Preston College – Finance and Property Committee29 September 2011

Minutes

FINANCE AND PROPERTY COMMITTEE

MINUTES of a meeting held on 29 September 2011.

Present:Mr E BassaChair

Mr R Bamford

Mr D S Connolly

Miss S Johnson Mr P Kennedy

Mr M Mallam

Dr E H SmithPrincipal

Also in attendance:Mr C SmithInterim Finance Director

Mr M AireyInterim Head of Finance

Mr F LeeClerk

Mrs S WignallDeputy Clerk

Unable to attend:Mrs J E HewittHead of Facilities

11/32DECLARATIONS OF INTEREST

There were no declarations made at this meeting.

11/33MINUTES

The Minutes of the meeting held on 14 July 2011 were accepted as a true record and signed by the Chairman.

11/34MATTERS ARISING

Park Campus

The Committee noted that the City Council had not been able to consider the planning application for the redevelopment of the site at the meeting in September and that the application would now go to the October meeting of the Planning Committee.

11/35FINANCIAL REPORT 2010/11 – PERIOD 12

Draft Outturn Position

At the end of July 2011 the College’s draftIncome and Expenditure position stood at a surplus of £1,059kagainst a budgeted surplus of £1,000k. The forecast at Period 9 for the year end stood at £1,100k. An over achievement of the total income target by £500k had been the result of increased activity within Full Costs Recovery, Open & Competitive Tendering, and Other Income,together with a large savings in pay costs and that had allowed for additional expenditure to be incurred within non pay activity areas to improve the College’s infrastructure.

The detailed income and expenditure schedules, balance sheet, cashflow and KPI schedule containing the Financial Health as at 31 July 2011 were submitted to the meeting and considered in detail by members.

The report set out the main sensitivities which had been identified and those were:

  • £468K had been accrued relating mainly to achievements within Employer Responsive income yet to be claimed. Thatwas down to administrative timing differences caused by the nature of that delivery and the timing of the returns. The position would be closely monitored over the next few weeks to ensure that the risk of a claw back of Adult Skills funding was mitigated. The current assessment was a high likelihood of avoiding a claw back and if that eventuality materialised the worst case impact was estimated at £50k.
  • Although the Period 12 accounts included expenditure accruals relating to identified expenditure there was still a risk that liabilities would materialise that were as yet unknown. In an attempt to mitigate this, the Period 12 accounts included a provision of £15K which would be released before the accounts were finalised.
  • The draft outturn would be audited in October and there could be an issue relating to the accounting treatment used for certain transactions e.g. capital vs revenue or the level of accruals on work in progress.
  • The draft outturn did not include any provision for the impact of FRS17 as the College had no control over that. Whilst those figures were likely to have a significant impact on salary costs and interest payable within the I&E accounts they did not factor into any financial health scoring.

The cash balance at 31 July 2011 was £3,976,000.

The Committee noted the draft outturn for the year ending 31 July 2011. There were no risks to the Board in terms of solvency issues that would require any further report at this time.

DECISIONthatthe projected year end position and the underlying sensitivities that could impact on the final outturn be noted by the Board.

11/36FINANCIAL REPORTING FORMAT AND TIMETABLE 2011-12

A report provided the Committee with an overview of the new draft format of the management accounts pack including an example of the new financial reporting format using the Period 12 position. A draft reporting timetable for 2011-12 was also submitted to the meeting.

The Deloitte’s report, published earlier in the financial year, highlighted several key findings relating to financial reporting, which formed part of the Forecast and Planning Review Action Plan. Those key findings were:

  • A focused commentary designed to raise awareness of key issues and emerging variances;
  • To include within the managements accounts pack a dashboard/scorecard format for high level visibility of the defined College KPI’s;
  • A review of the format of the managements accounts pack to achieve an appropriate level of depth for the various levels of Governance and internal users;
  • Consistent financial reporting layout for management accounts and other planning documents;
  • To consider a move to a more defined cycle of activity and reporting. This includes the link to a determination of a risk based frequency of formal financial monitoring within the College

It was proposed that the enhanced commentary, which the College had already put in place,be continued and the Committee supported the current format and content.

Other elements of the draft management accounts pack were outlined and included:

  • Title page;
  • Scorecard;
  • KPI 5 year Summary;
  • I&E Summary;
  • Detailed Income;
  • Detailed Expenditure;
  • Monthly I&E Summary and Monthly Cashflow;
  • Detailed Monthly Income;
  • Detailed Monthly Expenditure;
  • Balance Sheet;
  • Detailed Cashflow.

The intention was to further enhance the management accounts pack by including other management information, particularly demonstrating the financial impact of any positive/negative deviations in delivery performance. In addition a review of sub-College information would take place which could lead to further high-level analysis being incorporated into the pack.

The timetable for financial reporting provided dates for both internal and external financial reporting and clearly indicated the deadline that the College would aim for in distributing the financial pack to Committee members. It also showed the impact of a more focused forecasting regime with the expected completion of the Autumn Budget Update in November and further in-depth forecasting exercises completed for the January, March and May accounts. Between those months the Finance Team would review identified high risk areas and report on any emerging budgetary variances.

In reviewing the structure of the report submitted to the meeting it was requested that the ‘dashboard’ should include reference to staff utilisation. A discussion ensued relating to ‘benchmarking’ and what would be appropriate for the College: tertiary colleges across the UK; a regional perspective; ‘Beacon’ colleges. The Principal and Chief Executive reported that the College should ensure that any benchmarking provided a like-for-like comparison that would enable the College to benefit for the data available. It was suggested that the internal auditors, Grant Thornton, be requested to review that issue in their internal audit work for the College.

Whilst accepting that the data presented to the meeting was very much improved it was agreed that it be made available for governors to access on ERIC on a monthly basis and that the Interim Finance Director carry out a review of its format to see if it could be adapted to print on A4 remotely.

The Committee complimented the staff for providing a much improved financial report.

DECISIONthe Committee welcomed the revised format and timetable arrangements which would enhance the College’s ability to control financial aspects to ensure the solvency of the Corporation.

11/37AUTUMN BUDGET REVIEW

The approved budget for 2011-12 planned to achieve a surplus of 1% of turnover, which amounted to £330k. As part of that proposal it was agreed to have an autumn review of the budget, based on initial enrolments, which would then form the budget from which performance over the coming year would be monitored against. Currently there was a ‘gap’ of £300k in achieving the surplus.

A report set out the proposed outline process and timetable of activity for updating the 2011-12 budget. It also identified the initial areas where either savings could be made or where there was potential for additional income to achieve the required 1% surplus of £330k.

The Committee considered the timetable and key tasks that were required for the completion of the revised budget, to enable it to be presented to the next meeting of the Committee on 24 November 2011. The main tasks were as follows:

  • Further review of the Resource Allocation Model (RAM);
  • Update of individual curriculum income budgets based on actual carryover of learners, initial enrolments, and revised future planned starts;
  • Apply revised RAM to revised income targets to allocate resource budgets;
  • Review Business Support budgets based on updated information;
  • Hold budget meetings with Heads of Departments to review and agree revised budgets;
  • ELT to review overall College budget with the view to at least achieve the required 1% surplus.

Specific areas had been identified which would start to address those issues and they included:

Vacancy Savings

There was a potential £128k savings, £78k of which would be consolidated, with a further £50k of non consolidated savings within 2011-12 for the Executive Leadership post vacancies.

Review of recruitment and marketing

A review of all recruitment functions and activity was presently underway. That would identify the recruitment and marketing functions required to take the College forward, but would also identify areas which would no longer be continued. The Principal and Chief Executive reported the drive to integrate marketing activity which would be better organised and better positioned to target its effectiveness on recruitment issues in line with the revised delivery arrangements. The Committee asked for a report on marketing activity, expenditure, future direction and performance measures. The Principal and Chief Executive reported that that issue would form part of the Strategic Improvement Plan which would establish a baseline analysis for use by the Committee.

Income generation through the Weekend/Family College idea

Initial proposals for a weekend College had been agreed by the College Management Team. A business case was being drawn up and would be available in time to inform the budget review. That would identify the investment required and the revenue to be generated. It was anticipated that the Weekend College would be in operation in the New Year. The Committee stressed the importance of the College securing legal advice before embarking on that strategy.

The Committee noted that the College would, through a planned approach, identify and implement a number of cost saving and additional income generating activities to cover a present shortfall of £300k. Those changes would be built into the revised budget proposal with the view of achieving the required 1% surplus of £330k.

DECISION

a)that the budget process and timetable, and the initial areas identified in closing the £300k ‘gap’, be noted;

b)that a revised budget for 2011-12 be presented to the next meeting of the Committee.

11/38FINANCIAL SYSTEM REPLACEMENT – UPDATE

The Committee had considered this matter on a number of occasions and the option to fund the development of a new finance system had been included in the Capital Budget 2011/12 as part of the allocation of £1m. The College’s current financial ledger was Coda DREAM, installed in 2001, at a capital cost of £94,000 and annual licence costs of £17,500. The likely cost to implement a new finance system was estimated at about £120k, with costs of purchase expected to be £70k-£80k with an allowance of £40k-£50k to support the current Finance Team with specialist consultancy and possibly project management expertise to ensure a successful implementation. The ultimate cost would hinge on the breadth of the system specification as well as the extent of support provided by the successful supplier within the purchase price.

The Deloitte’s report on Financial Forecasting had highlighted several key findings relating to Financial reporting and planning which would be difficult or impossible to address with the current system especially relating to the lack of an effective budgeting module, difficulties of front-end usage of data, difficulties in integrating or linking to other College systems and the need for a wide range of spreadsheet applications to provide a level of management information that cannot be produced directly from the existing system.

It was noted that the intention was to have the new system operational for the financial year 2012-13 and that would require procurement to commence very soon. There was an urgency to determine the specification of the new system which would address amongst other things, the core features of the transactional processing, the capability to integrate or link with other College systems, the range of additional modules, capacity and the platform for running the system.

The Interim Finance Director reported that the timetable for procurement would be very challenging and that the specification for the system would need to be set by the end of October with tender documents prepared. The Committee reviewed the issues of the College proceeding with the acquisition of a new system against the possibilities of embarking on a process of ‘shared services’ and agreed that it was in the best interests of the College for it to proceed with the purchase of a new system. Concerns were however expressed about previous procurement activity and the need for those who tendered for the supply to understand the needs of the College in respect of financial issues. Matters relating to Cloud technology were considered and the Interim Finance Director confirmed that the specification would address that matter along with the integration of system design and software support. There was also a view that, with the purchase of a new system, the College might possibly be in a position to offer financial services to other colleges.

Having given this matter considerable thought the Committee supported the proposal for the College to acquire a new financial system, that a Panel be established to set the design of the new system, to evaluate the submissions from prospective suppliers, and to make the decision relating to the selection of the new system.

DECISION

a)that the College proceed to acquire a new financial system, with relevant support network, up to a cost set out in the approved Capital budget of £120,000;

b)that the current position and the proposed next steps towards procuring a new system within suitable timescales to achieve implementation for the 2012/13 financial year be noted;

c)that the Chair of the Committee be consulted to help the design of the specification;

d)that the Chair of the Board and the Chair of the Committee be members of the System Selection Panel.

11/39CAPITAL PROJECTS – UPDATE

A report provided the Committee with an update on capital spend for 2010/11 and the impact upon 2011/12 budget availability. The report also provided an update on the SFA projects undertaken as part of the £152k grant funding allocated earlier in the year.

a)2010-11

For 2010/11 the College anticipated expenditure of £1,132k against a budget of £1,113k (including £90k of the SFA capital grant of £152k and £23k from the HE Grant received in 2009/10) and the following analysis gave a breakdown of the expenditure;

Activity / 2010/11 Spend £000s
2009/10 projects b/fwd
HE Projects / 23
New HR System / 3
SFA funded projects
College Signage / 33
Commercial Salon / 28
Tom Finney LC Refurb / 12
Spray Booth / 17
SFA Total / 90
Departmental capital spend / 176
ILT Spend / 159
IT Equipment Replacement / 102
IT Infrastructure / 33
CRM database / 30
Tractor / 19
Furniture Fittings on new build (£294k to be c/fwd) / 126
Other / 77
Grand Total / 838
Funded by:
Capital Budget / 1,000
SFA Budget / 90
HE Budget / 23
Total Funding / 1,113
Net underspend to be c/fwd to 2011/12 / 275
Of which:
Creative Solutions / 294
Other overspend in 2010/11 / (19)

The forecast capital ‘outturn’ therefore projected an overspend of £19k which would be accounted for as an initial utilisation of the 2011/12 capital budget.

b)2011-12

The updated budget position for 2011/12 from that agreed in July 2011 was as follows:

Fire Alarms / £180k / Estimated at £150k plus VAT committed in 10/11
CRM c/fwd from 10/11 / £42k / Project still in progress with £35k plus VAT expected to be incurred in 11/12
Finance System / £120k / A business case for development of a new Finance System will be worked up in the Summer/Autumn for implantation August 2012.
Projects funded by SFA grant / £58k / Estimate of planned project activity likely to be capitalised
Furniture and Fittings c/fwd from 2010/11 / £294k / A contingency of £50k plus VAT set up for The Creative Solution fixtures and fittings added to the original budget of £350k – being reviewed over the Summer.
IT 5 year Equipment Replacement / £275k / To include PC £144k, monitors £18k, laptops £23k, Apple Mac £40k and Projectors £50k
Forecast over spend in 2010/11 / £19k / (See section 3)
ILT Budget / £150k / Same as for 10/11
IT Infrastructure / £50k / £35k in 10/11 but identified need to upgrade College’s extranet and increase back up storage capacity.
Discretionary investment / £168k / Budget still to be allocated in order to respond to new initiatives
Total Forecast / £1,356k
Funded by:
Creative Solutions c/fwd / £294k / £126k spent in 2009/10 out of total budget £420k
Capital Budget / £1,000k / As agreed in July 2011
SFA Budget / £62k / Remainder of £152k allocation
Total Budget / £1,356k

c)SFA SUPPORTED PROJECTS

The progress of projects supported by the SFA capital grant was as follows;

Project / Initial Allocation / 10/11 Rev / 10/11 Cap / 11/12 Rev / 11/12 Cap / Total Forecast / Budget Variance
Disability Access / £35k / £0k / £0k / £34k / £0k / £34k / £1k
Commercial Salon / £130k / £42k / £28k / £39k / £20k / £129k / £1k
College Signage / £50k / £2k / £33k / £0k / £3k / £38k / £12k
Construction Entrance / £50k / £54k / £0k / £5k / £0k / £59k / (£9k)
Removal of Portakabins / £15k / £12k / £0k / £3k / £0k / £15k / Nil
Lecture Theatre / £40k / £0k / £0k / £30k / £10k / £40k / Nil
SMT/Boardroom / £40k / £0k / £0k / £17k / £23k / £40k / Nil
Tom Finney refurbishment / £25k / £20k / £13k / £4k / £0k / £37k / (£12k)
HE redecoration / £30k / £30k / £0k / £2k / £0k / £32k / (£2k)
Spray Booth & Body Repair / £35k / £5k / £16k / £1k / £2k / £24k / £11k
Quadrangle / £20k / £0k / £0k / £20k / £0k / £20k / Nil
Total Spend / £470k / £165k / £90k / £155k / £58k / £468k / £2k

The allocation of a SFA Capital Grant of £152k was on the basis of a 2:1 match by the College creating the opportunity for estate improvement of at least £456k. The original plan was to invest £470k, with the College contribution arising mainly from revenue funding financed by the forecast positive variance on theI&E budget in 2010/11. A more detailed review of the actual expenditure plans confirmed that the capital expenditure elements of the activities closely matched the £152k capital grant allocated with the remainder constituting a charge to the I&E in both 2010/11 and 2011/12. A revenue budget for major projects of £250k was set aside for 2011/12 and the £155k estimated revenue expenditure would be funded from that budget.