Paper BSO xx/2014

FINANCE REPORT TO THE BOARD

Year ended 31March 2014

Provisional Outturn

Patrick Anderson

Director of Finance

April2014

CONTENTS

SECTION / DESCRIPTION / PAGE
1. / Introduction / 3
2. / Income and Expenditure Performance / 4
3. / Balance Sheet / 16
4. / Capital Position / 18
LIST OF TABLES
Table 1 / Income and Expenditure Account – Year ended 31March2014
Table 2 / Summary of Budget versus Actual Out-turn – March2014
Table 3 / Analysis of Core Services – March2014
Table 4 / Operations Directorate – March2014
Table 5 / Customer Care & Performance Directorate – March2014
Table 6
Table 7 / Other Directorates – March2014
Balance sheet – March2014
Table 8 / Capital position – March2014

1.Introduction

1.1This report covers the financial year ended 31 March 2014 and presents theprovisional income and expenditure, Balance Sheet and Capitalpositions for BSO for the financial year. Provisional outturn, as measured against BSO’s statutory financial performance (breakeven) target of +/- 0.25% of total expenditure, is also disclosed.

1.2Section 2 of this report provides a summary of the reported income and expenditure position for the year ended 31 March 2014, along with any relevant commentary on variations from the 2013/14 budget as approved at the July2013 Board meeting.

1.3Section 3 of this report presents the Balance Sheet position as at 31 March 2014, along with supporting commentary.

1.4Section 4 presents the capital position as at 31 March 2014.

1.5The reported position represents the provisional full year outturn, which will now be the subject of audit and confirmed upon the production of the BSO Final Statutory Accounts for the year ended 31 March 2014. This position has been reported to DHSSPS as part of the Month 12 Financial Monitoring Return (FMR).

2.Income and Expenditure Performance

2.1The income and expenditure position for the year ended 31 March 2014 for each segment of the Organisation is presented in Table 1 below.

2.2The Organisation has a statutory requirement to break even on an annual basis and contain any surplus arising to within 0.25% of total expenditure, ie, approximately £300k.

2.3Provisional outturn, as reported in Table 1 above, presents a surplus for the Organisation for the year ended31 March 2014of £94k which is within breakeven tolerances. This surplus is broadly consistent with the position forecast in the LBE2 exercise. The surplus has primarily been generated by Core Services (£526k), offset by a deficit within Managed Services (£350k).

2.4The deficit on Managed Services is due to a higher level of expenditure than budgeted associated with the Healthy Start Programme. DHSSPS have requested that BSO, as far as possible, endeavours to absorb any deficit arising on the Healthy Start Programme in 2013/14. The year to date deficit on Healthy Startstands at £345k whichconstitutes an increase of approximately £100k in comparison to financial year 2012/13. This has been described in more detail in paragraph 2.9below.

2.5A deficit of £31k at 31 March 2014 has been reported for BSTP. Asignificant level of funding from HSC has been assumed in order to arrive at this position. This has been described in more detail in paragraph 2.7overleaf.

2.6A deficit of £53k has been reported within PaLS Trading due to unbudgeted supply chain costs.

2.7Table 2, overleaf, provides a summary of budget versus actual out-turn for the year ended 31 March 2014 for each segment of the Organisation.

2.8Table 2 highlights that the budgeted income and expenditure position for the year ended 31 March 2014 was a breakeven position. The actual (provisional) outturn for the year ended 31 March 2014 was a surplus of £94k. The primary contributor towards thisfavourable variance against budget was Core Services (surplus of £526k),comprising a £82kdeficit within the Operations Directorate, a £55k surplus within the Customer Care and Performance Directorate and a £553k surplus within Other Directorates. These positions are set out in more detail in Tables 3 to 6 overleaf and explained in the supporting narrative.

2.9Adeficit of £31khas been reported within BSTP. This small deficit has been generated as a result of some additional (unbudgeted) resources secured from the system supplier to meet key operational needs, as agreed by BSO SMT. As reported in previous Finance Reports,a significant level of income (approximately £2.2m) has been assumed in order to arrive at this position, based on the full recharge of FPL and HRPTS systems maintenance costs and other ‘Business as Usual’ (BAU) costs to HSC. As highlighted in previous Finance Reports, BSO was unable to obtain definitive confirmation from HSC organisations of their intention to pay their respective elements of these costs and, as a result, the matter was formally escalated, cumulating in a letter from the BSO Chief Executive to the Permanent Secretary, DHSSPS dated 24 January 2014. In his reply, the Permanent Secretaryconfirmed that the BSO should continue to accrue this income. As a result invoices have been raised to HSC organisations.

2.10The current revenue expenditure associated with the regional ITS Programme, undertaken by BSO on behalf of HSCB, is £14.4mfor the year ended 31 March 2014. This expenditure is agreed with HSCB on an on-going basis and therefore fully funded. Arrangements have been in place to invoice HSCB for expenditure in full throughout the year and final balances have been agreed with HSCB.

2.11As described in paragraph 2.3 above, Managed Services is currently in a £350k deficit position, primarily due to a deficit within Healthy Start(£345k). This constitutes an increase on the deficit recorded at the same stage in the 2012/13 financial year and, on this basis, the BSO Director of Finance has formally highlighted the matter in a letter to the Director of Finance, DHSSPS to give early notification of this position. DHSSPS had previously provided an assurance that BSO will not be financially disadvantaged by administering the Healthy Start scheme but requested that BSO, as far as possible, endeavours to absorb any deficit arising on the Healthy Start Programme in 2013/14. We continue to expect DHSSPS to provide full financial cover, if required. The remaining deficit of £5k relates to a slight overspend against the final DHSSPS funding of approximately £15m for the other Managed Services such as Bursaries.

2.12Table 3 below sets out a high level summary of income and expenditure for the year for Core Services.

2.13A more detailed analysis of each Core Services Directorate is set out in Tables 4, 5 and 6 respectively.


2.14The Operations Directorate reported adeficit for the year ended 31 March 2014 of £82k (budgeted breakeven). Significant deviations from budget were as follows:

  • PaLS – actual deficitof £251k versus budgeted breakeven.
  • The cumulativeadverse pay varianceis primarily due to unbudgeted pay expenditure associated with the implementation of the FPL system earlier in the financial year. SMT have approved this expenditure. The in-month adverse variance relates to additional costs of staffing resource associated with the year-end stock take in the PaLS warehouses.
  • The adverse non pay varianceincludes a level of non-recurrent increased transport and distribution costs early in the financial year (£60k approved through SMT). The adverse non pay variance also includes the impact of a number of other items such as higher than budgeted costs in respect of legal costs recharged internally from DLS (£26k), training costs (£21k) relating to graduate trainees in procurement, one-off costs in respect of CoPE accreditation (£12k) and work undertaken by DFP’s Business Consultancy Service (£12k) as well as increased accommodation costs (rent, £17k and heating, £20k). In addition, there was further spending on revenue building works in the month of March which was approved through SMT.
  • Pensions – actual deficit of £157k versus a budgeted breakeven position.
  • The adverse variance within non pay primarily relates to higher than budgeted Government Actuary Department (GAD) expenditure. GAD has had to undertake significant work regarding the Scheme valuation in this financial year as a result of Pension Reform, generating higher than budgeted expenditure as a result. BSO is unable to exert any control over this expenditure, which is prone to fluctuation. This has been formally escalated to DHSSPS as this expenditure is expected to remain at a high level into 2014/15. The final GAD costs for February and March were below those earlier in the financial year, thereby generating a favourable variance in non pay expenditure in the month of March.
  • Counter Fraud & Probity – actual surplus of £25k versus a budgeted breakeven position. This surplus is largely due to the vacant Head of Counter Fraud and Probity (now filled).
  • FPS – actual surplus of £322k versus a budgeted breakeven position.
  • Expenditure against non-recurrent funding secured in 2013/14 has been reviewed and, in conjunction with HSCB, a partial return of (unspent) funding has been agreed. The adverse income variance in the month of March relates to a further and final return of this funding to HSCB.The impact of this in the financial yearis partially offset by other income received, in excess of budget, which has been generated through the provision of anonymised data to external organisations.
  • The favourable pay varianceis primarily duetothe transfer of staff costs to the FPS system (capital) project as well as the transfer of senior staff temporarily to the Director of Operations and BSTP Programme. The remaining favourable variance hasresulted from a small number of vacancies and overtime costs below budgeted levels, which is linked to the return of funding detailed above.
  • The favourablevariance within non payexpenditure includes the impact of the release of provisions for expenditure no longer required in light of actual charges received, following a detailed reviewas part of the LBE2 process and subsequent costs materialising at lower than budgeted levels, for example the receipt of annual charges for British National Formularies (BNF) at a lower level than previously estimated.
  • The financial performance of the Operations Directorate, illustrated in Table 4 above, now includes Shared Services. This relates to expenditure on the ongoing phased roll out of Shared Services in the four Shared Services Centres. An interim charging model has been implemented to reimburse BSO for the expenditure incurred within these Centres, by way of a direct recharge back to HSC customers. This direct recharge represents the cost of staff resources transferred to BSO from HSC organisations, now on BSO payroll, back to their originating organisations. It is anticipated that this recharge will continue untilShared Services is fully live for all HSC customers.

2.15The Customer Care and Performance (CC&P) Directorate reported asurplusfor the year ended 31 March 2014 of £55k, compared with a budgeted breakeven position. Significant variances from budget are described below.

  • The Equality Department has generated a year to date surplus of £31k versus a budgeted breakeven position. The favourable variance within the pay budget is the result of a recent vacancy relating to a senior member of the team. The Unit has also secured some additional income in excess of budget.
  • Internal Audithas generated a year to datedeficit of £1k versus a budgeted breakeven position. The adverse pay variance in the month of March relates to the anticipated increase in charges for external resources. These charges, referred to in previous Finance reports, were secured to alleviate the pressuresarising from the reduced available resources resulting from the absence of a number of senior staff on Maternity Leave within the Department.
  • ITS – actual surplus of £37k compared to a budgeted breakeven position.
  • The favourable variance within incomerelates toan increased Revenue Resource Limit (RRL)allocation following the transfer of responsibility for Centre House rent from DFP to BSO ITS and income received from HSCB in respect of expenditure incurred throughout the year, as referenced in previous Finance reports.
  • The adverse pay variance is primarily due to the provision for unbudgeted pay expenditure associated with temporary staff (RVH Data Centre) and the impact of staff on call and overtime costs in excess of budgeted levels. As indicated above, funding for these costs has now been secured from HSCB for these items.
  • The adverse variance within non pay relates to Centre House accommodation costs associated with the new RRL funding detailed above and other expenditure approved through SMT.

2.16Other Directorates within Core Services reported a total surplus of £553k (budgeted breakeven position). Significant deviations from budget were as follows:

  • Legal – actual surplus of £20k versus a budgeted breakeven position. The favourable variance within income in the month of March relates to additional funding received associated with the Historical Institutional Abuse (HIA) inquiry, where DLS staff and Counsel fees incurred were recharged to HSCB. The adverse variance within pay in the month of March relates to approved additional temporary resource funded by staff savings earlier in the financial year. The adverse variance within non pay in the month of March related also to the increased HIA Counsel fees expenditure recharged to HSCB and other additional SMT approved expenditure.
  • HRCS – actual surplus of £16k versus a budgeted breakeven position. The favourable payvariance of £108k primarily relates to staff secondments not budgeted for,a small number of vacant posts, reduced costs from staff on Maternity Leave and costs internally recharged. The adverse non-pay variance in the month of March relates primarily to SMT approved expenditure on revenue building works.
  • Finance –actual deficitof £34k versus a budgeted breakeven position. The adversepay variance relates to temporary additional resources associated with the implementation of the FPL and HRPTS systems. These costs were not included in the zero based budget but have been approved by BSO SMT. The favourable variance in non pay expenditure was generated by the re-allocation of Fujitsu costs between Finance and FPS and lower than budgeted recharges from HSCB for Linenhall Street accommodation.
  • HSC Leadership Centre (LC) and Clinical Education Centre (CEC) –overall total actual surplus of £38k versus a budgeted breakeven position. Theadverse variance within income is primarily due to the level of billed consultancy work being less than budgeted. This is offset by a favourable variance within pay expenditure, due to a number of temporary vacancies throughout the year and secondments recharged externally. The adverse non pay variances in the month of March relate primarily to training and equipment invoices received in March.
  • Other – actual surplus of £539k versus a budgeted breakeven position. The favourable variance within pay and non pay in the month of March reflects the movement of approved expenditure, previously provided for in this cost centre, to actual expenditure in the various directorates and service areas. The adverse year to date variance within income relates primarily to a return of funding to DHSSPS relating to specific items agreed with DHSSPS.

3.BSO Balance Sheet as at 31 March 2014

The Balance Sheet for the BSO as at 31 March 2014 is included below for information along with comments on a number of the key balances.

3.1Inventories

The stock balance at 31 March 2014 was £5m (31 March 2013: £3.5m). The increase in the stock balance during the 2013/14 year reflects a planned increase in stock levels across the warehouse to bring service levels into line with SLA standards.

3.2Trade & other receivables

The balance of trade receivables and prepayments at 31 March 2014 was £27.8m (31 March 2013: £33.1m). This balance is comprised of trade debt including inter-HSC, balances owed by client NDPBs and VAT.

3.3Bank & cash / overdraft

The overdrawn balance of £1.8m includes BSO No 1 and No 2 accounts and the Central accounts which are managed by BSO. Also included is a petty cash balance of £2k.

3.4Trade & other payables

The balance of trade and other payables at 31 March 2014 was £33.7m (31 March 2013: £36.2m). This includes a balance owed to DHSSPS of £16m (31 March 2013: £17.9m) and other revenue and capital payables and accruals of £17.7m.

The balance with DHSSPS represents cash drawn from DHSSPS to fund BSO’s working capital requirements and movements relate in particular to FPS expenditure and the respective cash drawn.

4.Capital Position as at 31 March 2014

4.1The BSO receives capital funding in respect of the following:

  • General capital allocation (from DHSSPS);
  • ITS Programme (from HSCB); and
  • BSTP (from DHSSPS).

BSO has a statutory obligation to break even on an annual basis in respect of capital expenditure. Outturn in this regard is reported in note 25 of our annual accounts.

4.2General capital allocation

BSO submitted a categorised list of capital bids to DHSSPS in July 2013. The Department asked that the bids be categorised as either essential or desirable. The Department has reviewed and approved requests for all bids submitted. BSO was notified of a capital allocation (CRL) of £459,500 for these projects on 23 August 2013. Two further bids totalling £192,500 were made in early September 2013 and these were approved on 25 September 2013.

The final agreed allocation was £624k and expenditure for the year ended 31 March 2014 was £616k resulting in a provisional underspend on general capital of £8k. This has resulted in BSO meeting its statutory obligation. The underspend has been generated due to slippage across a number of projects.

The approved bids along with a current status report are listed in Table 8 below.

Table 8
Project Name / Description / Planned Cost(£) / Current Status
E-procurement NI Common Web Portal – this is now FPL Procure and Logistics Enhancements / Purchase of development time from ABS and Red Prairie to improve the functionality and efficiency of the P2P and WMS systems. / 75,000 / Project withdrawn as final quote did not demonstrate VFM.
£75k surrendered to DHSSPS
Replacement Chassis for Vehicle & refit existing box / Replacement Chassis for Vehicle - written off 2012 / 38,500 / Complete.
Drive Through pallet racking in warehouse / To increase pallet storage capacity at BSO warehouse removing the need for off-site storage and providing increased stock cover / 50,000 / Complete.
Slippage confirmed £15.7k and reallocated.
Install Voice Picking technology @ Campsie RDC / To enable hands free operation and improve efficiency & accuracy and have standard operating processes at BSO warehouses / 60,000 / Complete.
Slippage of £2.8k confirmed
Upgrade of PaLS Boucher CCTV system / Current system is obsolete and no longer fit for purpose / 23,500 / Complete.
Slippage £0.9k confirmed.
Two Replacement vehicles / Two new vehicles required to replace old vehicles / 94,500 / Complete.
Confirmed slippage £1.5k.
Four Replacement Reach Trucks / Four new internal Reach Trucks required to replace old Reach Trucks / 100,000 / Complete.
Slippage £11k reallocated.
Audio Visual Equipment / The geographical spread of BSO staff has increased the need for Teleconferencing and this equipment is required to facilitate
Meetings / 18,000 / Complete.
Slippage confirmed £10.5k and £4.6k reallocated.
Equipment for Clinical Centres / Set up of four Skills Laboratories / 100,000 / Complete.
Confirmed slippage £11.8k and surrendered to DHSSPS.
Building Improvements Leadership Centre / Structural Improvements to Kitchen and Dining Areas at Leadership Centre / 92,500 / Complete.
Confirmed £1.2k slippage
Replacement lighting to LED system / Move to energy saving LED lighting in Franklin St / 60,000 / Complete. Total £93.9k (£60k additional CRL plus £33k slippage from other projects).
Total CRL / 712,000
Allocation surrendered 1 / (88,000)
Revised CRL / 624,000
2013/2014 capital expenditure / 616,000
Underspend 2013/14 / 8,000

4.3ITS Programme