Audit Commission’s “Police - Activity Based Costing Review 2004”

Report: 07
Date: 7 April 2005
By: Commissioner

Summary

The Audit Commission’s “Police – Activity Based Costing (ABC) Review 2004” has been concluded and is being tabled for the Finance Committee’s consideration.

This report updates the Finance Committee on the MPS’s response to the Audit Commission’s findings and plans for ABC implementation this year.

A. Recommendation

 That

1. Members are asked to note the contents of this report.

B. Supporting information

The requirement to provide police ABC data

1. The Home Office requires that all police forces provide Activity Based Costing (ABC) information to agreed definitions and standards as part of the annual data requirement. The model uses a wide range of data including activity analysis, management information and cost centre data to provide costs against a range of policing activities (e.g. dealing with burglary, visible patrol). Activity analysis data collected as part of the ABC model is also required to inform the Frontline Policing Measure developed to monitor achievement of Public Service Agreement (PSA) 2. All this information will also be used as part of the Policing Performance Assessment Framework which in turn is likely to be used to inform a review of the funding formula in future years. The MPS also recognises the need for ABC data for local use to inform resourcing decisions.

Audit of the first year of implementation

2. All forces were required to submit their first set of data (for 2003-04) by the end of July 2004. Following this, the Home Office asked the Audit Commission to review the first year’s implementation and resulting data for each force.

3. As the Finance Committee was made aware in September 2004, the first year of implementation of the costing model presented considerable challenges to the MPS in the scale and complexity of the model to be developed:

• The size of the MPS’s activity analysis (AA) programme presented initial problems in collating the data quickly.
• The size and complexity of the MPS costing model resulted in excessive run-times on the ABC software hampering review and further development of this model.
• Initial review of the ABC model revealed the need to revise aspects of the model – again a time consuming process.

4. A number of lessons were learned across the whole process for this year (see below), but it should be noted that the MPS was not alone in finding difficulties in the initial implementation of the model and all forces were invited to review and resubmit their costed data to the Home Office by 31 December 2004.

Audit Commission findings and lessons learned

5. The Audit Commission’s findings reflect the problems found in the first year of implementation: “weak” systems and arrangements and “weak” overall quality of the resulting ABC data. However, the Audit Commission’s comments also acknowledge the scale of the challenge facing the MPS and significant changes are being made to address these challenges, for example:

• Additional resource was provided to support Borough Operational Command Units (BOCUs) during the period of the AA studies to help manage the collection and quality checking of activity analysis cards and to improve the timeliness of collation of the AA data.
• A major re-write of the ABC model is taking place in Finance Services, with close liaison and support from the AA Unit, to allow for cost models to be built at OCU level as well as at Force and BOCU level and to make full use of all the data captured for the model. We are working closely with B-Plan (the suppliers of the ABC costing model software) on this.
• An extensive upgrade of the IT support for the model is also taking place to ensure that we avoid the problems with excessive run-times on the software. This is progressing well with significantly reduced run-times on the current costing model pending the re-build of the model for 2004-05.
• Finance Services has recently recruited an additional member of staff (who is a specialist ABC practitioner) from another force to lead on this area of work. The team is set to be resourced appropriately to effectively handle the demands/challenges that ABC might bring.
• Finance Services and the Directorate of Strategic Development are working closely to link the costing and AA data with performance data to explore how the data can be used at a corporate level as well as at a local level. In particular, a pack of information regarding the AA and ABC data is being prepared for discussion with stakeholders around the usefulness of the data, although caution must be used in the first instance with working with this new data set.

Response to the Audit Commission’s Action Plan

6. Our response to the action plan proposed by the Audit Commission is shown at Appendix 1 to this report. It should be noted, however, that there are issues of timing of the actions proposed by the Audit Commission:

• The majority of AA studies for the ABC model are completed in the Autumn of each year: therefore any changes made to any of these processes will affect the 2005-06 return, not the 2004-05 return (most studies for this year having already been completed).
• Reporting of the ABC and Activity Analysis data takes place in July each year to take account of actual cost data for the year. Therefore high level reviews of ABC data cannot take place until the summer.

Conclusion

The MPS and MPA will continue to work with the Home Office on implementation of ABC. It has presented a number of challenges in the first year, but exploitation of the information gained is crucial to helping improve efficiency and resourcing decisions in the MPS and improvements to the ABC process are taking place.

C. Equality and diversity implications

By providing an indication of cost to help set performance in context, ABC data may provide local managers with additional information on which to assess their compliance with the Race Relations Amendment Act and to assess equality of service provision.

D. Financial implications

1. There is a potential risk to MPA/MPS funding if activity based costing is not implemented in the MPS. This risk is not currently quantifiable.

2. Costs of conducting BOCU Activity Analysis studies were addressed in an earlier report to MPA Co-ordination and Policing Committee (February 2003). There have been no significant changes to these costs.

3. Finance Services have recently reviewed and increased its staffing on ABC work, but the cost will be accommodated within existing salary budgets.

E. Background papers

• Implementation Of Activity Based Costing In The MPS - MPA Finance Committee report, 14 November 2002
• Operational Policing Measure - MPA Finance, Planning and Best Value Committee report, 29 May 2002
• Update On Implementation Of Activity Based Costing In The MPS: Data Collection From BOCUs – MPA Co-ordination and Policing Committee report, 17 February 2003
• Update on Implementation of Activity Based Costing (ABC) in the MPS – MPA Finance Committee 15 September 2003
• Update on ABC implementation in the MPS - MPA Finance Committee 15 September 2004

F. Contact details

Report author: Helen Dean, Directorate of Strategic Development

For more information contact:

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

Appendix 1

MPS Comments on the Audit Commission Action Plan for ABC

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