Recovery of overhead costs of officers seconded to NCS/NCIS

Report: 08
Date: 27 September 2002
By: Treasurer

Summary

The MPS has been in dispute with NCS and NCIS over the payment of administrative oncosts on seconded officers. In the light of recent correspondence it is proposed to write off the accumulated debt. Members are then asked if they wish to pursue recovery of administrative costs in the future.

A. Recommendations

1. To write off the debt of approximately £4 million relating to administrative oncosts raised against NCS/NCIS prior to 31 March 2002.
2. To decide whether to pursue recovery of administrative oncosts in the future, involving an approach to the Home Office. 

B. Supporting information

Introduction

1. The national service authorities, the National Crime Squad (NCS) and the National Criminal Intelligence Service (NCIS), were established in 1998. They have operated with large numbers of seconded officers from many forces, in particular the Metropolitan Police. The service authorities have always reimbursed the direct costs of seconded officers but they have resisted paying any administrative charge for the related overhead costs still met by the officers’ home forces. 

2. This report sets out the position which has pertained hitherto and considers a potential way forward for the future. Attached at Appendix 1 are copies of correspondence I have had recently with the service authorities.

Current position

3. My letter of 24 June (see appendix 1) refers to the history of this issue. The key points are:

• The question of NCS and NCIS paying administrative charges was discussed at the time that the service aurthorities were originally established.
• The service authorities resisted payment on the grounds that the money would simply be recycled back to police authorities through the levy.
• The MPS did not accept this position because its contribution in terms of numbers of seconded officers was disproportionate by comparison with its share of the levy.
• Somewhat belatedly ACPO appear to have accepted the principle that charges should be made but requested further work to determine an appropriate basis. That work was never carried out.
• The MPS has raised invoices for the administrative charge from the outset with the result that there is an unpaid debtor of approximately £4 million in the MPA’s accounts.
• The charge has been based on per capita charges across a wide range of central services totalling £3,221 per seconded officer (x% of direct costs).

4. When I undertook to raise the issue directly with the service authorities I was concerned about the rationale for the assessment of the charge. It was not clear how the per capita charges had been arrived at or why many of the services were included. Accordingly work has now been done to assess the actual identifiable overhead costs which can be directly attributable to officers while on secondment. The costs identified in this exercise relate to:

• Costing in Finance Department
• Payroll
• Secondment section and occupational health in Human Resources
• Provision of MPS information through DPA
• Travel arrangements
• Records management
• Despatch service

5. This ‘actual’ assessment basis produces a charge which represents approximately 30% of the charges which have been made previously. My intention had been to enter into a dialogue with the service authorities to secure agreement to payment of a proportion of the outstanding debt based on these revised figures. However members will note from the letter of 22 July from the Deputy Clerk of the service authorities (see appendix 1) that they have refused to consider any payment in relation to such charges for the present or previous years.

6. Given the age of the debt and the uncertainty about its payment we had alread made a bad debt provision for the full amount in the accounts for 2001/02. This was on grounds of prudence with no presumption about the appropriate outcome.

7. In the light of the position now reached, including the repeated refusal of the service authorities to pay I believe the Authority has no option but to write off this debt. This would also clear the ground for pursuing recovery of such costs in the future on a different basis.

Future approach

8. The service authorities were reconstituted from 1 April 2002 and the basis of their funding changed. In particular they are no longer funded by way of a levy on individual police authorities. Instead they receive a grant direct from the Home Office.

9. Members will note that in my letter of 22 June I have stated that the Authority will wish to recover the full costs of seconded officers under these revised constitutional arrangements. The following considerations support this position.

• Full costs should be charged in order to clarify accountability
• Recovery of less than full cost of secondments would mean that London council taxpayers were subsidising national services for which the MPA has no responsibility
• There is strong pressure to maximise our income, specifically for example through the efficiency and effectiveness review programme
• Our budget situation requires substantial savings – we cannot afford not to seek full recovery
• The development of performance measurement and activity based costing will reinforce the need for the correct attribution of costs.

10. The argument has been made that, even though the levy system has been abolished, the effect of making these charges on the service authorities will result in their direct grant being increased at the expense of the resources available to police authorities. The response to the ‘threat’ of simply recycling the charges under the previous levy system had been that the MPS provided a disproportionate number of officers to the service authorities. In practice the MPS now seeks to manage the number of secondments so that it is in line with our share of total police funding. This would suggest that the MPA has little to gain from pursuing reimbursement of administrative costs.

11. However the reasons set out in paragraph 9 above remain valid. The threat of recharging authorities cannot now be enforced by the service authorities. They would have to rely on the Home Office agreeing to a corresponding increase in their grant. If we were successful in securing the proposed change the income to the MPA would be certain and identifiable, whereas any impact on grant entitlement may or may not happen and would probably be invisible amongst other changes taking place.

12. On the basis of the actual costs referred to in paragraph 4 above the additional recovery to the MPA would be £350-400,000 per annum. 

13. If we are to pursue this issue we will clearly have to involve the Home Office as a condition of the service authorities being engaged. We should also seek the support of the APA and ACPO. The matter has been raised informally with both bodies. If we were to go forward on a collective basis the basis of the proposed charges would have to be agreed with all parties.

14. Members are asked if they would support further steps being taken to pursue future recovery of administrative costs for officers seconded to NCS and NCIS.

C. Equality and diversity implications

There are no equality and diversity implications arising from this report.

D. Financial implications

As set out in the report.

E. Background papers

• None

F. Contact details

Report author: Peter Martin.

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Appendix 1

Andrew Mulholland
Deputy Clerk
NCS/NCIS Service Authorities
PO Box 2600
London SW1V 2WG
24 June 2002

Dear Andrew,

Seconded Officers: Overhead Costs

I am addressing this letter to yourself on the advice of Peter Derrick.

I wrote to Peter on 22 May 2002 under the mistaken impression that he was still the Treasurer to the Service Authorities. My intention was to open up a dialogue about the outstanding debt in the Metropolitan Police Authority’s accounts in respect of administrative costs associated with the secondment of officers to NCS and NCIS, in order to establish a basis for settlement.

I have received replies both from Peter himself and from David Lock. I shall copy this letter to them as a response to theirs.

I believe there are actually two separate issues to be considered now: firstly the historic position pertaining up to 31 March 2002; and secondly the future situation following the constitutional change affecting the Service Authorities.

In relation to the past history Peter Derrick has provided one half of the story in terms of the minuted decision of the NCS Service Authority on 12 October 1999 (I assume an identical decision was made by the NCIS Service Authority) not to pay administrative charges unless ACPO provided a response within four weeks. It would seem to me that the unilateral decision of one party to a potential transaction cannot represent the conclusive statement on the issue.

Furthermore although I do not believe that ACPO did formally respond at that time the subject remained very much on its agenda. I attach a copy extract from the minutes of the ACPO Finance and Resources Committee of 5 April 2000. Although it does not say so explicitly I know that the then Receiver for the MPS regarded this as an acceptance by ACPO that overhead charges should be made. The only debate was around the quantum.

I assume this was never formally conveyed to the Service Authorities because the trail appears to go cold at this point. This may have resulted from the changes which were taking place here at that time with the demise of the office of the Receiver and the transfer of his responsibilities to, inter alia, myself at the MPA and the Director of Resources in the MPS. However as far as the MPS was concerned the issue remained open and they have continued to invoice for the administrative charges. As a result the outstanding debt now stands at £4 million.

My position therefore remains that this matter is unresolved and very much still on the agenda.

As I understand it the thinking behind the Service Authorities’ reluctance to pay administration charges was that these would simply be recycled back to police authorities through a higher levy. However the counter-argument was that some forces, pre-eminently the MPS, contributed proportionately more seconded officers than their share of the levy. Therefore, although in total the money might simply be chasing itself round the system, the net result would be more equitable for individual forces.

I am very happy, and this was my original intention, to enter into a discussion about the quantum of the charge, accepting that a simple percentage oncost can appear arbitrary and we need to be able to provide a credible justification.

If I have to write off the debt I shall have to refer it to my Authority and I will want to have explored all options before I reach that point. There is no certainty that the members of the Police Authority will agree to a write-off even then.

Regardless of how the legacy of the past is eventually resolved it seems to me that we have a new situation from 1 April 2002. The financial link between the Service Authorities and police authorities generally has now been broken. The argument about passing the charge back through the levy no longer applies.

We should therefore revert to a principled position that the Service Authorities should bear the full cost of seconded officers.

I am therefore serving notice on the Service Authorities that the Metropolitan Police Authority will be seeking full reimbursement of the costs of seconded officers including an appropriate charge for the administrative costs incurred by the MPS. This is also in line with the accepted recommendations of a consultants’ review set up jointly by the Mayor, the Commissioner and the Chair of the MPA.

As with the resolution of the past situation I am very happy to discuss the basis of such charges, but it will not be acceptable to the MPA, nor to the Mayor and London Assembly, that the London taxpayer should subsidise the work of completely separate national bodies.

I shall be sharing this matter with the Treasurers of other police authorities and I anticipate that it will also be taken up within ACPO.

I look forward to hearing from you. 

Yours sincerely, 

Peter Martin
Treasurer

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