AGENDA ITEM No. c... 4 *..O#D#aU

NORTH LANARKSHIRE COUNCIL

To: CONSTRUCTION SERVICES, FINANCE COMMITTEE & POLICY & RESOURCES COMMITTEE

From: DIRECTOR OF FINANCE & DIRECTOR OF ADMINISTRATION

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Date: 4 August, 2000 1 Ref JV/FS/HN

REPORT

Subject: REVIEW OF PERFORMANCE OF BUILDING AND ROADS DLO 1998/99 AND AUDITOR’S REPORT ON FINANCIAL PERFORMANCE OF BUILDING AND ROADS DLO 1999/2000

1, Introduction

1.1 The purpose of this report is to inform Members of the outcome of further consideration by the Council’s auditors and by the Accounts Commission, regarding the current performance of the DLO.

2. Backmound

2.1 Under the terms of the S 19b Notice issued by the Secretary of State, certain obligations were enforced on the Council. These included the submission of regular financial reports to the Scottish Executive. Contained within the Notice was a requirement for a quarterly audit of the DLO accounts. Given the timescale since the Notice, the Scottish Executive and the Controller of Audit have agreed that a one-off review would fulfil this requirement. This has been carried out by PricewaterhouseCoopers and their findings and recommendations are presented in a report attached at Appendix 1 and summarised below.

2.2 Members will also recall that a report was presented to the Council in November 1999 in response to the Statutory Report SR99/9 “Review of Performance of Building and Roads DLO 1998/99”. Further communication has been received from the Accounts Commission regarding this report and this is attached as Appendix 2.

3. Report by PWC on the Financial Results of the Buildiw and Roads DLOs as at 20 February 2000

3.1 The study by PWC focused primarily on the five major DLO contracts of Housing Maintenance (North and South), General Property, Gas and Roads Maintenance. The Auditors concentrated their attention on the following questions:-

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Major changes in the last year and what future changes are forecast? What are the key features of the financial position of the overall DLO at this time? How does the financial position compare with previous years and what has impacted upon these financial results? What is the current financial position of the material contracts within the DLO and what has changed in the last year? Are the figures contained within the Management Accounts produced from reliable financial information systems backed up by appropriate manual intervention. Are there concerns?

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3.2 The overall conclusion reached by PWC was that the accounts presented to the Council’s Construction Services Committee on 18 April 2000, which advised of a projected surplus of 51Sm for the year, generally provided an accurate record of the financial performance of the DLO as at 20 February 2000.

4. Statutorv Report SR99/9 on the Review of Performance of the Building and Roads DLO 1998/1999

4.1 The report to the Council in November 1999 discussed several issues highlighted by the Controller of Audit and advised of the positive action that had been taken to address the fo 1 low ing matters: - . Clarification of the accountabilities and responsibilities of senior management within the

DLO and Finance department and the Chief Executive’s role in relation to the DLO’s and Direct Service Organisations (DSOs). Better quality reports to Members on the DLO’s financial performance. More careful and considered scrutiny by Members of the information ’and explanations given to them. Income and expenditure to be accounted for on a full accruals basis.

. 4.2 Subsequent to that report, the Controller of Audit has been advised of further measures taken

by the Council. These include:-

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A review of the Terms of Reference of both the Finance Committee and the Construction Services Committee which was approved by the Council at its meeting on 30th June 1999. The roles and responsibilities of all Directors and the Chief Executive have been reviewed, revised and approved by the Personnel Committee. Job descriptions now address the issues raised by the Controller of Audit. Full and detailed monitoring reports are prepared for the Council’s DLOs and are presented regularly to the Construction Services Committee. These include statements of financial performance and analysis of expenditure and income on a full accruals basis with explanations of significant variances from budget, both for the year to date and the projected outturn. For all monitoring reports it is now a requirement, where overspends are projected, that corrective action is identified for Members’ consideration.

4.3 The Accounts Commission has now conipleted its consideration of both the Controller of Audit’s report and the response submitted by the Council. In light of the infdmation supplied, the Commission notes the progress that has been made and has advised that the matters raised will continue to be reviewed through the normal audit process.

5 . Conclusion

It is now widely recognised that the Council has responded positively in addressing the deficiencies that were prevalent within the Direct Labour Organisation. The programme of change has been wide ranging and has included action to strengthen the overall governance arrangements, the operational and financial management of the DLO, management and accounting systems, and budgeting and reporting procedures. The attached report by PricewaterhouseCoopers and the correspondence from Audit Scotland confirm the improved position of the DLO.

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6. Recommendation

The Council is asked to note the contents of this report.

Director of Finance Dire

nlanark\prctteekeview-perf.dlo

Appendix

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110 GEORGE STREET EDINBURGH EH2 4LH T 0131 477 1234 F 0131 477 4567

wwwmdlt-scotland.gov.uk

John Q’Hagan Director of Administration North Lanarkshire Council PO Box 14

.‘ -. Civic Ceqtre Motherw ell M k l l W

12 June 2000

. . , .,,.-.

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Dear Mr O’Hagan

I

in your letter of 11 April you supplied further information as requested by the Commission to assist . them i n considering the Controller of Audit’s report on the performance of the building and roads DLO in 1998/99. I am writing to advise you that the Commission has now completed its consideration of the Controller of Audit’s report. In the light of the information supplied by your Council the Commission has agreed to note the report and your Council’s response and to advise your Council that the matters raised in the Controller of Audit’s report will be kept under review through the audit Drocess. S

I would be grateful if you would advise members and officers of your Council as agpropfiate of this outcome.

Yours sincerely

Bill Magee Secretary