Financial failure - It looks like Capita run Re was a major problem

Reading the Barnet Council draft accounts I was curious to understand where the overspend in 2017/18 occurred. There was a lot of talk about the growing demands for family services and adult social care and sure enough some of the overspend was down to that. But what jumped off the page was the biggest single overspend of £3.95 million. Guess where? The Capita run Re (Regional Enterprise) contract. What I can't understand is that on a contract that is supposed to guarantee financial performance it ended up costing us nearly £4 million extra.

I have consistently said at Council meetings that there is no financial transparency on the Re contract and I keep being told not to worry.  Indeed on 27 February 2018, I raised the issued of transparency and Re's performance at the Performance & Contract Management Committee.

At that meeting the report showed that Re was overspent by £285,000 and that with a top up from reserves that brought it down to £44,000 overspend. This was apparently down to legal costs which are contractual liabilities payable by Barnet as you can see in the note below the table. Just to be clear, this was 4 weeks before year end.

So four weeks later the overspend has jumped from £44,000 to £3,954,000. I will be asking why this overspend has occurred but my concern is that it may be linked to the disputed invoice of £4.599 million identified at last year's audit.

This was due to a shortfall in guaranteed income promised by Re. At the Audit committee meeting last year I was reassured by the Director of Resources that this sum would be recoverable but I also noted that the Capita Partnership Director described it as a "disputed" amount. I blogged about it here and expressed my concern that little or none of it would be recoverable. That looks to have come true and the debt has been written off. I may be wrong but given the size of the sum and the fact that it occurred after quarter 3 results, this appears to be the most logical conclusion.

We are now at a tipping point. The CSG contract is under-performing with the Council considering bringing part of the finance function back in house; the Re contract predicated on guaranteed income appears to unenforceable. There are other matters which will come to light by the next audit meeting, which I cannot disclose at this time but which will have serious repercussion for the entire Capita contract.

Barnet must recognise the reputational and financial damage that these Capita contracts are inflicting and do the right thing. End the contracts with Capita.

Incompetence, Naivety or Worse - Financial Disaster Looms in Barnet

I have spent the last eight years trying to get Barnet Council to act in a more financially responsible manner. Last night we saw just what a policy of constant Council Tax freezes and poor management has done for Barnet finances. I blogged about this last week which set out my concerns and the questions I had submitted to the Policy & Resources Committee. Last night I got answers, although not to the questions I had asked. That is the Barnet way and something I have come to expect.
You can read the answers here but to be honest they tell you very little.  In summary:

• They didn't find out about the budget shortfall until May, after the election when they were closing the final accounts - although Cllr Cornelius' throw away line that "Purdah was unusually strict" seems to undermine that answer.
• Even though Barnet forecast these problems 6 years ago in the graph of doom they do not accept that constant council tax freezes have turned it into a reality.
• They will now hold another meeting in July to decide what they are going to do to try and sort out this mess and to consider an option to bring strategic finance back in house.
• They are thinking about potentially introducing a freeze on recruitment - something they should be doing today.
• Actively monitoring payroll on a monthly basis is "challenging"
• They will be reviewing all capital projects but they can't say which ones.
• They will have to think about different strategies to address the increasing demand for adult social care.
• They are going to start public consultation in July on the radical changes to the council needed to balance the budget.
• Barnet will seek to recover the costs of up to £500,000 from Capita for the the investigation into financial reporting being undertaken by Grant Thornton.
• And even though they have already paid Grant Thornton £138,600 on this review of financial reporting they haven't yet agreed the workplan or the objectives of the study - something I simply do not believe.

One of the biggest problems is the failure to put up council tax since 2010.  I have been suggesting modest rises since 2010 but I also came across a video of a Budget Overview & Scrutiny meeting back in September 2012. It illustrates how back in 2012 Cllr Dan Thomas was already considering an increase but was somehow persuaded to introduce a freeze instead. If Cllr Thomas had stuck to his guns then we wouldn't be in such a mess now. (Credit must go to the late great Barnet Bugle, Dan Hope, who recorded so many council meetings and who we all miss very much.)


 I have set out below the speech I gave to the committee, Labour councillors listened and I was pleased that they proposed an additional recommendation to consider bringing strategic finance back in house, something which will be considered at the new July meeting.

This is a financial mess and nothing in this report shows me how you are going to get out of it. We need to make massive savings quickly but all I see is inertia. From where I am sitting Barnet looks to be on the same trajectory as Northamptonshire County Council. Decimated services and mass redundancies. Rather than spend my 3 minutes going through the reason as to how you have got us in this mess I thought it would be more constructive to give you my views on how you can try to address the problem.

Put a ban on all new recruitment without CEO or 151 officer approval.  It mentions it in the report as a possible option but it needs to happen straightaway. Force HR to come up with a clear plan of how they are going to cut agency costs to 2010/11 levels (£9m). Review the flash figures for payroll within three days of month end and challenge any unbudgeted spending immediately.

Take a leaf out of Northamptonshire’s restructuring playbook for financial control and implement an independent procurement panel to review all expenditure over an agreed limit of say £10,000 including all Capita special projects. You also need to get a much stronger grip on capital spending . If you can cut capital projects to balance the books then maybe they shouldn’t have been approved in the first place.

Renegotiate the Capita and Re contracts with the first target being the gainshare arrangement which appears to be a licence to print money, £23 million on procurement alone. The financial function isn’t delivering and right now you need a clear joined up financial perspective with timely and accurate reporting. The logical solution to get that control is to bring it back in house as quickly as possible.

The Barnet Group has a large duplicate management structure including CEO, Finance Director right down to a duplicate FOI department. Five separate boards 20 different board directors. Barnet homes management costs are £21.1 million yet operational costs are half that. Re-integrating Barnet Group within the council structure could rationalise the management and duplicated admin function taking out a significant chunk of those costs as well as providing a more integrated and efficient service for users.

You duplicate many roles by having commissioning officers on 6 figure salaries and then pay Capita, Re, Cambridge Education etc for senior management to implement services. This needs a radical overhaul which I suspect will mean bringing more services back in house.

This isn’t about political dogma it’s about plain speaking  common sense, something which has been absent for a long time in Barnet.

Notes:  Council tax freeze impact
Blog in 2012 
Blog in 2013
Blog in 2014
Blog in 2017 and chart from that blog below

Pledgebank promise to review monthly spending from 2011.

"I will pledge to give up 4 hours of my time every month to scrutinise and challenge all invoices over £10,000 to help the Council reduce unnecessary spending so long as five other people will make a similar time commitment to sit on the panel and that Barnet Council will genuinely participate in the process and listen to the advice and opinions given." 
 Read about it here

Politics before the Environment - higher nitrogen dioxide output, doubling dioxin emissions to save 4p a week

On Tuesday Barnet Conservatives voted to end the brown bin food waste collections in Barnet. Instead people will now be required to throw their food waste in with general refuse and it will be burned in an incinerator at Edmonton. The reason for this retrograde step is that it will allegedly save £300,000 a year or roughly 4p per household per week.

Currently 5,000 tons of food waste is collected annually and sent to an anaerobic digester. There the food waste is converted into methane which is then burned to generate electricity. According to the Society For General Microbiology:

In addition, what is left at the end of the process is sold to farmers as fertiliser and is a direct replacement for chemical fertilisers, typically made using fossil fuels. From an environmental perspective it just seems to be the right thing to do and is supported by both Central Government and the London Assembly whose paper in March 2018 made separate food waste collections a key recommendation.

Barnet have to pay to process the food waste but because it is such a good quality "feedstock" for the anaerobic digester (AD), it is highly valued and as such the price paid to process food waste is much lower than for other products used at other facilities such as sewage slurry.

Barnet will now send the food waste for incineration, a process which is much more harmful to the environment that AD. Don't take my word for it. Below is an extract from a scientific paper submitted to The 8th International Conference on Applied Energy – ICAE 2016 "Comparison between the technologies for food waste treatment" which you can read in detail here.

I know it looks a bit technical but the key facts are that incinerating food waste is much worse for the environment that AD. Incineration of food waste generates much more nitrogen dioxide and twice as much dioxin, a substance harmful to humans, than AD.

This week I have spoken with four different AD operators in the London area. All expressed their surprise that Barnet would be taking such a retrograde step. All said that household food waste is a highly valuable feedstock for the AD process because it generates so much energy and that 100 tons a week, consistently throughout the year, would make it an exceptionally large and attractive contract.

So now let's look at the alternatives, the ones that weren't discussed at the meeting. Before the election  Barnet Conservatives made much of promising to retain weekly bin collections. However at the same time they recognised that recycling rates have fallen back and we are miles away from achieving the 50% target they set. A number of boroughs have moved to fortnightly general waste collection not just to save money but because it forces people to recycle more. In Barnet the obvious solution would be to retain weekly recycling collections, blue and brown bins, and to move to fortnightly black bin collections, incentivising people to recycle and to divert more of their food waste to the brown bin.

I don't have the specific figures but I am sure that cutting black bin collections to once a fortnight would save a heck of a lot more money than cutting brown bin collections which are picked up at the same time as the blue bins. The problem is Council Officers were unable to offer that option because the Tory manifesto said they would keep weekly bin collections.

It is also worth noting that by scrapping the brown bin collections it will make it impossible to shift to fortnightly black bin collections in the future because the food waste will stink after two weeks especially during the summer months.

The final nail in the environmental coffin is that the redundant brown food bins and kitchen caddies from every household won't be recycled - they will be burned in the Edmonton incinerator.

I do not believe councillors were given all the information and residents definitely weren't consulted about this change of policy. This decision is a bad one, environmentally and financially, and must be overturned. Please sign the petition and ask your local councillors to try and overturn this bad and entirely political decision. Click here for the petition

Financial Meltdown in Barnet - Should we have been told about this before the election?

Yesterday Barnet published the agenda for the Policy & Resources committee next Monday which you can read here.  I am used to surprises but this one was gobsmacking. I blogged just a couple of weeks ago about the parlous state of Barnet's finances including the Medium Term Financial Strategy  (MTFS) published in February. Yesterday Barnet published a revised MTFS. The summary is set out below:

So whereas in February they were forecasting a shortfall of £2.79 million in 2018/19 they are now forecasting a £9.5 million shortfall and in 2019/20 the shortfall jumps from £8.2 million to £19.3 million all in the space of four months. The long term prospects are apocalyptic with a shortfall of £42 million in  2021/22 and by 2023/24 a "high level calculation" showing a shortfall of £62 million. This means the council can no longer exist in its current form.

I simply cannot believe that in February - before the election - no one was aware of just how bad the financial situation was, in which case were the electorate misled?

The committee meeting dealing with these matters is next Monday and I have submitted questions. Will I get any answers? Unlikely.

1.  The MTFS indicates a budget gap for this year of £9.45 million and a gap next year of £19.27 million yet at this committee in February there was no forecast gap for this year and a gap of £6 million next year. What has happened in 4 months to have made such a huge difference to the budget shortfalls?
2. At the end of Q 3 2017/18 the forecast outturn was a shortfall of £6.6 million yet by year end the shortfall had risen to £13.5 million. Did something dramatic happen in Q4 or is this a problem of poor/out of date financial reporting and if so who is to blame?
3. At 1.5.4 it proposes a new corporate plan for April 2019 reflecting the Conservative manifesto including keeping council tax low. Given that in the final year of this administration the budget shortfall is forecast at £42 million do you think keeping council tax low is prudent or denial of the financial reality?
4. If the high level calculations for 2023/24 prove to be correct in forecasting a £62 million budget shortfall, who should I hold accountable for this financial apocalypse?
5. By reallocating the NHB to support the revenue position it will cost an additional £1.3m per annum in capital financing. Is this simply storing up problems for later years?
6. If the current S151 Officer believes that we should have a reserve of £15.1 million why did the previous S151 Officer allow it to fall to £9.6 million at the start of the last financial year?
7. If this committee had been made aware of the seriousness of the financial situation in February do you think they would have still voted to freeze council tax (excluding the social care precept) for this financial year?
8. These budget shortfalls do not include the impact of the additional cost of borrowing to complete the Brent Cross Thameslink station. When that is factored in what is overall forecast budget shortfall for 2019/20 and 2020/21?
9. Who was responsible for making you aware of the additional borrowing requirement for the Brent Cross Thameslink station and why didn’t they do it sooner?
10. At 1.5.14 you identify managing demand as a way to reduce the budget gap. Given that you have been saying that for at least the last 6 years  since you published the graph of doom and that it is a policy that has repeated failed to deliver, do think you need to change the people who keep recycling this approach.
11. The report talks about radical options for the future of local services but fails to mention any engagement with local residents at the early stages of this process to help develop these options. Please will you confirm that you will publish a resident engagement/involvement plan before the process commences.
12. Given the foregoing issues raised under agenda item 7  and the need to cut capital borrowing why is the council  considering making a 30 year loan to Saracens to enable the construction of a new West Stand at Allianz Park?
13. Given that Capita are responsible for the finance function in the Council  why is Barnet paying for Grant Thornton support following a review of financial procedures and practices?
14. Before confirming a spend of up to £500,000 what are the specific objectives of this exercise and how will you measure whether their input has met those objectives?

April Supplier Payments - Good job someone reads these spreadsheets

As you may know I keep a running track of supplier payments each month. April's figures were published last Wednesday but reading through them it was quite clear there was a problem.  First of all there was £8 million of redacted payments classified as personal data. This is many time more than would usually be seen. In addition there were no payments to Comensura. which are typically between £1.3 and £1.8 million.

I asked for Capita to go back and check the data and on Friday they republished the list. Redacted payments fell from £8 million to £2 million, Comensura payment were £1.4 million  plus a range of other payments adding up to a further £4.6 million. Interestingly there was a payment of  £225,394 to London Borough of Harrow for fuel. This is because Barnet share Harrow's depot for some of the refuse vehicles and have to buy their fuel via Harrow. Are we getting the best deal - who knows but because Barnet messed up the Oakleigh Road depot, which is too small, we have no alternative.

Capita had no substantial payments this month but Re had a payment of £2.9 million, surprising given that they received an advance payment of £16 million last year - that must have run out.

I do wish someone would check these payments before they are published rather than leave it to the public to tell them they have got it wrong.

Questions for the Environment Committee - Are they getting half the story?

Next Tuesday is the Environment Committee  will consider some massive changes to the refuse service (which you can read here) including the removal of the food waste brown bin collection and a suspension of green bin collection for 3 months over the winter. I have been through the report in detail and have submitted the following questions. It will be interesting to see what answers I get.

Agenda Item 7

1. At  1.4 in the report it identifies the problem with the transfer station floor and attributes the blame to Wilmott Dixon. At some point during the construction process a surveyor must have signed off this element of construction in order for Wilmott Dixon to be paid. If the floor was not laid to the correct specification why wasn’t this picked up at that stage and does this call into question the quality of project management?
2. I was told by a councillor that they were told the floor repair would only take “a couple of days” yet the disruption caused seemed to last much longer. How long was this area out of action and why were councillors given inaccurate information?
3. At 1.8 the report says the average payment rate is 69% but fails to mention that Littering makes up 83% of the fines with a 73% payment rate, Duty of Care notices make up 8.4% of fines with a  72% payment rate yet Flytipping, which is a very serious problem, represents only 8.7% of fines and had only a 34% payment rate. As such:
4. Other than Harrow have there been any other benchmarks to give confidence that the payment rate for littering will not fall when  the early payment discount is removed?
5. Have you calculated the impact of stopping the early payment discount on small businesses who may have failed to get their duty of care paperwork in order within 7 days given the pressures they are under already?
6. Have you asked NSL why they have failed to collect two thirds of the flytipping fines given that if they were collected at the same rate as other fines (72%) that would generate an additional £107,000 of income?
7. How much of the total environmental enforcement fine income comes to the council and how much goes to NSL and who will benefit most from the removal of this early payment discount, LBB or NSL?
8. At 1.11 the report identifies the cost of the waste and recycling service. How much extra does it cost having to run the service out of two depots including one which is outside of the borough and would costs be reduced if all services were run from one depot?
9. At 1.17 the report talks about double shifting. Please can you clarify at what time the earliest rounds would start and at what time would the latest rounds finish?
10. At 1.17 the report talks about local alternative bulking points. Given the difficulty in finding the Oakleigh Road Depot and the likely planning opposition you will get from residents when they find they are going to have waste tipped and bulked close to their homes, do you think this is a realistic option?
11. At 1.22 you state that the cost of separate food waste collection is approximately £300,000 per annum. Given that it is collected with the blue bins by the same crew, that the food waste is tipped into a compartment on the blue waste refuse vehicle, can you explain how the £300,000 saving is calculated.
12. To what extent will the removal of brown bins and the combining of food and general waste undermine the Courtauld Commitment 2025 to reduce food waste especially if you can’t measure it?
13. Have the council undertaken any of the initiatives set out in WRAP Household food waste collections guidance: Section 11 which saw tonnage rates increase in 18 of the 19 pilot projects and with more than half showing tonnage rates increase by more than 13% (with the highest at 62%)?
14. To what extent will the 20% reduction in throughput of the IVC at Edmonton affect its viability and what was NLWA response to this proposed reduction.?
15. Has anyone considered what signal the withdrawal of food bin will sent to residents and is the risk that it will be interpreted that people can throw anything in the black bin, impacting recycling rates?
16. What will happen to all the redundant brown bins and kitchen caddies and what is the cost of recycling them?
17. To what extent will the removal of the last 16 bring sites lead to more flytipping or recyclable product being thrown in the black bins?
18. In the 3 month winter  period 2016/17 how much green waste was collected?
19. What is the risk that green waste will either be flytipped or put into black bins when the green bin collection is suspended.
20. To what extent have you consulted with the many small gardening businesses in Barnet who work through the winter and typically place the garden waste they gather at a resident’s home in the resident’s green bin and has anyone asked them what the impact may be either in term of cost or whether their services simply will not be used during the suspension period?
21. Will green bin collection staff be laid off during the service suspension and how easy will it be to ramp up staffing levels when the service recommences?
22. Why do private contractors have to comply with time banded collections in town centre, will it make it more inconvenient/expensive for them and is this simply a strategy to give the council’s commercial waste collection an unfair advantage?
23. Given that the energy cost of streetlighting is underspent will you take this opportunity to increase the lux levels of streetlight which are now at an unreasonably low level?

Physician Heal Thyself

Over the next three years Barnet is going to experience a serious financial shortfall. By 2020/21 there will be a budget gap of £32.5 million. Those aren't my figures; they are the forecasts in Barnet's Medium Term Financial Strategy (MTFS) which you can see here. To set that £32.5 million shortfall in context, the total revenue raised from council tax is around £160 million so the shortfall is around 20% of the total council tax revenue.

Part of the problem is the cuts from central government. However, Barnet have insisted on a policy of council tax freezes since 2010 which has stored up a massive problem that will now be coming home to roost. The cynic in me thinks that the Conservatives didn't take a council tax rise in April (other than the social care precept) because they thought Labour would win and be forced to increase council tax, labelling them as the tax raising party. Barnet could have increased the council tax element by the 2.99% allowed. Many councils have taken that rise knowing that come 2020/21 there is going to be a meltdown in local authority finances.

This year there will be £9 million of service reductions and next year that rises to £12 million but come 2020/21 who knows what cuts will be made? They will have to be huge. A very bleak outlook.

So that leads me back to the title of this blog. Barnet are making cuts to lots of services. They, or rather Capita who run the finance function in Barnet, are reviewing all of the contracts and services to see where savings can be made. However, one of the largest contracts seems to be exempt from this process and that is Capita. Well that's no surprise; why would Capita look at saving money on its own contract; Turkeys, Christmas and all that?

If you look how much money we have paid Capita since the start of the contract it is a somewhat shocking £335 million.  The CSG contract contains an indexation clause which means it automatically rises each year and because services are contractually specified it is very hard to make savings by reducing the service Capita provide.

If we look at the CSG contract, Barnet say they have made savings on the core contract. The problem is we are paying a fortune for everything else. Set out below is a chart that shows how those savings have been eroded even before you add in the massive payments for special projects, charged at consultancy rates which we are forbidden to know.

According to the Council's figures, the savings to date on the core contract are £17.2 million, which looks good, but then you have to deduct all the elements which Capita claim back from Barnet. The scale of contract variations illustrate the complexity of the contract, the problems of missing out elements and the fact that with such a long contract period (10 years with the option to extend for another 5 years) means that requirements will inevitably change.

The gainshare on reducing the number of people claiming the Single Person Discount and additional council tax income seems strange to me as Capita are already being paid to provide those services. So in effect we are paying for poor service and rewarding them extra for delivering the service we have every right to expect in the first place.

I haven't seen the specific details of what they have generated on the additional income but Capita are allowed to offset all of their costs before claiming a share. As a result, they take 47% of the additional income generated and that doesn't seem fair to me.

On the procurement gainshare I have blogged about this repeatedly. I have challenged with the external auditor the right of Capita to claim gainshare on framework contracts (contracts that are available to public sector organisations) and which could have been accessed by Barnet council staff.
In total Capita are forecast to claim £23.4 million in procurement gainshare and "Agreed Procurement Price Recovery".

There is then additional work. For example, last year Capita claimed £428,267 for additional caseload on revenues and benefits work. Every element of work in the contract has a volume attached to that and if we go over that limit we pay extra. I thought the number of people claiming benefits was going down but apparently not in Barnet.

From my perspective, the payments to Capita at £335 million should be one of the first areas Barnet looks at to save money if there is any chance of meeting the £32.5 million shortfall come 2020/21. But because the outsourcing programme is so high profile there seems a complete reluctance to look at any possible changes. Barnet need to be brave and look at their contract with as much rigor as they are for other vital services, such as Children's Services and Adult Social Care. So to Capita I would say - Physician Heal Thyself .