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2 Report to: Police & Crime Commissioner 27 July 2015 Outturn 2014/15 Report of the Chief Finance Officers Contacts: Carolyn Williamson, PCC Chief Finance Officer , Richard Croucher, Force Chief Finance Officer , 1. Purpose 1.1 The purpose of this report is to present the outturn position for 2014/ Recommendation 2.1 It is recommended that the report is noted and that: a. carry forward of 2.788m for estate related underspend is approved b. carry forward of 0.260m for additional ICT resource is approved c. 2m of the resultant underspend is credited to the Performance Reserve and 5m is credited to the Grant Equalisation Reserve 3. Revenue Outturn Summary 3.1 The revenue budget outturn position, after adjusting for carry forward, is an underspend of 7.097m (2%) for the combined accounts of the Police and Crime Commissioner and Chief Constable. Within this total, the Office of the Police and Crime Commissioner overspent by 0.028m (1%). The net underspend will be transferred to the Transformation Reserve to assist with funding new initiatives that will be necessary to deliver high levels of performance, despite a reducing policing budget. 3.2 The main driver for the underspend is the need to make savings during 2014/15 that need to be in place in order to balance the budget in 2015/16 and future years. The recruitment of officers and staff has to take into account medium term plans regarding personnel levels. 3.3 During 2014/15, financial data and monitoring was migrated to the H3 SAP solution. The Constabulary also undertook a significant reorganisation during 2014/15 as a result of the Operational Change Programme. The presentation of the outturn summary at Appendix A is on the subjective basis only due to the changes in organisational units during the course of the financial year. 4. Office of the Police and Crime Commissioner 4.1 The outturn position for the Office of the Police and Crime Commissioner is an overspend of 0.028m after applying the carry forward for Estate related 1

3 underspend of 2.788m. As in previous years, some premises related expenditure has been held back whilst the full Estate Change Programme is still in delivery. It is recommended that the underspend is carried forward for use in future financial years as the exact use of the estate becomes clearer. 5. Constabulary 5.1 Appendix A confirms that largest underspend is employees ( m) as explained above. This is a combination of underspend of budgets for police officers and staff. There has recently been additional recruitment of police staff to fill vacant posts. It was decided to leave a decision on the recruitment of officers until the post-general election Government spending plans are set out (further information expected in the Chancellor s budget statement on 8 July 2015). It is not possible to make police officers redundant, so police officers can only be recruited when the medium term financial position becomes clearer. Although the cost of police officers in 2014/15 was within budget, the glidepath used to estimate the number of police officers in posts in the medium term indicates that as at April 2016, the force will have more police officers than the expected budgeted establishment agreed as a result of the Operational Change Programme. 5.2 The employee underspend includes 0.260m for additional IT staff to deliver ongoing IT projects which is requested as a carried forward to pay for the staff to complete those projects. It should also be noted that PCC decision 241 already allows 0.590m of Scientific Services Department underspend to be carried forward to pay for a new server. 5.3 The variance on police collaboration payments of 2.080m is mainly due to additional ICT Services costs funded by Hampshire, but paid to Thames Valley Police because Thames Valley Police is the lead force for ICT Services. 5.4 The excess service income variation of 3.646m relates mainly to charges for policing events ( 1.477m) which would be offset against increased employee related costs and income for Driver Awareness Training ( 0.849m) which is transferred to reserves to be ring-fenced. 5.5 The additional grant variance is Innovation Fund grant that was approved by the Home Office after the budget was set. 6. Other Revenue expenditure 6.1 During the year contributions were made to reserves to increase the amount available to the Transformation Reserve and to create the Estate Risk Reserve. The Estate Risk Reserve exists to fund the contingency element of the Estate Change Programme (if required). There were also contributions from revenue to fund capital expenditure. Movements on reserves and balances are shown in more detail in the reserves section elsewhere in this report. 6.2 There was an underspend on capital financing costs ( 0.740m) as less borrowing was required than budgeted. The related higher level of bank 2

4 balances resulted in interest receivable over-achieving the 0.500m budget by 0.174m. 7. Capital 7.1 The actual capital expenditure in 2014/15 was m as shown in appendix B. The main variances of note are the underspend against the Estate Change Programme and the related delay in capital receipts for operational buildings. The largest elements of planned expenditure in the Estate Change Programme are the new purpose built Police Investigation Centres at Basingstoke and Portsmouth. A site has been purchased in Basingstoke and work is progressing to develop a new build Police Investigation Centre there. Several sites have been identified in Portsmouth but it has not been possible to secure a site during 2014/ The Estate Change Programme continues to be subject to ongoing review in order to ensure it will meet the future operational requirement. Grant funding of 0.408m was received from the Home Office s Police Innovation Fund to assist with funding the moves of neighbourhood bases and 0.074m for co-location of strategic headquarters with Hampshire Fire & Rescue Service (expected to open in October Capital Police Innovation Fund grant of 0.280m was also received to assist with the cost of Body Worn Video. 8. Reserves 8.1 The updated position of reserves is shown at appendix C. The reserves as at the end of 2014/15 have a balance of over 83m. However, amounts held on behalf of partner organisations such as the ACPO Criminal Records Office (ACRO) and the Safer Roads Unit mean that the actual usable revenue reserves at the end of 2014/15 are 67m. Appendix C shows how the usable reserves are currently forecast to go down during the coming years, in particular, the use of the Transformation Reserve to pay for the cost of changes. 8.2 It is recommended that 2m is paid into the Performance Reserve. This will allow the Police and Crime Commissioner to fund specific initiatives aimed at enhancing frontline performance. 8.3 It is further recommended that 5m is placed in a new Grant Equalisation Reserve. The Government has not announced future cuts for police funding or the profile of those cuts. However, information published by Government and analysis by the Institute of Fiscal Studies points towards a potential front-loading of cuts to policing. If this is the case, it may be necessary to utilise reserves in order to balance the budget in the short term while medium term solutions are implemented. 8.4 The protocol for each reserve is set out at appendix D. 9. Risks 9.1 There are no identified risks associated with the outturn report. However, the statement of accounts will be subject to extensive external audit 3

5 scrutiny. The statement of accounts must be signed by the Chief Finance Officers by 30 June. The Outturn Report has been produced ahead of this deadline and prior to the external audit. The external auditors then have until 30 September to review the accounts, so there is a risk that amendments may be necessary to the accounts when the statements are produced and/or as a result of audit findings. Any material changes will be reported to the Police and Crime Commissioner as soon as they are identified. There have not been any material changes made in previous financial years, but there will be an additional inherent risk due to the change of financial systems. This is mitigated by audit work already conducted by both internal audit and external audit to review the migration to SAP. 9.2 There are significant financial risks in the medium term due to expected reductions in Government grant funding. The Medium Term Financial Strategy and Budget reports set out the financial challenges and plans to meet those challenges. The next Medium Term Financial Strategy will take into account funding assumptions based on the Chancellor of the Exchequer s budget announcement on 8 July It may also be necessary to use reserves to assist with smoothing any front loaded cuts to policing when the medium term position on police grant is known. Particularly as police officers cannot be made redundant, it may not be possible to make significant expenditure cuts in a short period of time. Reserves could be used as an interim measure to smooth the impact of front loaded cuts over a medium term period. 9.4 Forecasts indicate that police officer numbers will be over the planned establishment as at April 2016, so there is an additional risk that reserves may be required to cover the cost of police officers above the level that can be afforded by the revenue budget for a period until the position can be balanced. Section 100 D - Local Government Act background documents The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report. NB the list excludes: 1. published works; and, 2. documents which disclose exempt or confidential information as defined in the Act. 4

6 Outturn 2014/15 Appendix A 5

7 Capital Outturn Appendix B 6

8 Reserves Appendix C 7

9 Reserves Protocol Appendix D Reserve Purpose Owner Review Process General Transformation Risk To provide an adequate balance for one-off expenditure or unforeseen costs. To provide for cost of change e.g. investment, redundancies. To protect against savings shortfall or increases in cuts. Reviewed at Force Change Board and by PCC for each request. Grant Equalisation To offset grant reductions temporarily while savings initiatives are implemented Commissioning To pay for the planned commissioning of services. Capital (Revenue Contributions) Equipment Performance To facilitate revenue contributions towards the financing of capital expenditure. To support large equipment replacement costs e.g. body armour. To support targeted policing strategies. Police and Crime Commissioner (PCC) MTFS MTFS, budget monitoring and close of accounts. Insurance Earmarked To cover excess costs and additional claims. To hold ring-fenced funds, principally for ACPO Criminal Records Office. At least annually on Reviewed annually with Laboratory A sinking fund to pay for replacement equipment at a shared laboratory with HCC. Note: As owner, the Police and Crime Commissioner must approve any expenditure from any of the reserves. Reviewed annually with 8

10 Report of : Chief Finance Officers Date : 27 July 2015 Subject : Outturn 2014/15 Contact : Carolyn Williamson, PCC Chief Finance Officer , carolyn.williamson@hants.gov.uk Richard Croucher, Force Chief Finance Officer , richard.croucher@hampshire.pnn.police.uk 1. Summary: The purpose of this report is to present the outturn position for 2014/ Recommendation: 1.1 It is recommended that the report is noted and that: a. carry forward of 2.788m for estate related underspend is approved b. carry forward of 0.260m for additional ICT resource is approved c. 2m of the resultant underspend is credited to the Performance Reserve and 5m is credited to the Grant Equalisation Reserve 3. Strategic context: The Outturn Report shows how funding applied in 2014/15 to deliver the police and crime plan priorities has been used. 4. Options Appraisal: n/a 5. Financial and Resourcing Implications: Set out in the report in the appendix 6. Communications and Engagement Implications: The outturn report is publicly available. The budget process is subject to consultation each year. - NOT PROTECTIVELY MARKED - Outturn PCC report template

11 7. Legal Implications: None - NOT PROTECTIVELY MARKED - 8. Risks and Mitigation: The PCC and Constabulary have taken action to operate within the reduced funding that was available in 2014/15. Reserves have been created to mitigate against the greater need for change and the uncertainty of the future funding position until the Spending Review is announced in November Strategic Policing Requirement: The 2014/15 budget has facilitated the delivery of policing performance locally and our contribution to national policing. 10. Equalities: n/a 11. Publication status: Not protectively marked Persons consulted: Name Deputy Police and Crime Commissioner Assistant Police and Crime Commissioner (Policing and Safer Communities) Assistant Police and Crime Commissioner (Isle of Wight) Chief Executive Chief Finance Officer Estate Strategy and Delivery Director Head of Communications and Engagement Head of Strategic Commissioning Head of Performance and Delivery Executive Advisor Legal Advisor [insert others as appropriate] Tick as appropriate Yes Annexes: Outturn 2014/15 Background Papers: Statement of Accounts 2014/15 - NOT PROTECTIVELY MARKED - Outturn PCC report template