States Accounts / ‘Fake’ FTP Saving

I made the following speech on the States Accounts in July 2014. This is when the issue of the ‘fake’ FTP saving of £650k was raised.

Sir,

3 weeks ago we sat here having 4 extra days set aside to consider the future organisation of the States’ affairs. Yet, I find it concerning – and somewhat disappointing – that no specific time is ever put aside to debate the current organisation of the States’ financial affairs as presented in its annual accounts.

That aside, on behalf of the Public Accounts Committee, I should like to start by saying that these accounts will help the PAC to determine its priorities within its forward work programme, keeping in mind the limitations of it’s resources.

However, I should like to focus attention for the purpose of this debate  on 3 key points that have arisen from an initial assessment of the information contained. Namely budgets, FTP and pay costs.

Budgeting

The Committee was pleased to hear the recent statement from the T&R Minister about the need to move towards zero-based budgeting. PAC has been calling for this for quite some time and consider this a matter of some urgency.

Indeed it is the Committee’s view that this should have taken place before the FTP process began. This may have prevented the need for a 5% vacancy factor and reduced payments to Capita if nothing else.

At a time when consideration is being given to whether taxes need to go up, we need to make sure we have a greater understanding of how we are spending taxpayers’ money.

As such, zero-based budgeting will be meaningless until such time as the States Accounts are prepared under generally accepted accounting principles and are more transparent as a result. I remind the T&R Minister again that the States approved funding for this exercise in 2011.

With that in mind, I refer members to the columns within all the main income and expenditure accounts headed ‘Original Budget’ and ‘Total Authorised’.

Nowhere in the accounts is there a clear and definitive explanation as to why we start off with one budget and end up with another. I believe, as does the Committee, that there should be a clear reconciliation between the original and the final authorised budget for each department within the accounts. This would provide a clear line of sight to each department’s uplift during the year –  together with the rationale.

I will demonstrate using HSSD by way of an example. Apologies Deputy Dorey but what has happened in that Department serves to demonstrate how a fair amount of activity has occurred which is not fully referenced in the accounts. This despite the fact that the Assembly is being asked to approve a stated overspend of £306k, not against the original budget of £108m but a total authorised budget of £112m.

However, before I start, I should like to state that the Committee is pleased that improvements recommended in its report on the ‘Financial management within HSSD’ have been made. We’ve seen ongoing communication between HSSD and T&R at Ministerial and Senior Officer level, addressing ongoing issues such as the drawdown of £0.8m from budget reserve, for what is described as an ‘exceptional circumstance’.

Now, in terms of the HSSD budget. With the exception of the uplift for staff, which is accepted practice across the States,  together with the already mentioned drawdown for the ‘exceptional circumstance’, we note from Deputy Dorey’s statement earlier in the year that there was an uplift in the HSSD budget of £0.8m to support the cost of severance payments and an agreed uplift with T&R of £1.3m.

Therefore, together with the acknowledged £0.3m overspend, it could be considered that there is a £2.4m variance from the 2013 budget to the eventual outturn.

We have no further information as to why T&R have agreed an uplift of £1.3m-in fact, none of this information appears in the accounts.

How can we Deputies approve the final overspend figure if we can’t be certain how that figure has been arrived at?

By way of an aside, we also question the inconsistency of treatment of the voluntary severance payments. Whereas those Departments who were able to absorb the costs of voluntary severance did so, HSSD have effectively been given a credit.

FTP – 650K:

 I would now like to discuss the FTP and at this point ask members to turn to page 61 which shows the FTP targets and breakdown for HSSD.

Members should be aware that the Public Accounts Committee has serious reservations about the inclusion of an FTP project referenced as ‘Visiting Consultants charged to Health Insurance Fund’ totalling £650,000.

The Committee has spent several months trying to ascertain from the Policy Council why this item is included as a saving. To all intents and purposes this is just a budget transfer, a bookkeeping entry, as there are no net savings within public expenditure.

From the information received by the Committee, it would appear that the rationale for accepting the proposal was that the Guernsey Health Service Fund, which is being charged, rather than the general reserve, could absorb the £650K whilst remaining in operational surplus and without any additional contributions.

It was clear that there was a level of hesitation in supporting this proposal at the time and the PAC requested that Policy Council revisit this particular proposal to ensure that the rationale for inclusion was valid in both the letter and spirit of the FTP criteria.

The PAC, whilst noting that due process has been followed, is disappointed that these savings have remained within the FTP Portfolio of savings and attributed to HSSD.

For the sake of clarity, the PAC does not query the rationale of the transfer, only that it is included in the FTP and that Capita have received c£40k in fees as a result.

On a related point, we see that HSSD’s outturn for last year was £112m, the initial 2014 budget is £104m. The FTP target was originally set at £6.1m, then reduced to £4.7million. It is evident that HSSD’s 2014 Budget and FTP savings target remain a serious challenge and there is clearly a significant risk of a major overspend occurring in 2014, as already brought to the attention of the Assembly.

We do acknowledge the recent efforts being made to make savings and thank Deputy Dorey for meeting with myself and Deputy Harwood last week, which gave us a useful insight into the approach being taken on a number of matters.

However, it remains PAC’s considered position that until a fundamental review of the overriding Health and Social Care Model is undertaken, the question of ‘Value for Money’ from the overall Health and Social Care spend across those departments involved in its provision, cannot be assured.

I should like to make it clear that the PAC is calling for an overall Health & Social Care model review – not just a review of HSSD – this would include patient and financial pathways covered by HSSD, SSD, MSG, GPG, St Johns and the 3rd Sector. The regulation of Health & Social Care and the promotion of Public Health must also be included within this Value for Money review.

As long as a modular review approach is being pursued, we find it hard to see how we will ever gain assurance that we will ever see a point where HSSD will meet its financial targets or know what those targets should be.

With the FTP drawing to a conclusion at the end of this year, we would ask the T&R Minister to consider whether funding for any such a review could come from the various Funds created specifically for this kind of purpose – Fundamental Spending Review Fund or Strategic Development Fund.

Pay Costs / Recruitment & retention of staff:

 I would now like to talk briefly about pay costs, or more specifically the States of Guernsey Employees Pension Scheme.

With a growing pension liability the PAC questions why the scheme has not been closed to new members. We believe that given such action was taken in the private sector 10-20 years ago and more recently to the States Members pension scheme, there is little justification in keeping the door open.

Whilst the horse may not have bolted yet, it is building up a sweat and I would argue that the door needs to be closed now before it runs away from us and we can’t keep it under control.

 Finally, I would like to finish with one question for the T&R Minister.

The main accounts of the States of Guernsey are not currently drawn up under generally accepted accounting principles, or to give it its abbreviation, GAAP, but those of some of the other States’ entities are.

Members may be aware that these are exciting times in the accountancy world – from 1 January next year  those accounts produced under GAAP will now need to conform to a new accounting standard known as FRS102. I would therefore like the Minister to advise whether work has commenced to ensure that all entities will be in compliance with FRS102 by the time of reporting of the 2014 accounts.



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