REPORT TO: POLICY AND RESOURCES COMMITTEE ON 08 OCTOBER 2013 CORPORATE DIRECTOR (CORPORATE SERVICES)

Transcription

1 PAGE: 1 REPORT TO: POLICY AND RESOURCES COMMITTEE ON 08 OCTOBER 2013 SUBJECT: BY: SIGNIFICANT TRADING OPERATIONS CORPORATE DIRECTOR (CORPORATE SERVICES) 1. REASON FOR REPORT 1.1 To review which of the Council s Services should be accounted for as Significant Trading Operations. 1.2 This Report is submitted to Committee in terms of Section III (A)(2) of the Council's Administrative Scheme relating to the regulation and management of Council finances in accordance with the policies determined by the Council. 2. RECOMMENDATION 2.1 It is recommended that Committee agrees that no service provided by the Council requires to be categorised as a Significant Trading Operation. 3. BACKGROUND 3.1 The Local Government in Scotland Act 2003 sets the requirement for Councils to maintain Statutory Trading Accounts for Significant Trading Operations. These operations should break even over a three year rolling period. 3.2 The Council should keep consideration of whether its services should be classified as Significant Trading Operations under review. The status of the Council s services was last reviewed by Policy and Resources Committee on 22 June 2010 (Paragraph 5 of the Minute refers). At that Committee, it was agreed to maintain the classification of the following activities as Significant Trading Operations: Roads Maintenance, Building Services, Grounds Maintenance, and Fleet Services.

2 PAGE: The Chartered Institute of Public Finance and Accountancy (CIPFA) Directors of Finance and Local Authority (Scotland) Accounts Advisory Committee (LASAAC) first published guidance on how to identify trading operations and thereafter judge whether they are significant in Further guidance was approved by LASAAC and CIPFA Local Government Directors of Finance (Scotland) section and issued in June This guidance modifies the original guidance. 3.4 The CIPFA/LASAAC guidance has always been used in determining which of Moray Council s services are Significant Trading Operations (STO). 3.5 The revised guidance states that identification of an STO should focus only on those services or activities which are external to the local authority and which are not statutory in nature. This narrows down the services which may be classified as STOs. Internal and statutory services may still be accounted for as trading operations, but they would not be relevant trading operations for the purpose of the STO review. 3.6 The guidance states that the determination of a trading operation is a matter for individual Councils but it should be based on consideration of whether a service meets both of the following criteria: It is provided in a competitive environment, ie service users have discretion to procure services from an alternative provider; and It is provided on a basis other than straightforward recharge of cost, ie users take the service on the basis of quoted lump sums, fixed periodical charges, rates or a combination of these. 3.7 After assessing if services are trading operations, the Council then has to define whether these operations are significant. The following criteria are recommended to be used for determining whether a trading operation is a significant trading operation: The size of turnover of the trading operation relative to the Council s net revenue budget. The risk of financial loss to which the Council is exposed in carrying out the operation. The importance of the use of a trading account in demonstrating service improvement and achievement of targets for the operation. The risk of service or reputation loss to which the Council is exposed in carrying out the operation. The service areas likely to be of interest to the Council s key stakeholders and their needs.

3 PAGE: A two-stage approach to assessing services has been taken. All services delivered by the Council have been assessed to identify whether or not they are relevant trading operations. The following tests for this have been used: 1 Does the service transact with the general public or (an)other organisation(s)? 2 If so, does trading take place in a competitive environment ie do service users have a genuine choice of supplier? 3 Is the service non-statutory? 4 Is the service charged for other than by a straightforward recharge of cost ie quoted lump sums, fixed rates or charges? If the answer to all of these questions is yes, then the service is deemed to be a relevant trading operation. 3.9 All relevant trading operations should then be assessed for significance. The following tests of significance have been set: 5 Is the turnover of the trading operation greater than 1% of the Council s net revenue budget ( million)? 6 What is the risk of financial loss to which the authority is exposed in carrying out the operation? 7 What is the importance of the use of a trading operation in demonstrating service improvement and achievement of targets for the operation? 8 What is the risk of service or reputational loss to which the Council is exposed in carrying out the operation? 9 Is this service area likely to be of interest to the Council s key stakeholders and their needs?

4 PAGE: All Council services were considered for the first part of the assessment and the results thereof are summarised in APPENDIX 1. The following services were deemed to be relevant trading operations: Service Turnover 000s Supported Housing (inc TMC) / Respite 1,704 Moray Resource Centre 20 Employment Services 26 After School Clubs 34 Leisure Services 704 Community Centres 126 Coffee bars 201 Sports facilities & pavilions 18 Public Halls 115 Sport Development 84 (Part of) Waste disposal 939 (Part of) Refuse collection 1,195 Burial Grounds 372 Moray Training squads 50 Grounds Maintenance DSO external contracts 261 Catering 1,587 Harbours 486 Vehicle workshop external contracts 33 Minibus contracts 837 Building Services external contracts 128 Industrial Estates 1,614 None of the above services meet the turnover test of significance, as all are under 1% of the Council s General Services net revenue budget It is noteworthy that the none of the Council s current STOs pass the tests of both relevance and significance. The turnovers of all four services when internal and external contracts are added continue to exceed the significance threshold. However, the revised guidance makes it clear that internal services should be excluded from the scope of STOs.

5 PAGE: The extent to which the four services are internal services can be seen by comparing the budgeted turnovers for external contracts with total budgeted income. Service Internal income 000s External income 000s %age of turnover external Grounds 2, % Maintenance DSO Vehicle workshop 2, % Roads DLO 9,045 None budgeted N/A Building Services 7, % 3.13 The CIPFA / LASAAC working group which reviewed Trading Operations are quoted in the revised guidance: Where services are provided internally, trading accounts can still be operated but this would be the choice of the local authority. Any internal trading would only be subject to the legislative duty of local authorities to secure best value and not the legislation relating to trading operations and accounts Under the revised guidance no Council service meets the criteria for being classified as an STO, but the Council still has the option to continue to maintain trading accounts for these services, where this is considered to be operationally useful. Mangers have decided that it would be useful for all of the services mentioned in paragraph 3.12 to continue to be reported as trading accounts. 4. SUMMARY OF IMPLICATIONS (a) Council / Community Planning Priorities There are no implications for Council or Community Planning priorities arising from this report. (b) Policy and Legal There are no Policy and Legal implications arising directly from this report. (c) Financial Implications There are no financial implications arising directly from this report.

6 PAGE: 6 (d) Risk Implications Risk to the Council relating to each trading operation is considered as a material factor in determining whether or not that trading operation should be judged to be a Significant Trading Operation. (e) Staffing Implications There are no staffing implications arising directly from this report. (f) Property There are no property implications arising directly from this report. (g) Equalities There are no equalities implications arising directly from this report. (h) Consultations Directors and Heads of Service, Ian Bruce, Environmental Protection Manager, Bill Ross, Roads Maintenance Manager, and Mike Rollo, Buildings Services Manager have been consulted in this preparation of this Report and their comments are reflected in the report and APPENDIX CONCLUSION 5.1 All Council services have been reviewed against the recommended criteria. It is recommended that no service is classified as a Significant Trading Operation. Author of Report: Lorraine Paisey, Principal Accountant Ext Background Papers: Held by author of report Ref: LP/LJC/ /