to ensure correct amounts have been allocated to
           correct cost centre/subjective and VAT has been accounted for correctly.

          Reduction of double handling of charges to Cityworks by other
           Directorates

           There has been a significant reduction in the amount of transactions
                                           77
           posted to FAMIS control accounts that were then allocated into FMS.
           However, in some cases there will be ongoing work required to inform
           Directorates that the control account should now not be used, or amend
           Feeder Systems

          Reduction in the use of Cityworks Charge Documents

           The move between systems has eliminated the need to use Charge
           Documents as a method of charging for service provided by Cityworks in
           all areas apart from transport charges (including fuel) and issues from
           City Supplies.

           Pre transfer – Source documents for charging were prepared, in come
           cases by staff in Business Management, and passed onto Cityworks
           Income Section to raise the Charge Document. Following input into the
           system a paper copy of the Charge Document was forwarded to the
           receiving Directorate and 21 days elapsed before the charge was
           processed into the receiving Directorates accounts.

           Post transfer – Charges are processed via Authorising Journal (or in
           some cases with the Directorate agreement Standard Journal). The
           person preparing the charging information in Business Management
           inputs the transfer into FAMIS. By using Journals the number of paper
           copies produced by Cityworks has significantly reduced (sustainability)
           and receiving Directorates are able to accept the charge into their
           accounts more quickly (potential improvement to cash flow if charge
           forms part of grant funded scheme).

          Improvements to payroll information by increased use of PCI facility to
           correct payroll error coding and changes to way payroll is costed,
           especially around Caretakers lettings.

           Pre transfer – All payroll transactions were passed to FMS and payments
           for Caretaker lettings were posted to a control account in FMS and
           transferred to Education and Libraries Directorate via Cityworks Charge
           Document.

           Post transfer – With the agreement of Education and Libraries Directorate
           letting payments will be coded on the pre-list to the appropriate Education
           and Libraries Directorate facility cost centre. The facility will therefore
           receive the charge when it is made to the Caretaker instead of having to
           wait until the Charge Document is raised and processed.

          Increased use of downloading facility available in FAMIS to reduce the
           need for re-keying of information and reliance on print-outs (reduction in
           the number of print outs).

9.15   Other Improvements to Internal Charging Methods

          School Meals – With the agreement of the Education and Libraries
           Directorate the payment for free school meals served is made to
           Cityworks by the Education and Libraries Directorate based on
           calculations carried out by them. This is instead of Education and
           Libraries providing the number of free meals served to Cityworks,
           Cityworks calculating the value of the free meals served and then

                                            78
           requesting payment from Education and Libraries.

          Highways works – The payment of valuations has been streamlined as
           follows:

           Old method – Valuation agreed/certified by member of staff within
           Engineering Services. Payment made to FAMIS Cityworks Income
           account by member of Business Management staff responsible for
           Engineering Service Accounts. Control account then cleared and income
           allocated to contractors job by member of Business Management staff
           responsible for Highways accounts.

           New method – Valuation agreed/certified my member of staff within
           Engineering Services. Payment made to FAMIS Cityworks Income
           account and control account cleared and income allocated to contractors
           job by member of Business Management staff responsible for Highways
           accounts.

10     Performance Improvement

10.1   As the service will continue to be provided by staff from different Directorates
       and also as the service has to respond to its needs of internal customers,
       improvements can only be achieved through co-operation and consensus. In
       order to facilitate this it is proposed that the Service Improvement Plan is
       delivered through a number of levels:-

        developing and agreeing a Protocol for Section 151 responsibilities;

        the establishment of a Chief Finance Officer Group;

        the establishment of Working Groups at a lower level to agree and
         implement the detailed proposals;

        the development of a training policy and training programme throughout
         the service;

        the establishment of dedicated resources, initially for an 18 month period
         to support the management team and the Chief Finance Officer Group to
         improve performance measurement and management and to monitor and
         assist with the implementation of the Service Improvement Plan. It is
         proposed that this take the form of dedicated resources within the
         Financial Consultancy Team, Business Management and the use of new
         business support resources being established within the Strategic
         Support Directorate; and

        the earmarking of financial resources to fund training, performance
         improvement and other investment needs. Specific funding has for
         example been made available from the Financial Services Trading
         account balances to fund training and development needs over the next
         three years and the investment in equipment. Further funding is available
         through the Directorates and the Council's invest to save initiative
         budgets.




                                            79
80
PART 3 SECTION 9 DETAILED SERVICE IMPROVEMENT PLANS

     SERVICE IMPROVEMENT PLAN
     Local Improvement Target 1 : Developing Strategic Finance

Improvement Target               To increase the provision of Strategic Financial Advice

Rationale                        Corporate Team and Service Users have identified a need for a greater emphasis on the provision of strategic
                                 financial advice.

Key Events                       Performance Target           Date     to    Date to be    Frequency   of   Resource            Responsibilities
                                                              commence       completed     Review           Implications
Establish a Core financial       Section Established          May 2001       Audit 2001    Annual           Staffing costs      Head of Finance
Consultancy Section within                                                                                  in the region of
Strategic Support Directorate                                                                               £90,000 to be
                                                                                                            met        partly
                                                                                                            from existing
                                                                                                            budgets      and
                                                                                                            partly      from
                                                                                                            charges        to
                                                                                                            major projects
                                                                                                            for     financial
                                                                                                            support.
Review workload of Principal     Additional time spent on     June 2001      October       Annual                               Chief Accountant
Accountants and teams to seek    financial   planning and                    2001
to free up time to be spent      financial advice
providing additional strategic
advice.
Enter into a partnership         Partnership    Agreement     June 2001      November      November         Cost of advice      Head of Finance
arrangement with a leading       entered into                                2001          2002     and     to be met from
accountancy firm to provide                                                                Annual           budgets     for
specialist financial advice                                                                                 projects.



                                                                                81
     SERVICE IMPROVEMENT PLAN
     Local Improvement Target 2 : Budget Monitoring (Revenue)

     Improvement Target               To reduce costs associated with budget monitoring (revenue and capital) and enable managers to manage their
                                      budgets more effectively

Rationale                       -   Benchmarking suggests this is an area of a high level of activity

                                -   Examination of processes has shown different practices within directorates

                                -   Corporate Team desire for mangers to manage budgets – survey identified Service Managers did not think they
                                    had sufficient training for the role.

Key Events                      Performance Target                Date   to    Date to be     Frequency of   Resource            Responsibilities
                                                                  commence     completed      Review         Implications
1. Establish            clear   Establish and agree protocols     March        June 2001      Annual         None                HOF
   responsibilities  between                                      2001                                                           Corporate Team
   section 151 officer(s) and
   Directorate DMT‟s
2. Review each Directorate‟s    To target and raise the           April 2001   June 2001      Annual         It is expected      CA and Directorate
   budget monitoring process    reporting levels of budget                                                   that    following   PA‟s & DMT‟s
   (phase 1)                    monitors      to    budget                                                   review resources
                                holders/managers                                                             will be released
                                                                                                             for

                                To target budget monitors and                                                new areas of
                                highlight larger/more volatile                                               work which have
                                area of budget                                                               been identified

                                Review and amend sub-code                                                    as priority e.g.
                                structure and replace the level                                              cash       flow,
                                between subjective „code; and                                                complying with

                                                                                82
                                 subjective            category                                          statutory
                                 description.                                                            deadlines
                                 Review the use of PCI and         See
                                 need to keep payroll records in   systems
                                 line with ledger                  improvemen
                                                                   ts

                                 Use BI query and BI Broker to
                                 develop exception reporting
                                 and reduce amount of paper.
3. Review of requirements        Agree protocols and budget        After full                 Annual                        CA
   for            commitment     areas    for    non-automatic     implementa                                               Directorate Teams
   accounting                    commitment accounting             tion of POP
4. Review        Directorate‟s   Development     of      Budget                  April 2002   Annual                        CA
   budget monitoring in light    monitoring matrix utilising the                                                            Directorate Teams
   of full implementation of     new technology
   POP‟s and WUI (Phase 2)
5. Training and facilitating     Devise training programme         October       Ongoing      Annual                        Directorate Teams
   budget holders to become      arising from the above
   financial managers
6. Review     frequency    of    See systems improvements
   internal charging
7. Review PC requirements        Equip budget holders with         July 2001     April 2002   Annual     To be built into   Directorate   PA‟s   &
                                 appropriate IT facilities e.g.                                          replacement        DMT‟s
                                 access to FAMIS                                                         programmes
8. Review      checking   and    - To identify any unnecessary     August        Sept 2001    3 yearly                      Directorate PA‟s
   reconciliation procedure –    checking procedures               2001
   all directorates




                                                                                  83
       SERVICE IMPROVEMENT PLAN

       Local Improvement Target 3 : Budget Monitoring (Capital)

Improvement Target                To reduce costs associated with budget monitoring.

Rationale                         -   Benchmarking suggests this is an area of a high level of activity

                                  -   Examination of processes has shown different practices within directorates

Key Events                        Performance Target                Date   to    Date to be   Frequency   Resource       Responsibilities
                                                                    commence     completed    of Review   Implications

1. Review financial regulations   Clarify         Roles        &    April 2001   June 2001    Annual      None           Head of Finance
   and approval process           Responsibilities


                                  Review remit       of   Capital   April 2001   June 2001    Annual      None           Head of Finance
                                  Advisory Group


                                  Revise financial regulations      Feb 2001     June 2001    Annual      None           Head of Finance
                                  for approving schemes.

                                  Revise   capital   procedures     Feb 2001     July 2001    Annual      None           Chief Accountant
                                  notes.


2.    Review effectiveness   of   Review procedures for the         March        July 2001    Annual      None           Chief Accountant
     capital programme            allocation of resources and       2001
                                  scheme approval




                                                                            84
                                      Introduce outcomes and/or       March        July 2001   Annual   None      Chief Accountant
                                      output measurement to the       2001
                                      capital programme approval
                                      process to ensure schemes
                                      support the delivery of CPPs

                                      Review   Project    Appraisal   March        July 2001   Annual   None      Chief Accountant
                                      mechanism                       2001

3.         Streamline      systems,   Complete feasibility study      July 2000    Sept 2001            £15,000   Chief Accountant
     reducing      duplication   of   into     a     comprehensive
     effort       and     balancing   corporate capital programme
     (flexibility with control)       monitoring system

                                      Introduce interim database      Dec 2000     March                None      Chief Accountant
                                      for monitoring of Capital                    2001
                                      programme.

                                      Develop    and     implement    Sept.2001    March       Annual   £?        Chief Accountant
                                      permanent solution to Capital                2002
                                      monitoring

                                      Review use of FAMIS coding      Aug 2001     Aug 2001    Annual   None      Chief Accountant
                                      structure as part of Phase 2
                                      review

                                      Review Capital Asset Register   Aug 2001     Oct 2001    Annual   ?         Chief Accountant

Establish Training Programme          Devise training programme       Sept. 2001   Dec 2001    Annual   £3,000    Chief Accountant
   for officers involved in           arising from the above
   capital programme




                                                                              85
                                 Review and republish         the   Sept 2001    Dec 2001     On going   £1,000   Chief Accountant
                                 Capital Manual.

                                 Implement             Training     Jan. 2002    On-going     On going   £2,000   Chief Accountant
                                 Programme

                                 Re introduce Capital Focus         Jan 2001     On going     On going   None     Chief Accountant
                                 Group

Improve Communication and        Ensure all practitioners have      March        Ongoing      On going   £?       Chief Accountant
  access to information in a     access to the appropriate          2001
  common format                  information          (including
                                 database)

                                 Approved Capital Programme         March        April 2001   On going   None     Chief Accountant
                                 to be posted onto Intranet         2001
                                 Site

                                 Annual capital timetable to be     April 2001   On-going     Annual     None     Chief Accountant
                                 produced.

Link to other best value review – Technical Services Review




                                                                            86
     SERVICE IMPROVEMENT PLAN
     Local Improvement Target 4 : Cash Flow

Improvement Target                To improve City‟s cash flow by giving priority to cash flow activities e.g. grant claims – recoverable accounts and
                                  debt.

Rationale
                                  To maximise funding to the authority.            Recent incidents have highlighted areas where income has not been
                                  effectively collected.

Key Events                        Performance Target             Date     to        Date to be   Frequency   of   Resource           Responsibilities
                                                                 commence           completed    Review           Implications
1. Clarify       roles     and    To ensure all elements of      May 2001           July 2001    Annual           Should improve     HoF to report to CT.
   relationships       between    the       process        for                                                    cash       flow.
   Accountancy,      Exchequer    identifying and collecting                                                      Increased
   Services     and     Service   debt are mapped with                                                            workload      in
   Directorate with regard to     responsibility allocated                                                        Service Teams
   Cash Flow.
2. Identify Resource with key     Development of PI‟s for        April 2001         Continual    Annual           Resource           HOF
   responsibility           for   cash flow.                                                                      already
   improvement of Cash flow                                                                                       identified
3. Implement revised Grant        -     Re-introduce     Grant   June 2001          Continual    Annual           Resources          CA and Directorate
   Claim      Register     and        Claim     Register   and   (1st Qtr)                                        already            Teams
   Procedures                         reporting     mechanism                                                     identified
                                      and PI‟s.
                                  -     Identify       named          “             Continual    Annual           None
                                      officers responsible in
                                      Directorate teams for
                                      Grant Claims.
                                                                      “             Continual    Annual
                                  -    Completion    of   all
                                       Grant Claims by due
                                       date
                                  -    Review procedures for     Commenced                       Annual
                                       Grant Claims with DA


                                                                              87
4. Identify areas of non-cash    Ensure all non-cash areas   July 2001         October      Every   two   CA
   income not included in        of income have adequate                       2001         years
   debtors systems               recovery procedures and                                                  Directorate Teams
                                 are recorded in the
                                 accounts

5. Develop      system      of   To provide incentives to    Dependent         April 2002                 HOF
   incentives/disincentives      prioritise cash flow        on
   for management of cash                                    completion
   flow                                                      of 1 above




                                                                          88
     SERVICE IMPROVEMENT PLAN
     Local Improvement Target 5 : Use of IT for Systems and Service Improvement

Improvement Target          Overall vision to provide and integrated suit of financial and management systems in one general ledger.

                            Adopt up to date functionality e.g. web enablement, electronic commerce, windows functionality, document imaging.
                            Provide catalyst of potential business re-engineering and cultural change

Rationale                   Reflects the vision the authority has adopted in terms of its financial systems (review of financial systems report to
                            Corporate Team Sept. 1998). It reflects national target for e-government and Corporate Team‟s view that managers
                            need to become financial managers. IT solutions and Training is required to ensure this.
                            It would also facilitate remote and home working (see equalities targets), reduce the use of paper (see sustainability
                            targets). Surveys indicating need for more training on systems

Key Events                  Performance Target              Date     to     Date to be   Frequency of   Resource             Responsibilities
                                                            commence        completed    Review         Implications

1. Develop FAMIS Training   To develop a structured         Commenced       Ongoing      Annual
                            cascade training facility for
                            FAMIS
                            Establish FAMIS Focus           March           Ongoing      Annually
                            Group to include trainers
2. Improve Accountancy IT   Improve      reliability  of    Spec      and   March                       £6,500     budget    FAMIS team and
facility                    accountancy     server   and    price already                               identified           network services
                            ensure all finance users are    obtained
                            on the one server - replace
                            existing server.
3. Development of FAMIS     Review of General Ledger                                                    Delivered     by     CA
                            training for finance                                                        Accountancy,         FAMIS Team
                                                                                                        FAMIS        and
                                                                                                                             Directorate Teams
                                                                                                        training
                                                                                                        resources
                                                                                                        cascaded.


                                                                      89
Phase I                         March 2001        July 2001    Annual

Phase II Complete               When WEB,
                                POP      and
In the context of WEB           Famis   v4.6
Interface     and      new      are
modifications                   implemented
Implementation of Purchase
Ledger and POP

ii)        Exploitation of                                              CA – FAMIS Team
       functionality within                                             Service Team
                                             March 2002
       FAMIS
                                             June 2001
-      Budget profiles          October 2001 April 2001

-      Recurring skeleton and   April 2001
       accrual journals                           June 2001

-      Amendments to data       March 2001
                                                  July 2001
       entry screens

-      Review of subjective     Work
       codes and aggregation    commenced
       of sub codes                               July 2001

iii)       Developing use of
       FAMIS structures to
                                                  July 2001
       accommodate
                                Work
-      Directorate reporting                      April 2002
                                commenced
       requirements
                                Work              April 2002
-      Statutory reporting
                                commenced
       requirements

-      Area reporting            “


                                                  October
                                                  2001
                                             90
Full implementation may be       October
dependent upon                   2001
implementation of Care
First in Social Services
                                                   July 2001


iv)    Reporting and             October
      producing reports in       2001
      electronic format e.g.
      automatic e-mail of
      reports.

      Implementation of BI                                     4.6 release of
                                 April 2001                                         CA FAMIS Team IT
      Broker for                                               FAMIS will
                                                               allow unlimited
                                                               groups and
                                 Software                      categories
      Implementation of BI                                     against
                                 currently
      Query software for ad                                    subjectives.
                                 being tested
      hoc reports. Develop the
      expertise on each team

v)       WUI                                                   Software             CA
                                 On full
                                 implementati                  requirement
      Roll out and
                                 on of POP
      development of WUI                                       Licencing
                                 and release
      to facilitate home                                       requirements         FAMIS Team
                                 4.6
      working and remote
      offices – see also                                       IT input to get      CA
      improvement of                                           software working
      services to schools                                      Savings          –
      and reconciliation to                                    administration of    FAMIS Team     and
      school based systems                                     producing      and   Directorates
                                                               despatching
                                                               paper reports.

                                              91
                                vii)       Development        of   March             Ongoing    Development of        CA – FAMIS Team
                                       FAMIS Intranet Site                                      this     will    be
                                       including Online creation                                dependent upon
                                       of documents.                                            capacity      after
                                                                                                planning        and
                                                                                                development
                                                                                                issues          are
                                                                                                addressed

4.   Development           of          -   Galaxy                  Dependent                    IT resources may      FAMIS Team/
     interface of ledger with                                      on                           be required to be
     OLM,    Galaxy School             -   Care First              implementati                 delivered    when     Directorate
     based system                                                  on of Care                   reviewing system
                                                                   First

5.   To enable the remainder           -   Establishment of                                     To be identified      .Cityworks      and
     of Cityworks functions                Business case to                                     as part of the        Corporate Financials
     to have full on-line                  replace FMS and                                      business case.        Steering Group
     financial   information               MMS
     available   from     or
     through FAMIS.             -      Implement replacement
                                                                   April 2002        Dec 2002




                                                                                92
       SERVICE IMPROVEMENT PLAN
       Local Improvement Target 6 : Internal Charging

Improvement Target               To streamline internal charging systems to reduce duplication, double handling and processes which do not add
                                 value

Rationale                        Benchmarking exercises suggest that the service is being delivered to a high level in terms of volume. Consultation
                                 shows a demand for accountants to be strategic advisers and develop in-house expertise. Systems in place
                                 therefore need to be examined to ensure they are relevant and efficient. Dismantle the systems of internal
                                 charging which were demanded as a response to CCT to reduce the time and resources used in moving money
                                 around the authority and therefore reflect the way the authority is changing

Key Events                       Performance Target           Date     to       Date to be   Frequency   of   Resource        Responsibilities
                                                              commence          completed    Review           Implications

1.        Remove SLA‟s from      Level and apportionment      March 2001        Oct 2001     Year end         None            HOF
     controllable budgets and    of sum is agreed prior to
     develop robust system to    year start                                                                                   Corporate Team
     replace SLA‟s.

2. Speed up charges into the        Examine scope for        April 2001        July 2001    N/A                              CA
   ledger to provide more            putting through annual
   timely information                charges on a monthly                                                                     Directorate Teams
                                     basis using recurring
                                     journals

3. Reduce bureaucracy and cost      Examine the need for     March 2001        July 2001
   and      eliminate   double       the 21 day rule on
   handling                          remaining    internal
                                     charge documents.


                                    Review charging for
                                     caretakers


                                                                           93
       SERVICE IMPROVEMENT PLAN

       Local Improvement Target 7 : Financial Services to Schools and Education

Improvement Target

Rationale                             OFSTEAD review identified need for electronic reconciliation between schools and council financial systems.

                                      In line with overall benchmarking – budget monitoring is a high level activity area. Need to provide efficient and
                                      effective service and review existing practices. DA‟s report on services to schools identified need to link and
                                      liaise more effectively with advisory services. Complexities of school funding means that a service covering whole
                                      school funding package has to be offered.




Key Events                            Performance Target             Date     to   Date to be   Frequency   of   Resource         Responsibilities
                                                                     commence      completed    Review           Implications

1.   To    develop       electronic        Needs        analysis        05/01    06/01                         £25k cost of     PA/IT
     financial       reconciliation         undertaken                                                           project to be
     between       schools     and                                                                               borne       by   Education          and
     council‟s financial systems           Feasibility     study                                                Education and    Libraries
                                            undertaken           –       07/01    09/01                         Libraries    –
       Aim                                  identify alternatives                                                saving of 2FTE
                                            (e.g.       electronic                                               (Sc4)       by
    Produce efficiency savings             reconciliation, POPS                                                 2002/03 £35k
     by removing      need    to            etc.), choose best                                                   p.a.)
     manually reconcile financial           option
     systems
                                           Develop        chosen
    Provide more effective                 option
     service to schools
                                           Implement pilot
    Ensure schools information
     required  for    statutory            Roll   out    to   all
     reporting   purposes     is            schools if successful
                                                                              94
      collected in most efficient
      and effective way                                               09/01   11/01

                                                                      01/02

                                                                      04/02

2.       Support for Schools           Redefining        core        04/01   03/02   No        direct   PA
                                        services to schools to                         savings      but
Aim                                     take     account    of                         increasing
                                        increasingly   complex                         workload would
     Produce efficiency savings        funding       regimes.                         have      meant
      by ensuring resources are         These must reflect                             increased costs
      directed in most effective        the management of the                          if do nothing
      area reinvest these in            whole school funding
      areas     of     increasing       packages.
      workload
                                       Produce       efficiency
                                        savings by utilising new
                                        technology to deliver a
                                        more        streamlined
                                        service

                                       Take advantage of new
                                        technology    in  the
                                        delivery of financial
                                        support             -–
                                        introduceschools    to
                                        new technology and
                                        demonstrate        its
                                        effectiveness

                                       Provide     a     more
                                        effective      service
                                        which reflects the
                                        changing      financial
                                        environment      within

                                                                          95
                                      which    schools     are
                                      operating

                                     Improve links with
                                      advisory service to
                                      ensure            school
                                      improvement
                                      objectives           are
                                      reflected in resource
                                      allocation decisions

                                     Provide more bespoke
                                      support for schools
                                      and ensure charging
                                      structure can cope
                                      with this

                                  Accommodate        additional
                                  work re external funding
                                  within current staffing
                                  establishment
3. Support for LEA                 Review              budget       04/01   06/01   No        direct   PA/CA
Aim                                   monitoring system –                             savings      but
 Produce efficiency savings          pilot new system to be                          increasing
    to reinvest in increasing         developed (See budget                           workload would
    workload                          monitoring targets)                             have      meant
 Produce efficiency savings       Review core services                              increased costs
    by utilising new technology       to ensure a fit with                            if do nothing.
    to     deliver   a    more        the changing role of
    streamlined service               the LEA
 Provide a tailored service       Revise             Schools
    to fit with the changing          financial Regulations to
    role of the LEA                   reflect changing role
                                      of LEA and changing
                                      financial environment



                                                                         96
       SERVICE IMPROVEMENT PLAN

       Local Improvement Target 8 : Management and Monitoring Process

Rationale                                -   Benchmarking indicates need to improve completion of statutory returns in line with deadlines

                                         -   Survey from staff identifies need for earlier timetables

                                         -   Monitoring will identify where delays are caused

                                         -   Allow for prioritisation

Key Events                          Performance Target             Date     to       Date to be   Frequency   of   Resource       Responsibilities
                                                                   commence          completed    Review           Implications

1.   Produce    overall     broad   -    Complete   90%      of    April 2001        Ongoing      Annual           None           CA
     timetable of financial cycle       statutory returns    by
                                        deadline

2. Update broad timetable                                          May 2001          Ongoing      Monthly                         CA
   with detail monthly

3. Monitor and report on            -     Improve timeliness of    June 2001         July 2001    Quarterly        Minimal        CA and Directorate
   achievement of deadline              input     from       all                                                                  Teams
                                        directorates

4. Establish training manual        -     Improve         staff    To        be                                                   CA Training Officer
   and guidelines on key                awareness                  determined
   process.                                                        when
                                                                   training
                                                                   programme                                                      Training Focus Group
                                                                   established
5. Develop file server site for     -     Common       reporting   May 2001          June 2001                                    CA
   Corporate            Budget          from all directorates
   Monitoring
                                                                                97
       SERVICE IMPROVEMENT PLAN

       Local Improvement Target 9 : Training and Development (Accountancy)

Improvement Target                  Improve the level of formal and informal training

Rationale                           Benchmarking indicated that we had a lower proportion of qualified staff.

                                    Staff focus Group and survey indicated that more standard approach to training was required, and that training in
                                    budgetary and final accounts processes were required.

Key Events                          Performance Target            Date     to    Date to be   Frequency   of    Resource       Responsibilities
                                                                  commence       completed    Review            Implications

1.   Improve     proportion    of   -     continue policy in      In existence   Continual    Annual                           HoF
     professionally     qualified       strategic support of      in Strategic
     staff    and     accounting        offering      internal    Support                                                      CA
     technicians.                       training opportunities
                                        CIPFA and AAT.                                                                         Directorate




                                    -     recruit      graduate
                                        trainee(s)   on annual
                                        basis




                                    The above to be part of       March 2001     June 2001                                     HoF
                                    an agreed training policy
                                                                                                                               CA

                                                                                                                               Directorate

                                                                           98
                                  - agree a consolidated
                                 training    policy      and
                                 programme      across all
                                 directorates delivering the
                                 function

                                  - increase of qualified
                                 staff from by 10% over
                                 three years

                                 - increase     of   staff
                                 undergoing formal training
                                 by 10% over three years.

2. Improve  proportion    of - wider participation in           2001/2002       Continued   “                                   HoF
   staff                with corporate        training
   management/supervisory    opportunities eg. NEBS                                                                             CA
   training                  Management Training
                                                                                                                                Directorate




3. Appointment   of   Training    - to       develop     and    February        1 year      Requirement      £26,200
   Officer                       facilitate    an    internal                               to be reviewed
                                 training programme                                         after one year   temporary
                                                                                                             funding in place

                                 - to support trainees          February        Continual   Annual
                                 undergoing formal training

4. Agree a portfolio of - see draft training                    May 2001        Continual   Annual
   training which is required matrix linked to staff
   for different levels of development
   staff




                                                                           99
5. Produce    a    list   of Completion of competency       June 2001        September   Annual      Minimal              HoF
   competencies   for   each list for eachpost/grade                         2001
   post/grade in Accountancy                                                                                              CA
   section
                                                                                                                          Directorate

6. For current staff identify Complete      record     of   April 2001       December    Annual      Minimal              CA
   training        previously training undertaken                            2001
   undertaken and identify                                                                                                Direcotrate
   any gaps

7. Establish training budgets   Budgets established.        June 2001        Continual   Annual      An     additional    CA
                                                                                                     £20,000       p.a.
                                                                                                     for 3 years has      Directorate
                                                                                                     been       made
                                                                                                     available from
                                                                                                     Strategic
                                                                                                     Support
                                                                                                     budgets.

8. Update     and     maintain Record      updating    of   May 2001         Ongoing     Quarterly   Minimal              CA
   training profiles for all profiles
   staff   (both    new   and                                                                                             Training Officer
   current staff).

9. Commence            training Inform     Senior           June 2001        Ongoing     Annual                           Head of Finance and
   programme on financial Managers/Members                                                                                Corporate   Training
   issues for wider audience                                                                                              Officer




                                                                       100
                                                                        DRAFT


     TRAINING AND DEVELOPMENT ACCOUNTANCY



TRAINING MATRIX



                                                                       Target Group



Formal Training                                    -   Continued       All      qualified
                                                       professional    staff (inc AAT?)
                                                       development




                                                   -   Professional    All who can
                                                       accountancy     demonstrate
                                                       training
                                                                       Commitment
                                                                       and ability



                                                   -   Technical       All on a needs
                                                       Training        basis



                                                   -   Supervisory and Supervisory
                                                       Management      and
                                                       Training        management
                                                                       posts




Internal Training Programme                        -   Coverage

                              Basic Accounting Principles




                                      101
Authority Financial Cycle                      All non qualified
                                               and in need of
                                               update



Technical Training

                                                “



                      -     General Ledger      “



                      -     Feeder Systems       “

                      -     Excell             All on a needs
                                               basis



                      -     Word                 “

                      -     Team Office          “

                      -     D.Base               “



                      -     Specific    Work     “
                            Area       Based
                            Training




        102
      SERVICE IMPROVEMENT PLAN
      Local Improvement Target 10 : Treasury Management
      Improvement Target                To continue to improve the return on the Council's Investments and to Reduce the Interest Cost to the
                                        Council
      Rationale                         Interest on Investments are at an average level and the pooled interest rate is well above average (for
                                        historic reasons). The Treasury management function has been successful in achieving savings in recent
                                        years and it is expected that further savings can be achieved.
Key Events                         Performance Target             Date     to      Date to be   Frequency   of   Resource           Responsibilities
                                                                  commence         completed    Review           Implications
1.    To extend the level of       Increase the       level of    July 2001        July 2001    Quarterly        Potential   cost   Head of Finance /
     investments managed by        investments         managed                                                   saving             Ian Richardson
     external fund managers        externally and     hopefully
     from £12m to £20m.            increase the net   return on
                                   investments.
2.   Prepare a report setting      Completed     Report   on      August 2001      October      Quarterly        Work carried       Head of Finance /
     out the reasons for the       existing   position  with                       2001                          out as part of     Ian Richardson
     Council's interest rate on    recommendations       for                                                     existing
     its historic debt. To         further              debt                                                     contract.
     identify actions that have    restructuring.
     been taken and actions
     that could be taken to
     reduce the Council's costs.
3.   Tender for external           External Advisors in Place     June 2001        December     Annually plus    Within existing    Head of Finance /
     advisors as part of our       in December 2001.                               2001         every   three    budget.            Ian Richardson
     planned periodic review.                                                                   years.




                                                                              99
      SERVICE IMPROVEMENT PLAN

      Local Improvement Target 11 : Internal Audit - Training

Improvement Target            To develop appropriate staff training

Timescale                     Year One               Year Two                Year Three            Year Four               Year Five

Rationale                     To improve the quality and effectiveness of the Internal Audit service

Key Events                    Performance        Date     to    Date to be   Frequency of Review   Resource Implications      Responsibilities
                              Target             commence       completed
Produce     a    list    of   Completion    of   April 2001     September    Annual                Minimal                    Chief     Internal
competencies for each         competency list                   2001                                                          Auditor
post / grade in the           for each post /
Internal Audit section        grade
For      current      staff   Complete record    September                   Annual                Minimal                    Chief     Internal
identify           training   of      training   2001           December                                                      Auditor
previously     undertaken     undertaken                        2001
and identify any gaps
Establish          training   Budgets            December                    Annual                To be agreed by            Chief     Internal
budgets and provision in      established and    2001           January                            Internal       Audit       Auditor
the Audit Plan                hours provided                    2002                               Management Team
                              in Plan
Update     and    maintain    Record updating    April 2001                  Quarterly             Minimal                    Chief     Internal
training profiles for all     of profiles                       Ongoing                                                       Auditor
Internal Audit staff
(new and current staff)
Commence      /    provide    Attendance at      April 2001                  Quarterly             To be agreed by            Chief     Internal
training as required          training courses                  Ongoing                            Internal       Audit       Auditor
                              etc                                                                  Management Team



                                                                             104
     SERVICE IMPROVEMENT PLAN

     Local Improvement Target 12 : Internal Audit – Future Work

Improvement Target       To determine requirements for Internal Audit work in respect of the following:-

                         1. Review requirement for fundamental / corporate systems auditing as against other Internal Audit priorities

                         2. Develop Internal Audit role in systems design, particularly on major I.T. systems which cut across
                         Directorates

                         3. To identify the Internal Audit role on Best Value across the City Council and then to establish appropriate
                         work plans

Timescale                Year One               Year Two                Year Three            Year Four               Year Five

Rationale                To undertake Internal Audit work which better reflects the needs and priorities of it‟s stakeholders

Key Events               Performance       Date   to       Date to be   Frequency of Review   Resource Implications      Responsibilities
                         Target            commence        completed
1. Fundamental/
   Corporate systems     Establish Audit   February        March        Annual                To     be     confirmed    Chief   Internal
                         Plan 2001/2002    2001            2001                               between February and       Auditor
                                                                                              March     2001     when
 Internal        Audit
                                                                                              Audit      Management
 Management Team to
                                                                                              undertake           risk
 discuss   plans   for
                                                                                              assessment     exercise
 fundamental systems
                                                                                              and identify resources
 auditing for    2001/
 2002




                                                                        105
To undertake a risk          Revise    Audit   April 2001   Ongoing   On completion   of   Minimal   –   to   be     Chief   Internal
assessment              on   Plan 2001/2002                           each audit           included as part   of     Auditor
completion of each audit,                                                                  each audit assignment
including “managed” audit                                                                  brief
work. Revise audit Plan as
necessary

2. Systems design            Enter work into   April 2001             quarterly            Minimal – to include as   Chief   Internal
                             Audit Plans                                                   part of ongoing liaison   Auditor
To meet regularly with                                      Ongoing                        and discussions with
Directorates and I.T. to                                                                   Directorates and I.T.
identify new systems and
potential    areas    of
Internal Audit work

To be represented on         Records      /    April 2001   Ongoing   As above             To be agreed by           Chief   Internal
new      I.T.   systems      Minutes     of                                                Internal       Audit      Auditor
Working     Groups,  as      meetings                                                      Management Team
required

Include provision for this   Production   of   February     Ongoing   As above             As above                  Chief   Internal
in the 2001/2002 Audit       the 2001/2002     2001                                                                  Auditor
Plan and Strategic Plan      Audit Plan and
to 2005/2006                 Strategic Plan
                             to 2005/2006




                                                                      106
3. Best Value                 Minute              February               quarterly   To    be    discussed    Chief   Internal
                              discussions.        2001                               between February and     Auditor
 Internal           Audit                                      March                 March2001        when
Management Team to            Input       work                 2006                  Internal        Audit
identify potential areas      details      into                                      Management      Team
of     Internal     Audit     Audit Plans                                            undertake         risk
involvement so that work                                                             assessment   exercise
can     start    to      be                                                          and estimate required
incorporated into the                                                                resources
2001/2002 Annual Audit
Plan   and    then     the
Strategic Plan. Also liaise
with best Value Team
and District Audit.

To be developed by            Inclusion   into    April 2001   Ongoing   quarterly   To be discussed by       Chief   Internal
regular liaison     with      Audit Plans                                            Internal       Audit     Auditor
Directorates in order to                                                             Management Team
identify work areas




                                                                         107
      SERVICE IMPROVEMENT PLAN

      Local Improvement Target 13 : Internal Audit – Partnerships

Improvement Target           To identify the potential for developing partnership working with other organisations in appropriate areas of
                             Internal Audit activity

Rationale                    To improve the quality and effectiveness of the Internal Audit service by employing relevant expertise

                             To fill resource gaps and hence meet audit plans

Key Events                   Performance         Date   to   Date to be    Frequency of Review    Resource Implications     Responsibilities
                             Target              commence    completed

To    identify    possible   Complete review     February                  Quarterly              Minimal                   Chief   Internal
areas where there are        of audit areas      2001                                                                       Auditor
resource gaps (in terms      and      resource               May 2001
of      expertise     and    availability
available hours)

To consider how gaps can     Record contact      May 2001    August        Quarterly              Minimal                   Chief   Internal
be addressed.      Where     made        with                2001                                                           Auditor
appropriate,      contact    outside
outside organisations for    organisations
expressions of interest      and outcomes




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      SERVICE IMPROVEMENT PLAN

      Local Improvement Target 14 : Internal Audit – Increasing Qualified Staff

Improvement Target           To increase the number of qualified staff in the Internal Audit Section

Timescale                    Year One               Year Two                Year Three            Year Four                Year Five

Rationale                    To improve the quality and effectiveness of the Internal Audit service

Key Events                   Performance        Date   to      Date to be   Frequency of Review    Resource Implications      Responsibilities
                             Target             commence       completed

Identify what formal         Complete           May 2001                    Annual                 Minimal                    Chief     Internal
qualifications        are    written                                                                                          Auditor
required / desired at        assessment for                    June2001
different grades / levels    each post

Identify           current   Record             June 2001      July 2001    Annual                 Minimal                    Chief     Internal
qualifications of Internal   qualifications                                                                                   Auditor
Audit staff and confirm
where gaps appear to
exist

Identify and discuss with    Record             July 2001                   Annual                 Internal          Audit    Chief     Internal
staff      the    training   discussions with                                                      Management Team to         Auditor
available.       Identify    all appropriate                   September                           discuss       resource
priorities and estimate      staff                             2001                                requirements        and
timescales and set aside                                                                           affect on Audit Plan
budgets / hours




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     SERVICE IMPROVEMENT PLAN

     Local Improvement Target 15 : Internal Audit – Risk Management

Improvement Target          To identify and develop the Internal Audit role in risk management

Timescale                   Year One                Year Two                Year Three            Year Four               Year Five

Rationale                   To improve the City Council‟s management of risk in order to reduce costs and improve service effectiveness

Key Events                  Performance         Date   to      Date to be   Frequency of Review   Resource Implications      Responsibilities
                            Target              commence       completed

Internal Audit to liaise    Record              April                       Annual                To be confirmed during     Chief   Internal
with the Risk Manager       discussions    ./   2002                                              the      course       of   Auditor
and the Risk assessment     meetings    with                   March                              2002/2003          when
Working      Group     to   Risk Manager /                     2003                               Audit      Management
identify   and    develop   Risk assessment                                                       undertake           risk
Internal Audit‟s role.      Working Group                                                         assessment          and
                                                                                                  identify resources

Include agreed Internal     Inclusion    of     April 2002     Onwards      Annual                As above                   Chief   Internal
Audit work in Audit Plans   work into Audit                                                                                  Auditor
                            Plans

Changing the culture of     Reports      to     April 2001     Onwards      Annual                As above                   Chief    Internal
the      Authority    to    Corporate Team                                                                                   Auditor,     Risk
encompass           risk                                                                                                     Manager      and
management       in  its                                                                                                     Corporate Team
decision making




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     SERVICE IMPROVEMENT PLAN

     Local Improvement Target 16 : Internal Audit – Systems Documentation

Improvement Target         To improve systems documentation held by Internal Audit

Timescale                  Year One              Year Two                Year Three            Year Four               Year Five

Rationale                  To improve the effectiveness and quality of the Internal Audit service in order to reflect the needs and
                           priorities of it‟s stakeholders

Key Events                 Performance        Date   to     Date to be   Frequency of Review   Resource Implications      Responsibilities
                           Target             commence      completed

                           During       the   February      Ongoing      quarterly             Minimal – included as      Chief   Internal
For all audits Internal    management         2001                                             normal part of review      Auditor
Audit staff will be        review of each                                                      process.
required   to   produce    audit - exercise
working papers which,      to be completed
where       appropriate,   by the end of
document systems flows     the    5    year
and processes              Strategic Plan




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     SERVICE IMPROVEMENT PLAN

     Local Improvement Target 17 : Internal Audit –Follow Up of Recommendations

Improvement Target          Establish a procedure for follow up of audit recommendations to see that responsible managers are taking
                            corrective action

Timescale                   Year One              Year Two                Year Three            Year Four               Year Five

Rationale                   To improve the effectiveness of the Internal Audit service

Key Events                  Performance        Date   to     Date to be   Frequency of Review   Resource Implications      Responsibilities
                            Target             commence      completed

To identify and establish   Procedure to be    February                   Annual                To     be    confirmed     Chief   Internal
a procedure which is        included      in   2001                                             between February and       Auditor
both      timely     and    Section‟s                        May 2001                           May 2001 when Audit
effective                   Quality                                                             Management      discuss
                            procedures                                                          any           resource
                                                                                                requirements




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     SERVICE IMPROVEMENT PLAN

     Local Improvement Target 18 : Equal Opportunities

Improvement Target          To ensure the service is delivered in line with Corporate and Directorate standards for the CRE equality standard.

Rationale                   Authorities Equal Opportunities Policy and Best Value targets.

Key Events                  Performance Target           Date     to       Date to be   Frequency   of   Resource        Responsibilities
                                                         commence          completed    Review           Implications

Recruitment and Selection   All staff involved in        March 2001        Ongoing      Annual                           HoF
                            recruitment and selection
                            to receive training.                                                                         Directorates




Bullying and Harassment     Staff to receive briefing    March 2001        Ongoing      Annual                           HoF
                            on      Bullying     and
                            Harassment                                                                                   Directorates

Staff Appraisal             All staff appraisals to      March 2001        Ongoing      Annual                           HoF
                            include      an      equal
                            opportunities target                                                                         Directorates

Monitoring                  Put in place monitoring      June 2001         Ongoing      Annual                           CA
                            processes     to    track
                            achievement            of                                                                    Directorates
                            Directorate targets




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      SERVICE IMPROVEMENT PLAN

      Local Improvement Target 19 : Sustainability

Improvement Target              To implement the environmental improvements of Local Agenda 21 and the City Council‟s Environmental
                                Management System (EMAS) in order to develop the sustainable policies and practices of the Division.




Timescale                       Year One               Year Two               Year Three         Year Four             Year Five




Rationale                       By working together with residents, local businesses, voluntary groups etc. we will continually improve our
                                performance to make Newcastle a sustainable city to ensure future generations inherit a better environment.
Key Events                      Performance         Date to       Date to be      Frequency of     Resource                Responsibilities
                                Target              commence      completed       Review           Implications

Replacement      electrical     Substitute    items   Immediately   Ongoing         Yearly      None                   All staff involved in
items will be as energy         with low energy                     scheme                                             office admin.
efficient as is available.      equivalents    when
                                replacement is due.

Support          corporate      Establish a system    Immediately   Ongoing         Yearly      None                   IT Support staff.
contract       for     the      to pass obsolete IT                 scheme                                             Staff involved in
recycling       of      IT      equipment to local                                                                     office admin.
equipment.                      community groups.

Support            corporate    Develop      office   Immediately   Over   next     Yearly      None                   All staff.
contract     for    recycling   paper policies: aim                 12 months
paper.                          to recycle 100% of
                                waste paper.


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Support         corporate    When buying office     Immediately   Ongoing         Yearly            None                     All staff involved in
contracts for sustainable    supplies      always                 scheme                                                     purchasing     office
office stationary.           specify    recycled                                                                             supplies.
                             items if available.

Support          corporate   When buying paper      Immediately   Ongoing         Yearly            None                     All staff involved in
contract for the use of      supplies      always                 scheme                                                     purchasing     office
paper from sustainable       specify    recycled                                                                             supplies.
sources for all printing     items if available.

Pilot the use of electric    Finance division to    Mid 2001      Ongoing         Initially    at   Using figures based      Head of Finance to
vehicles. Subject to an      lease one or more                    scheme          end of first      on the experience of     arrange for the
updated         financial    Peugeot         106                                  financial year.   EEC there would be a     lease and allocate
evaluation.                  electric cars and                                                      small net annual cost,   administrative
                             contribute to the                                    Yearly            which would be met       responsibility.
Finance to be involved in    car-pool    scheme                                   thereafter.       from the existing
corporate initiatives on     already established                                                    budget. The costing
having access to and         by EEC.                                                                need to be updated
using green -fuelled pool                                                                           near to the time of
cars.                                                                                               acquisition to reflect
                                                                                                    latest annual leasing
Finance    Division  to                                                                             rates for the cars.
contribute to the pilot
scheme begun by EEC in
1999.




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Pilot recycling schemes    When          paper   Mid 2001   Ongoing         Initially    at   Ideally,      recycling
within the Service (e.g.   recycling was first              scheme          end of first      schemes should be
paper, glass and can       piloted    at   the                              financial year.   implemented on a
collection points).        council approx. 60                                                 corporate         level.
                           tonnes         were                              Yearly            However, as Civic
                           collected       per                              thereafter.       Services will not allow
                           annum. As storage                                                  an area of the car
                           has not been made                                                  park to be set aside
                           available      over                                                for recycling bins (as
                           recent years this                                                  this, in their opinion,
                           has dwindled to 2-                                                 represents a security
                           3     tonnes    per                                                risk) there will be a
                           annum.                                                             need to set aside an
                                                                                              area of office space
                           Finance as a whole                                                 to use as a recycling
                           should be able to                                                  point for paper, glass
                           collect approx. 2                                                  and aluminium.
                           tonnes of paper
                           per annum in an
                           organised project.




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Maximise use of existing        Develop          a     Mid 2001     Ongoing         Initially    at   None                     All staff involved in
Council   facilities   for      divisional policy                   scheme          end of first                               booking     facilities
meetings, training, etc.        on the use of                                       financial year.                            for meetings and
                                council facilities                                                                             training.
                                for meetings.                                       Yearly
                                                                                    thereafter.

                                Make staff aware
                                of the facilities
                                available      (e.g.
                                Millfield    House;
                                Blackfriars etc)

Develop options for home        Use the council‟s      Early 2002   Ongoing         Yearly            Staff    involved   in   Head of Finance;
working / Teleworking,          experience       of                 scheme                            assessing                Chief Accountant;
reducing the need to            Teleworking pilots                                                    effectiveness       of   Chief    Internal
travel to and from the          in other divisions                                                    Teleworking pilots.      Auditor.
Civic Centre.                   to investigate their
                                use in Finance.

                                Formulate a pilot
                                scheme in Finance.

Buildings,   Planning     and   Amend CP1s with a      April 2001   April 2001      N/A               None                     Head of Finance;
Land Use.                       “sustainability                                                                                Chief Accountant;
                                clause” by start of                                                                            Chief    Internal
Amend CP1s with             a   new financial year.                                                                            Auditor.
“sustainability clause”




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Consider the use of the      This   should    be     Immediately   Ongoing         Yearly   Staff resources only.    Head of Finance;
Corporate Resource Pool      done in partnership                   scheme                                            Chief Accountant;
and “Grantfinder” as a       with the Cityworks                                                                      Chief       Internal
means of funding energy      Energy      Centre.                                                                     Auditor.      Staff
efficiency initiatives.      Over the coming                                                                         involved          in
                             year    make    the                                                                     Grantfinder
                             Corporate                                                                               project.
                             Resource Pool and
                             “Grantfinder” more
                             widely       known
                             throughout      the
                             authority.

Contact Cityworks to         Aim to have a           Immediately   March 2001      Yearly   Staff    involved   in   Head of Finance and
confirm arrangements in      confirmation that                                              checking policy.         nominated staff.
place for water and          energy-    reducing
energy reduction (e.g.       policies have been
toilet   hogs,     heating   adopted            by
systems, air conditioning,   Cityworks in their
low energy lighting).        provision of service
                             to Finance by end
                             of Financial year.




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Make full use of the         All    staff    PCs    Immediately    March 2001     Yearly   None                      IT support staff.
duplex printing facility     connected        to
offered by printers and      printers capable of                                                                     All staff.
photocopiers by printing     duplex printing in
double   sided     sheets    Finance division to
whenever possible.           have been set to
                             double-sided
                             printing by end of
                             financial year.

Staff training/awareness     All staff to have      Immediately    Last quarter   Yearly   Staff     involved   in   Head of Finance and
training as applied to       been instructed in                    2001.                   training.                 nominated staff.
office based work – e.g.     Finance     division
back-to-back                 policy on EMAS by
photocopying / printing,     last quarter 2001.
re-using       redundant
sheets, use of e-mail and
Intranet)

Auditors     to    receive   All audit staff to     Last quarter   Second         Yearly   Staff     involved   in   Head of Finance.
training on sustainability   have been given        2001.          quarter of              training.
so that they are aware       training on the                       2001/2002.                                        Chief        Internal
of the necessary points      need            for                                           Local  Agenda        21   Auditor.
to raise during audits.      environmental                                                 Team Leader.
                             awareness in audits                                                                     Local Agenda        21
                             by second quarter                                                                       Team Leader.
                             of 2001/2002.




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Amend the FAMIS and          Ensure that all        Last quarter   Second       Yearly   FAMIS team and             Head of Finance.
POP         report-writing   FAMIS and POPs         2001.          quarter               software supplier,
facility so that it uses     prints use no more                    2001/2002.            QSP.                       Chief Accountant.
less paper.                  paper          than
                             necessary,       by                                                                    Systems
                             second      quarter                                                                    Development
                             2001/2002.                                                                             Accountant.


Recommend the creation       Liase with City IT     First          Second       N/A      Staff     involved    in   Head of Finance and
of an Intranet site that     Services to create     quarter        quarter               liaison     with     IT    nominated staff.
publicises availability of   an additional page     2001/2002.     2001/2002.            division.
redundant equipment and      on the existing
furniture.                   “Civic Life” section
                             of the Intranet to
                             provide a corporate
                             forum for disposal
                             of        redundant
                             equipment       and
                             furniture.




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                  FINANCE SERVICES BEST VALUE REVIEW
                                PART 4: APPENDICES
Appendix   Description
1          Review Team Structure
2          Cost of Service Provision
3          Staffing Structures
3(i)        - Accountancy
3(ii)       - Benefits
3(iii)      - Community and Housing
3 (iv)      - Capital
3 (v)       - Central Teams
3 (vi)      - DSO / DLO
3 (vii)     - Internal Audit
3 (viii)    - Cityworks
3 (ix)      - Education
3 (x)       - Environment Enterprise and Culture (EEC)
3 (xi)      - Passenger Transport Authority
3 (xii)     - Regeneration
3 (xiii)    - Social Services
3 (xiv)     - Strategic Support
4          Questionnaire Results
4 (i)       - Directors questionnaire results
4 (ii)      - District Audit questionnaire results
4 (iii)     Consult - Internal Audit Client questionnaire results
4 (iv)      Consult - Member questionnaire results
4 (v)       Consult - Service Manager questionnaire results
4 (vi)      Consult - Service Team questionnaire results
4 (vii)     Consult – Central\Non-Service Team questionnaire results
5          Focus Group Summary Document
6          Schedule of Tables in Report
7          Schedule of Charts in Report
8          Glossary of Terms
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