Revenue Monitoring 2004/05

Report: 09
Date: 22 Jul 2004
By: Commissioner

Summary

This paper provides an update on the revenue budget as at the end of June (period 3). The overall year to date position is an underspend against budget of £4.3m and a forecast overspend at year-end of £3.9m.The paper also updates members on developments to upgrade finance systems and on changes within the structure of the Finance Service to enhance future budget monitoring and reporting.

A. Recommendation

That members note the position against the revenue budget as at the end of June (period 3) and developments in progress to enhance future reports.

B. Supporting information

Background

1. The purpose of this report is to provide an understanding of the revenue budget position of the MPA/MPS for the financial year 2004/05.

2. The statement attached at Appendix 1 reflects the year to date position for income and expenditure to June 2004 (Month 3), and provides a projected outturn position based on these actual results and current information available regarding the remainder of the year. This is two months earlier than the first report presented to members in 2003/4 and this has been achieved at the same time as bringing forward the closure timetable of last years’ accounts. The statement at Appendix 2 provides the projected outturn position against the annual budget for each of the business groups.

Operational Performance

3. In addition to the financial information usually provided, a short summary of operational performance will also now be included to provide a more holistic view for members. This section will be further developed in future reports. Comparing operational performance to April & May of last year:

• Total notifiable offences are falling; down 2%
• Burglary is falling; down 9%
• Robbery is falling; down overall by 12% with robbery of personal property down 11% and robbery of business property down 25%
• Motor vehicle crime is falling: down 14%
• Improved detection rates for total notifiable offences, robbery and homicide, with burglary & motor vehicle crime remaining steady and a small drop from 18.7% to 17.8% for gun enabled crime
• Fatalities on the road are down for April and May this year from 41 for the same period last year to 26

Challenges exist in the following areas:

• Gun enabled crime has increased but by only 19 offences (however a significant armed robbery team has been arrested and this success has already had a positive impact on reducing the number of offences)
• Homicides have also increased by six

4. With regard to counter terrorist activity the MPS maintains its high level of concern in relation to the overall threat level and continues to take whatever action is necessary in order to provide community reassurance and a deterrent.

Developments in budget monitoring and reporting

5. Recently there have been two significant developments, which will improve the way budget monitoring and reporting within the MPS is conducted and the information brought to members. Firstly, the reshaping of Finance Services will provide an improved focus on this critical area, linking the central monitoring team directly with the Business accountants and allowing for the combining of revenue and capital monitoring.

6. Secondly, the MPS has upgraded its financial system (MetFIN) to the latest version of SAP (R/3 Enterprise) and in conjunction has introduced SAP's advanced reporting and planning tool (the MPS being the first UK police service to use this tool and the first UK public sector organisation to use its planning functionality). This system will allow for greater efficiency in the way budget managers work and give them much greater and more flexible and timely access to underlying data. It allows for full automation of monthly commentaries and management information reporting, which we will be further developing over the coming months. In addition it facilitates visibility within one system to all required monthly information, including detailed data not previously held in MetFIN, eg full Additional Pay Information from payroll and overtime analysis (the data extract from CARM is currently being developed to support management of police officer overtime budgets.) This will undoubtedly improve the accuracy and speed of reporting, and the understanding of business activities.

7. In order for the system to be in place at the outset of the financial year the implementation has been greatly accelerated with the system being upgraded in February and March 2004 with training and systems, process and access testing taking place during April and May. This has meant however that the familiarisation period for budget managers and finance staff generally, has occurred as part of this first forecasting exercise rather than before. As a result the amount of time that has been available to carry out the usual quality assurance of the forecast coming in from Business Groups has been limited as we were determined to bring the most up to date information available.

8. This report therefore does not provide the level of detail which will be provided in future reports as the new system and structures have yet to become established. More sophisticated reporting will be provided in future reports through:

• providing more detail on in-year budget movements (though these are not processed until after the first quarter)
• minimising the impact on overall budget variances of movements in expenditure and income in trading activities which are in net terms neutral
• analysing trends in expenditure and income and their potential impact in the medium term
• combining revenue and capital monitoring into single reports
• providing more detailed analysis and commentary at a Business Group level and on specific areas of expenditure (eg. Police Officer Overtime)
• providing more detailed updates on progress against savings and growth initiatives.

9. Progress towards these objectives will be achieved over the next few months. This will maintain the focus on robust monitoring which has been achieved over recent years while providing enhanced reporting in specific areas.

Budget Developments

10. Since the 2004/05 budget was reported to Finance Committee a number of changes have come to light:

• additional CT funding of £12m has been provided. Expenditure budgets will be amended to reflect this in the next report.
• additional PCSO funding has been announced (£302k) and budgets will again be amended for the next report.
• Management Board has approved a revised deployment plan and the allocation of police pay will need to be reviewed to determine if any reallocation is necessary (this will include the movement of budget for 40 officers from HR to SO/SC to enhance the MPS armed response capability following a Commissioner’s Review into Armed Support in the MPS). Any changes will be actioned for the next monitoring report.

Overall Budget Position

11. As at the end of June the MPS was underspent against the year to date budget by £4.3m (0.68%). Although largely on budget the police officer and staff overtime budgets are significantly ahead of budget. This may be a profiling issue due to factors such as the need to get bottom line budgets quickly onto the system prior to the start of the financial year. This is an area which Finance Services are reviewing in conjunction with individual Business Groups. It should be noted that previously the time taken in loading budgets has meant that cost centre budgets have not been available in the early months of the financial year.

12. The forecast year-end position is for a small overspend of £3.9m (0.2% of the total budget). Whilst the overall position is largely on budget, the variances on a number of expenditure lines and income groupings are more significant than would be expected at this early stage of the year or do not concur with other known factors. As part of its usual quality assurance, Finance will review these areas in the next monitoring exercise in order to provide a clarified and validated forecast position in the next report to Members. Since the forecast is based on the first monitoring exercise of the year and the new system is yet to bed in, it is possible that some year-end variances are overstated.

13. The key areas where Finance will review the validity of the forecast outturn are:

• Police Staff Pay where the forecast underspend (-£3.9m) is lower than might be expected given historical patterns, 2003/4 outturn, the year to date (-£4.8m) and known strength position (5% under)
• Police Officer Overtime which although forecasting to significantly overspend (£10.8m) is already overspent to date by £7m

14. Additional areas where work is required to fully understand the drivers within the forecast are:

• Police Officer Pensions which is forecast to significantly underspend (£22.8m – a combination of underspending expenditure and higher than budgeted income). This forecast indicates an underlying pattern consistent with the 2003/4 outturn and this is also the subject of a review by the MPA Treasurer given previous actuarial advice on pensions provisions and budgets ahead of the coming retirement bulge.
• Business group Income (£6.7m over recovery)

Budget Position for each Business Group

15. Territorial Policing – Are forecasting an overspend of £10.2m (0.9%). The main forecast variances are an overspend in police pay (£5.0m), Police Officer Overtime (£3.3m) and devolved running expenses (£5.4m) but this is largely offset by underspend on Police staff pay (£7.0m including Traffic Warden and PCSO pay). An element of this overspend is due to increased counter terrorist activity.

16. Specialist Operations – Are forecasting an overspend of £10.9m. The main forecast overspend is on Police Overtime and Overseas Travel. The variances result from continuing counter terrorism activity, and additional demands on protection officers. Specialist Operations are also forecasting an overspend of £1.7m on police officer pay. This is due to revisions to the Police Officer Deployment Plan which are yet to be reflected in changed budget allocations.

17. Specialist Crime – Are forecasting an overspend of £5.9m. The main areas of overspending are police staff pay where Specialist Crime is of the view that this budget is structurally inadequate to support its activities.

18. Deputy Commissioner’s Command – Are forecasting an overspend of £10.8m. The main areas of overspending are Supplies and Services relating to the Airwave project which will be offset to a degree by received grant and additional costs relating to network support charges and projects (£4.0m). This is partly being offset by a forecast underspend of £1.7m on police staff pay.

19. Human Resources – Are forecasting an underspend of £8.0m. The main areas of underspending being police officer and police staff pay and police officer overtime as HR continue to run understrength.

20. Resources Directorate – Are forecasting a small overspend of £0.3m.

21. MPA –The MPA is forecasting an overspend of £500,000 which relates to the Morris inquiry costs. However, a reserve exists for these costs and corresponding budget will be available once the accounts have been finalised.

22. As set out earlier there is some concern over this first forecast given the recent structural and system changes and it is likely that the net overspend at the business group level is overstated. The areas which are causing this potential overstatement, and which will be resolved for the next monitoring report, are:

• the need for a review of the forecast of police staff pay which currently indicates an underspend of £3.9m (0.9%). As the organisation is currently 4% under strength even if the MPS were to recruit to full strength by the end of the year the underspend could increase by up to £10m
• now the accounts for 2003/04 are closed the reserve position is being considered by members at the same Committee as this paper and it will be possible to reflect the use of earmarked reserve and increase budgets accordingly. This will improve the position for the Deputy Commissioner’s Command and MPA and as the total value of earmarked reserves is £66m (excluding police pensions) it is likely that other areas of the forecast are overstated.
• Members may recall that the MPS holds pay and non-pay inflation centrally and allocate it to business groups once pay awards are known or successful bids are made against the non-pay inflation budget. Past experience shows that in the early part of the year there is a degree of double count with the effect of pay and price rises being forecast both locally and corporately. The amount being held centrally for pay and non-pay price increases is £41.9m
• In addition to the above it has been raised previously in the report that the Police overtime forecast overspend may be understated. This is recognised and work to understand this forecast and manage the expenditure will take place as part of the actions of the MPS’s Overtime Working Group chaired by the Director of Resources.
• In addition, this report has been shared informally with Commissioner’s SMT on 16 July 2004 where it was noted that operational business groups were forecasting large overspends. This requires management action and will be investigated with reasons being reported to the Director of Resources and the position brought back to an informal meeting of the Commissioner’s SMT in two weeks time for further review by Management Board. It was further agreed that if the situation of forecast against allocated budget, despite expectations, does not improve by the 4th month forecast (to be reported to Committee in September) then stronger corporate control will need to be applied, as has been the case in previous financial years, possibly escalating to the implementation of a Budget Star Chamber.

Budget Pressures

23. In addition to the budget issues above, Members are reminded that there remain a number of budget pressures, which will need to be managed in 2004/05. Amongst these are the increases in fuel costs plus the payment to ATOC and the associated tax liability for officers’ rail travel which is not fully funded this year. Members are also reminded that at the end of last year a number of unfunded pressures were identified in 2004/5 and that £4m was set aside from the underspend, to fund some of these pressures. This will be insufficient, however, to cover them all and they will need to be managed with the overall budget. There remains a shortfall in funding National, International and Capital City functions (NIC) including funding of Dedicated Security Posts (DSPs). These areas are the subject of a separate report by Avail Consulting which will be brought to the Committee at its next meeting.

24. Since the budget was set, the Bichard Inquiry has reported. Implementing its recommendations in the MPS will require significant, but as yet not fully quantified, expenditure. The Morris Inquiry may also have a price tag in implementing its recommendations when they are made.

C. Race and Equality impact

There are none specific to this report.

D. Financial implications

The financial implications are those set out in this paper.

E. Background papers

Previous 2003/04 monitoring reports and provisional outturn report

F. Contact details

Report author: Sharon Burd, Director of Finance Services

For more information contact:

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

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