PART 1
(OPEN TO THE PUBLIC)
ITEM NO.7
REPORT OF THE STRATEGIC DIRECTOR OF CUSTOMER AND SUPPORT SERVICES
TO THE BUDGET AND AUDIT SCRUTINY COMMITTEE ON WEDNESDAY, 5th JANUARY 2005
TITLE: REVENUE BUDGET 2004/05: BUDGET MONITORING
RECOMMENDATIONS: Members are asked to note the contents of the report and await further
information from the Strategic Director of Education and Leisure in respect of subsidised nursery
places.
EXECUTIVE SUMMARY:
The report provides details of the current position relating to budget monitoring for the revenue budget
and the implementation of the agreed revenue budget savings for 2004-2005.
BACKGROUND DOCUMENTS:
Various working papers and reports. (Available for public inspection)
CONTACT OFFICER:
Chris Hesketh Tel. 793 2668 chris.hesketh@salford.gov.uk
Colin Kay Tel. No. 793 3245 colin.kay@salford.gov.uk
ASSESSMENT OF RISK: Key budgetary control risks are identified in the report.
SOURCE OF FUNDING: Revenue Resources
LEGAL ADVICE OBTAINED: Not applicable
FINANCIAL ADVICE OBTAINED: This report concerns key aspects of the Council’s revenue finances
and has been produced by the Finance Division of Customer and Support Services.
WARD(S) TO WHICH REPORT RELATE (S) :
KEY COUNCIL POLICIES:
Budget Strategy
None specifically
REPORT DETAIL
1
Introduction
1.1
This report advises members of the current position relating to revenue budget monitoring for
2004-2005.
1.2
Work on the revenue budget for 2005/2006 and the reassessment of the current year’s estimate
to produce the 2004/05 approximate is still continuing.
1.3
This report is based on directorates’ latest budgetary control reports, the trading statements for
the DLO/DSOs and an update on the progress being made on the savings proposals.
1.4
In addition, as part of the budget risks exercise, individual directorates have been asked to
quantify what their current amount of risk is and details are included at appendix 1.
2
Control Totals
2.1
Control totals are used to produce budget projections and as an aid in monitoring the overall
budget throughout the year. They are arrived at by amending the original base estimate to take
account of known and potential variations, which are mainly outside the direct control of
directorates.
2.2
The items that make up these adjustments include the settlement of any pay awards, allowances
for price increases, NNDR and insurance charges, demographic changes and legislative matters.
Totals are refined as firm figures for each of the items involved are determined or clearer
information comes to light.
3
General Fund Services
3.1
Arts and Leisure
The directorate is still projecting that 2004/05 expenditure will be contained within the overall
budget at year-end.
3.2
Chief Executives
The directorate is still projecting that 2004/05 expenditure will be contained within the overall
budget at year-end.
3.3
Community and Social Services
The underspend on the employee budget now stands at £231,000 which is 0.9% of the salaries
and wages budget to November 2004.
As reported last month the Children’s Outside Placements budget continues to be volatile and is
now currently showing a projected overspend for the year of £156,000 (2.9% above budget). The
overspend represents the average cost of 1.3 children for a year.
It is anticipated that the budget pressures relating to the new placements within the Learning
Difficulties Service will be managed in the current year.
It is still anticipated that net expenditure will be kept within budget and close monitoring will need
to continue for the remainder of the year.
2
3.4
Customer and Support Services
As part of the strategic review the budget of the former Personnel and Performance directorate
(Human Resources) has now been transferred to the Customer and Support Services directorate.
Overall, it is still anticipated that the net expenditure for the directorate will be kept within budget
at year-end.
3.5
Development Services
As has been reported throughout the year the position within the Development Services
directorate remains much the same with a relatively small overspend on employees continuing to
be incurred.
Income levels still continue to be holding up well and this should help alleviate any pressures that
may occur on other budgets.
3.6. Education
The additional cost of Special Education Needs pupils at Independent Special Schools has now
been allocated from the central corporate budget.
Since the previous report further pressures have arisen within the Lifelong Learning budget and
an overspend of £140,000 relating to subsidised nursery places is now being anticipated. Some
of this additional cost may be recouped from within the ISB budget as a result of pupil clawback.
The above situation, together with the previously reported overspends on advertising and ICT are
being partially offset by savings elsewhere in the budget. However, the directorate are now
anticipating a year-end overspend in the region of £140,000 caused in the main by the additional
cost of the subsidised nursery places.
3.7
Environmental Services
As previously reported it is still anticipated that net expenditure will be kept within budget at yearend.
3.8
Housing General Fund
A recent report to the Lead Member for Customer and Support Services outlined the problems
associated with Homelessness.
Unfortunately the level of homelessness is still placing severe pressure on an already revised
budget and an overspend in the region of £100,000 is now anticipated by year-end subject to the
clarification of the eligibility for Housing Benefit.
3.9
Marketing / Communications
It is anticipated that net expenditure will be kept within budget at year-end.
3.10 Corporate Issues



Debt rescheduling – previous reports have identified savings of £0.6m from rescheduling
exercises.
Modesole/GMex dividends - an unexpected dividend of £285,000 has recently been
received with a further sum of £92,100 anticipated.
Airport dividend - a dividend of £0.825m has been received, exceeding budgeted income
by £0.190m.
3

4.1
NNDR refunds on Leisure Centres - £0.4m (on 1995 valuations) towards targeted
contribution to reserves of £0.5m - appeals are still outstanding on 1990 valuations and
Pendlebury Recreation Centre.
Housing Revenue Account
The previously reported adverse variation on dwelling rents is anticipated to be £700,000 at year
end, the variation should be offset by a reduction in the contribution made to the bad debt
provision.
A reduction in interest charges to the to the HRA of £700,000 will be offset by an equivalent
reduction in Government housing subsidy, giving a neutral effect overall.
It is still anticipated that, subject to close monitoring net expenditure will remain within budget at
year-end.
4.2
Housing Repairs Account
The approval of the virement of the NPHL management fee to the revenue repairs budget should
now address any potential overspend that was previously anticipated.
5
Direct Service Organisations
5.1
Details of the trading positions of the various DSOs are indicated in the table below.
DSO
As at
07/11/04
Budget
Surplus /
(Deficit)
£
132,815
Actual
Surplus /
(Deficit)
£
216,151
Variance
Favourable /
(Adverse)
£
83,336
School and Welfare
Catering
Building Cleaning
Commercial Catering
Highway Services
VMM
Grounds Maintenance
Street Cleansing
Refuse Collection
30/11/04
30/11/04
30/11/04
30/11/04
30/11/04
30/11/04
30/11/04
1,012
12,228
0
25,468
(233,916)
14,873
20,912
14,488
40,238
(24,000)
30,505
(357,022)
41,452
(29,182)
13,476
28,010
(24,000)
5,037
(123,106)
26,579
(50,094)
(26,608)
(67,370)
(40,762)
Total
5.2
Education and Leisure DSOs
The Education and Leisure DSOs continue to record favourable trading positions.
5.3
Environmental Services DSOs
The Street Cleansing DSO is trading profitably and the surplus is favourable to plan.
The Grounds Maintenance DSO is showing a deficit at present but is anticipated to be favourable
to plan at year-end. However, as the situation is very tight close monitoring will need to continue
for the remainder of the year.
The VMM DSO is trading to plan and is anticipated to be favourable to budget at year-end.
4
The Refuse Collection DSO is currently showing an operational deficit however additional income
in respect of recycling is expected in January 2005 and the position is anticipated to be
favourable to budget at year-end.
5.4
Highway Services DSO
Although the DSO continues to trade at a small loss historically the trading position improves in
the last quarter of the year and a satisfactory break-even position is still anticipated by year-end.
6
Progress on agreed savings
6.1 All directorates have previously reported the actual savings achieved. In cases where budgets
have been adjusted and monitored these savings are still on target to be achieved.
7
7.1
8
Budget Risks
A full budget monitoring exercise is undertaken each month by all directorates to ensure that any
issues and corrective action are identified at an early stage. Areas that represent greater risks in
budgetary control have been identified and will be subject to greater scrutiny. Individual
directorates have quantified what their remaining value of risk in the current year is and details
are included in Appendix 1.
Summary
8.1
Once again budget monitoring has highlighted a problem area within the Education Directorate
budget and this area is to be the subject of further investigation.
8.2
As a consequence of the favourable variations previously reported it is still anticipated that
General Fund expenditure will be kept within budget at year-end. It is important however, that
close monitoring continues for the remainder of the year.
8.3
Most of the agreed savings for the year have been achieved whilst the majority of the remainder
are still on target to be achieved.
9
Recommendations
9.1
Members are asked to note the contents of the report and await further information from the
Strategic Director of Education and Leisure in respect of subsidised nursery places.
Alan Westwood
Strategic Director of Customer and Support Services
5
Appendix 1
RISK ASSESSMENT OF REQUIREMENT FOR RESERVES 2004/05
Amount
£000s
250
500
BUDGET REPORT 2004/05 - FEBRUARY 2004 COUNCIL – LATEST QUANTIFICATION OF RISKS AS AT NOVEMBER 2004
Area of Expenditure
Explanation of Risk/Justification for Reserves
Latest Risk Assessment
2004/05
Pay
Budget assumes an increase of 2.5%. Teachers' award settled. 2.75% accepted – Additional costs met from within existing
The risk of the 2.5% provision being exceeded for non-teaching budgets.
staff is estimated at + 0.5%. Some GM authorities are
budgeting for a 3% increase, though most are at 2.5%.
Prices
It is assumed that price inflation can generally be managed by
Inflation allowance distributed to directorates and outturn
directorates within a zero cash-limited increase, but there are
budgets being managed. No unforeseen price increases have
signs that certain areas of expenditure, e.g. fuel, water, may
come to light so far.
show price increase in 2004/05 substantially above the
generally expected inflation of 2.5%.
Insurance
The Feb 03 insurance renewal saw total insurance costs for
The February 2004 exercise complete within budget. A
liability insurance rise from £3m to £7m because of the rising
reassessment of outstanding liability claims by the loss
incidence and cost of tripping claims. The long-term agreement adjusters in October 2004 has reduced the risk of the fund
for insurance is due for renewal in Feb 04. A provision for a
provision being exceeded.
10% increase has been allowed as well as providing for a
further £1m increase in the contribution to the Insurance Fund,
but even this may be insufficient.
DSO surpluses
The 2003/04 budget provides for a £0.5m contribution from
The outturn DSO trading results for 2003/04 showed a surplus
DSO surpluses, reducing to £0.250m in 2004/05. Increasing
of £500,000 would be provided to General Fund reserves. No
cost, demand and savings pressures upon DSOs and a
reason to believe the contribution for 2004/05 of £250,000 will
reducing turnover base due to transferring DSOs to ALMO,
not be achieved at this stage.
trust, JVC limit the scope for future surpluses
Social Services
Experience from the 2003/04 budget and from other local
 Learning Difficulties - The increase in demand and cost of
authorities across the country demonstrates that key areas of
packages of care
service provision to children, adults and the elderly are all
 Residential Care Home rate price increases for residential
under pressure from increasing demand for those services.
and nursing placements outside the Authority
Insufficient Government funding and the threat of bed blocking
 Hospital discharges - The level of delayed discharges and
penalties add to the demand pressures. The introduction of
the impact of fines
pooled budgets also limit the scope to reallocate resources
 Home Care - Potential growth in demand to support people
between budget heads.
independently at home
 Supporting People - potential reductions in income
 Recruitment for Children's Services - Impact on the level of
agency payments necessary to cover the delivery of the
service
 Children and Families - The cost of outside placements and
Amount
£000s
Area of Expenditure
Explanation of Risk/Justification for Reserves
2004/05
Latest Risk Assessment


agency foster care
Staff recruitment and potential rewards costs
Increasing Legal Costs for Children Looked After court
cases
These risks are currently being satisfactorily managed within
the budget provision.
HB and Council Tax
Benefit Subsidy
250
Development Services
- income achievement
The payment of rent rebates will become a General Fund
responsibility from 2004/05 and the combined benefit budget
will be £88m. Benefit payments are subject to demand and
certain types of rebate payment which attract low rates of
subsidy, e.g. LA error, overpayments, may be subject to
variation.
A number of income budgets, e.g. planning and building control
fees, parking fines, market and commercial rents, are all
subject to economic conditions or external demand influences,
any one of which may unexpectedly develop a significant
shortfall.
Benefit payments and eligibility to subsidy still subject to close
scrutiny, but a detailed assessment indicates no adverse
position to report at present.


Highways Works budget - it is expected that the budget will
continue to come under pressure during the current year.
The budget is to be closely monitored with a view to
managing any overspends from favourable budgets
elsewhere within the directorate.
Decriminalised Parking Enforcement - the approval of
Budget Scrutiny Committee of a virement from favourable
income budgets will help to cover any shortfall in the
current year
Quaywatch Scheme – possible shortfall in income.



Homelessness
Asylum Seekers
Monitoring costs of new structure

100
Housing - income
Education - SEN
The growth in private sector housing activity, notably through
Supporting People, Asylum Seekers and HMRF has placed a
greater emphasis on income budgets, particular Government
grants for SP/AS and recharging salaries to capital associated
with HMRF. Whilst there is a settling in period for these
activities there is a risk of over-optimism in assessing the likely
income.
Demand pressures from a potential increase in the number and
cost of out-of-district placements (linked with Social Services
demands) and transport.
£500k shortfall met from central
additional £100k may be incurred.

contingencies
budget
Extra District / Earmarked - There is an expectation that
this area will overspend due to the high level of support
required for pupils and the increased costs of placements
which are above inflation. A detailed explanation of the
reason for overspending in 2004/05 has been produced by
the Assistant Education Officer SEN.
£400k overspend met from central contingencies budget.
Amount
£000s
640
Area of Expenditure
Non-achievement of
savings
Unforeseen
expenditure /income
shortfall
Explanation of Risk/Justification for Reserves
2004/05
There is a risk that some proposals built into the budget plans
cannot be delivered on time or at all.
There is a risk that unexpected events may occur which require
expenditure to be incurred or income to be foregone, which
have not been budgeted for.
Latest Risk Assessment
No shortfall in savings anticipated at year-end.
Chief Executive
 Matched funding requirements
 External Government funding trends
 Staff turnover and retention and 6% vacancy factor
 Future funding opportunities
 Corporate / Leadership Costs
 Marketing and Communications budget
Corporate Services
 Funding of IT Projects - Enterprise XP, UPS, SANs and
Document Imaging
 Licensing - changes in legislation
 SLAs with schools, NPHL and SCL
 E-government targets
 I.T.Net
 Planning and Management software tool
 Relocation of Data Centre
 Members IT provision
 Community Committees
Arts & Leisure
 Lottery funded capital schemes in some of our leisure
centres will require the full or partial closure of these
centres whilst work is carried out which will lead to a net
loss of income after some savings in running costs have
been accounted for. It has been agreed in principle that
SCL will be compensated centrally via their management
fee in these circumstances should there be an overall
shortfall at outturn.
Education
 Advertisements - There is insufficient budget provision for
recruitment advertising due to the increases in the cost of
individual adverts and the reduction made in budget a
number of years ago as a result of corporate budget
savings.
 ICT - The overspend on ICT equipment and licences is due
to insufficient budget provision.
Amount
£000s
Area of Expenditure
Explanation of Risk/Justification for Reserves
2004/05
Latest Risk Assessment

Lledr Hall - Lottery funded capital scheme will result in the
centre being closed/partially closed which will result in an
underachievement of income for 2004/05. It has been
agreed in principle that the centre will be compensated
centrally for this loss. This will also affect the 2005/06
financial year.
 Influx of additional 250 pupils attending private nursery
provision in receipt of subsidised places (£140,000).
Environmental Services
 Greater Manchester waste strategy - 25 year contract
 Contaminated land
 Waste management and recycling targets
 PSA achievement
 Income management
 Industrial relations
 Security of assets
Treasury Management
Capitalisation of
revenue
1,740
Total
Investment returns may under-achieve budget assumptions or
borrowing costs may exceed budget assumptions as a result of
rising interest rates. Assessed risk is of a 0.5% underachievement on assumed investment return of 4% and a 1%
increase on assumed borrowing costs of 5% on £20m of new
borrowing.
Budget plans are for £4m to be capitalised in 2003/04, reducing
to £3m in 2004/05 and £2m in 2005/06. There is a risk that
insufficient expenditure can be identified within the revenue
budget that can be legitimately categorised as revenue.
No longer a risk - £500,000 additional savings received on debt
rescheduling
Education
Corporate Services
 Revenue capitalisation – exercise in progress to identify
revised target of £3.2m.