Download - Inspiring Your Next Success!® Company Confidential

Inspiring Your Next Success!® Company Confidential - Copyright 2007 Hitachi Consulting1

RESTRICTED - MANAGEMENT

Local Management Accounting Team Review

Presentation of Findings

DATE: July 07Consultants: B.Brownlee, A.Duguid, J.Herman, C.StoneRef: Final Draft DCLG-LMAT Rev-110707-1.3

Inspiring Your Next Success!® 2 Company Confidential - Copyright 2007 Hitachi Consulting


LMAT Review - Contents

> Introduction

» Requirements & Objectives

» Scope and Principles for Change

» Project Approach

> Management Summary

» Baseline

» Findings

» Business Case for Change

» Future Ways of Working

» Gap Analysis

> Next Steps

> Baseline Analysis

» Background

» Local Management Accounting Team (LMATs) – Baseline Analysis

> Strengths & Issues

> Implications of Issues

> Conclusions

> Annex A – Current LMAT Organisation Structures

MANAGEMENT SUMMARY SUPPORTING EVIDENCE



Introduction



LMAT Review - Requirements & Objectives

The LMAT Review seeks to address the following:

> Requirements

» How are the LMATs currently structured and constituted, and what are the inefficiencies and issues?

» How can the LMATs add the most value in the future, in the light of proposed changes?

» Is there a sound business case that underpins the changes and what does this constitute?

> Objectives

1. To identify and analyse the staff and activities that currently encompass the LMATs.

2. To evaluate potential future ways of working and

3. The potential savings arising from changes to roles, structures and ways of working



LMAT Review - Scope & Principles for Change

> Scope – LMAT’s current activities - excludes Government Offices of the Regions (GOs) and the wider CLG family

> The principles for change to consider:

1. Centralisation of transaction processing

2. Greater focus on added-value services

3. Group Management Accountants (GMAs) and their staff to come under the control of the Finance Directorate



LMAT Review - Project Approach

> The LMAT Review was structured as a project over a five week elapsed period comprising the following phases:

» Project Initiation to establish project communications and administration

» Baseline analysis of current ways of working

» Evaluation of potential futures ways of working

» Gap analysis between current and future ways of working

» Presentation and final reports



LMAT Review - Project Approach

Issue SurfacingStructured Interviews with GMAs, LMATs, Central Finance, FSSD & other stakeholders

1.Project Initiation2. Current Ways

of Working3. Future Ways

of Working4. Report

Establish Project•Initial communications•Project Plan•Deliverable format•Risk & Issue log

Communicate with Stakeholders

•Plan & Objectives•Timescales & Approach•Required involvement

Confirm with Sponsors•Terms of Reference•Design Principles•Roles & Responsibilities•Deliverables

Commence Baseline Analysis•Schedule Meetings/Workshops•Obtain available base data•Construct Interview agendas•Maintain Issue log

Data Gathering•Headcount, grades, locations•Organisation Structures•Volumes, resource drivers•Actual & Required Outputs

Current LMAT analysis•Staffing and Structures•LMAT issues•Scope for changes, added-value services, efficiencies

LMAT Design Principles•Confirm & Agree Design Principles•Organisational options•Change management

Evaluate Future Ways of Working

•Organisation structure•High level Processes•Resources / FTEs•Business case evaluation

Evaluation / Gap Analysis

•Organisation structure•High level Processes•Resources / FTEs

Develop and Test Presentation / Report

•Develop presentation and test with stakeholders•Take into account other change initiatives

Develop & present Draft Analysis & Evaluation

Presentation / Report

•Objectives•Analysis & Evaluation•Options•Change / Next Steps•Risks

Briefing & Support for CLG

July Board

Wk 1 Wks 1-3 Wks 3-4 Wks 4-5

Key Deliverables

Assess Current Ways of Working•Key activities and numbers of staff•Structures, IT support•Resources & Outputs

Finalise Evaluation with

Sponsors

5. Board Support

Wks 6-8

Project and Change Management



Management Summary



Management Summary - LMAT Baseline

Numbers: (source: LMAT Review – June 07)

> The total LMAT establishment is 94 with current in post headcount of 89, 4.51% of 1,972 headcount within the Groups, £3.4m total LMAT payroll cost to Department

> An EO and AO headcount of 56, primarily focused on transaction processing, costs £1.8m per annum

> At least £1m+ per annum, 29% of LMAT payroll costs of £3.4m p.a., is involved in managing invoice processing arising from c34,000 orders p.a. of which 75% (25,000) are for less than £1,000

> The average LMAT process cost is, therefore, c£29 per order

> The core Departmental spend is c£33bn of which only c£10bn is subject to LMAT oversight

Capability:

> Department has never achieved a stable population of qualified GMAs, the LMAT leaders

> Resource flexibility is diluted given the prevalence of small teams in LMATs and the difficulty in managing LMAT resources across the Department.

> Only 10 of the 28 HEO and SEOs are fully or partly qualified accountants (CCAB) limiting the practical delivery of value-added service

> Quality of service delivery not consistent and effectiveness of professional oversight variable

LMATs significantly resourced...

… but not effectively organised, focused and competent to deliver value



Management Summary - Findings

> LMATs undermined by:» insufficient resource of qualified accountants

» diversion of resources to manage the payment of invoices that are not compliant with the procurement process

» lack of consistent capability across the LMATs to participate in and to provide value-added services for decision support

> Appropriate toolsets not provided to the LMATs and budget managers» Programme Management, payroll and personnel systems are not interfaced or integrated. There are no

standard forecast, planning and programme management tools used across the Department.

> Lack of clarity between the line and the LMATs with regard to accountabilities and responsibilities for financial reporting and outturn forecasting of programme spend

> Non-compliance by the line with the prescribed procurement process. » Plan to centralise transaction processing in the shared service centre was abandoned in 2005 because of

non-compliance.

> The LMAT structure does not extend to all the Departments core Groups e.g. Thames Gateway, ERDF.

LMATs well designed, planned, piloted...

… but roll out not resourced and poorly implemented



Management Summary - Business Case for Change

> LMATs have, therefore:

» not achieved core objectives of:

• more effective and accurate information

• realisation of any significant efficiency and procurement savings

» not been able to develop beyond exercising basic financial controls and record keeping to provide added-value management and decision support information

• lack of discipline in the verification of balance sheet items

• misuse of the accruals process

» been required to support a non-compliant procurement process

• for example, obtaining evidence of procurement authorisation after goods and services have been delivered and the invoice received.

» become an unattractive working environment, lacking a clear career structure and difficult to attract high calibre civil service staff

Unsatisfactory and inefficient working arrangements…

…resulting in not meeting the core objectives



LMAT Review – Business Case for Change

> The cost of doing nothing is to continue:» not meeting the core objectives of the original LMAT strategy

» wasting resources of at least £1m p.a. on the LMATs supporting a non-compliant procurement process

> The business case for change constitutes the following elements:» Non-financial

• Improving the effectiveness of the LMATs to support the Department in:- Ensuring financial control and the quality of financial and management information- Maintaining the integrity of the balance sheet- Providing decision support and value-added services to the Group DGs

• Timeframe – targeting a completion date of 31/12/07 to provide the focus and urgency required to drive the programme of change and realise the benefits at the earliest opportunity

» Financial

• Gross headcount savings in the LMATs arising from centralisation of transaction processing of at least 29 FTEs costing £1m per annum

• Potential efficiency savings in Central Finance arising from reductions in Quality Assurance and reworking of submissions from the LMATs

• Potential additional cost of resources that may be required in the shared service centre



Management Summary - Centralisation Potential Savings

> The Smarter Business Process outline business case sets out the options for centralising transaction processing for invoicing currently undertaken by the LMATs.

» this business case concluded that the option with the largest saving is to “tackle compliance issues with centralising transactional processing” and

» used as a baseline for calculating savings in transaction processing the assumption that 23 EOs and 17 AOs costing £1.1m per annum are doing transaction processing full time.

> The LMAT review has identified that:

» Of the LMAT headcount of 89, 56 (30 EOs, 20 AOs and 6 contractors) costing c£1.8m p.a. are made available primarily for transaction processing,

» The LMAT resources absorbed by transaction processing amounts to 29 FTEs, costing £1m per annum, across all grades

> Additional resources may be required within the shared service centre focused on placing purchase orders, scanning paper invoices and processing invoices for payments. The additional resource requirements are dependent upon the design of the re-engineered processes and supporting technology.



Future Ways of Working - Design Principles

> Centrally managed core of LMAT finance specialists working in partnership with Group Management Teams

> Transactional activity from purchase ordering to invoice payment centralised within the Shared Service Centre

> LMATs focused upon the delivery of value-added financial and risk management services, supporting effective decision-making and able to respond flexibly to emerging business needs, for example

» Ensuring the accuracy, integrity and understanding of the balance sheet

» Facilitating the identification of financial pressures that may impact the delivery of a programme’s outcomes

» Engagement in the forecasting and management of programme resources beyond the current financial year

» Providing management information and appraisal techniques to facilitate the value for money management of resources

» Managing relationships in order to access and leverage knowledge expertise within the Group and Department.




> Supporting the Corporate New Ways of Working to enable prioritisation of resources and transparency of performance

> One view of programme, accounting and HR data and information. No need to expend resources reconciling disparate systems, with consequent risk of misreporting.

> GMAs adept at building relationships within Groups and considered a trusted financial expert, aware of the policy and programme challenges facing the Group

> LMATs have oversight and accountability for all financial management activities with a Group

> The Finance Director accountable for:» LMAT strategy

» Recruitment and resource management across the LMATs

» Professional & career development

» LMAT processes and systems

» Knowledge sharing and best practice

» Resource Management across the LMATs




> Finance is an attractive place to work providing

» A formalised career structure

» Professional training and development opportunities

» Valued experience for fast trackers

» Exemplar for the new ways of working

> Performance Management

» Clear targets

» Rewards for successful delivery and outcomes



Management Summary - Gap Analysis

Current Future Bridging the GapStrategy >Focus on the original LMAT strategy of

effectiveness and efficiency is not currently central to scoping and defining the roles, accountabilities and responsibilities of the LMAT.

>No understanding of CLGs financial management objectives

>A clearly defined LMAT strategy that driving delivery and performance management.

>A strategy to develop financial management competences across the Dept.

>A clear vision and definition of the strategy for financial management within the Dept and the role of the LMATs within that.

>Use of the “Financial Management Capability Maturity Model” or other such model to assess current competence and development path.

Structure & People

>89 people, predominantly AO and EO

>Organised in small teams within LMATs

>Focused on transaction processes

>Management of the LMATs and other finance personnel, devolved to the Groups, GOs and other parts of the wider CLG family.

>Significantly reduced resource but far more skilled and competent

>Resource consolidated into flexible pool of expertise that can be managed as a Dept. resource.

>Focused on value-added services

>Centralised management – GMAs and other finance personnel reporting to the Department’s DG Finance.

>Managed exit / re-deployment

>Skills and personal development training

>Role definition and recruitment of required expertise

>Building confidence of Group Management Teams




Current Future Bridging the Gap

Structure & People (contd)

>No explicit career structures

>No performance measurement and management system that is linked to an LMAT strategy, desired outcomes and individual performance

>Not all finance personnel within the Groups are within the LMAT structure

>Explicit and managed career development opportunities

>Continuous improvement in capability

>All financial management personnel within the Groups e.g. ERDF, LGF to be within the LMAT structures subject to appropriate oversight and control

>Clarity on performance objectives

>Change in reporting structures to extend the LMAT structure to all finance personnel within the Group

Systems >Limited integration between financial and HR systems, payroll and programme delivery

>Ongoing use of local spreadsheets

>Shared Service Delivery

>Integrated Financial, HR and programme management systems across the Dept. with clear information owners

>Integrated system architecture

>Extending the use of existing tools by the line




Current Future Bridging the GapProcess >Compliance orientation

»Procurement process

»LMAT Operations Manual

>Weak financial controls

»Weaknesses in balance sheet verification

>Driven by the strategic and operational needs of the Department.

>Transaction processing centralised within a Shared Service Centre

>Less doing it by the book and more attention to getting things done in the most effective and efficient way, taking proper account of risks and how they are addressed.

>Line responsibilities embedded

>Refreshed business processes

>Managed migration of activity to Shared Service Centre



Next Steps



Next Steps - Implementation RisksA restructuring and change programme for the LMATs must take account of:

1. Benefits not realised

» Failure to obtain the commitment of senior managers will limit the realisation of financial and performance benefits

» FSSD is unable to effectively interact with the line resulting in LMATs continuing to handle transaction processing enquiries

2. Reduction in performance while change is being effected

» Change implementation will potentially reduce the initial perceived performance of the LMAT because of staff uncertainty and weaknesses in existing LMAT management

3. Implementation perceived to have failed because stakeholder expectations not managed

» Expectations raised by the original roll-out have not been met. The upgrade of the LMATs further inflates expectations and undermines future LMAT credibility



Next Steps - Implementation Risks (contd)

4. Departments reputation impacted through mismanagement of employee relations

» Consultation with staff and the Trade Union Side, concerning potential redeployment and recruitment are not well managed

5. Change Programme fails through lack of resource and ability to integrate all the change initiatives

» Change Programme is not adequately and competently resourced

» The scale of change throughout the Dept. is not managed and inter-dependencies between initiatives are not identified



Management Summary - Next Steps

> Doing nothing is not an option because of the waste of resources within the LMATs and the requirement to improve basic financial controls.

> CLG Board support is sought to adopt the following LMAT restructuring proposals for change with a target completion date of 31 December 2007 for centralisation of transaction processing:

1. Transfer the primary reporting line for the LMATs to the DG Finance & Corporate Service Delivery, Hunada Nouss

2. Centralise invoice transaction processing in the shared service centre

3. Agree to the initiation of an implementation programme to enable the LMATs to focus on added-value services and to deliver the change

> Investment

» It is proposed that the preparation of the detailed plan including resource requirements and the availability of investment funding will be completed by the end of August. This opportunity will need to be taken forward on an invest-to-save basis. However by delivering at pace the Department will realise financial benefit before the end of the current financial year.

Further detail regarding the above recommendations is provided within the ensuing slides…



LMAT Review - Next Steps

1. Transfer accountability for the LMATs to the Finance Directorate in order to speedily:

» align the DG Finance reporting structures with the current responsibility for providing assurance to the Department’s Accounting Officer regarding the integrity of the Resource Accounts

» develop the LMAT strategy in the context of the Department’s strategy for financial management

» determine financial management objectives, disciplines and priorities

» manage the skills and resources across the LMATs

» manage professional & career development

» establish LMAT processes and systems

» promote knowledge sharing and best practice

» create an attractive working environment




2. Accelerate, as a matter of urgency, the current Smarter Business Process approach to centralising transaction processing

» the current approach is to tackle compliance issues with centralising transactional processing

» reframe the procurement process problem as

• “what must we do to transfer processing to the shared service centre as a matter of urgency, efficiently and effectively in compliance with a revised set of rules for accounts payable?”

» determine the financial risk exposures and how to mitigate and manage them, and

» determine the necessary and sufficient conditions to enable centralisation.




3. Implementation Programme

a. Review and update the original LMAT strategy with respect to:

» The vision and objectives for the LMAT in the context of the Department’s financial management strategy

• Challenge the requirement for the LMAT structure

• “What should the LMAT be doing and why?”

• Manage the Step-up through the Financial Management Capability Maturity Model

• The challenge of resourcing the LMATs with appropriately qualified finance staff

b. Provide appropriate toolsets for programme and budget management, management reporting and forecasting.

» identify the needs of the Department for programme, financial and management reporting

» design the ICT and process architecture to support the Department’s business and financial needs

» map the current standard application set to the ICT and process architecture identifying the need for any additional systems and facilities



LMAT Review - Next Steps3c LMAT Capabilities - resource the LMATs with the required level of

professionally qualified personnel

» In the context of the LMAT strategy, establish the financial management objectives and the associated performance management systems

» Assess the skills and capabilities required to deliver the LMAT strategy

» Re-define the LMAT structures, roles and role descriptions

» Develop appropriate grading structures and job titles that match the scope of responsibilities and provide opportunities for career development both within finance and the wider civil service, for example:

• Group Management Accountants to be accorded titles that better describe their status and responsibilities (Group Finance Manager/Director/Group Finance and Planning Director).

» Manage the exit and recruitment of personnel to fit the roles




3d LMAT Structures» Redesign the LMAT structures to incorporate financial management oversight

and accountability for all financial management activities within the Department including Local Government Finance, European Regional Development Fund, Thames Gateway and any other financial management resources within the Groups.

4 Change Management, Communications and Culture» Sponsorship – ensure strong sponsorship and buy-in of Director Generals

» Staff Considerations

» Consultation with staff and unions, preference exercise design and implementation

» Change management – provides glue for both LMATs and centralisation

» Unfreeze the current, implement new design and refreeze so it sticks

» Identify and deploy levers to overcome passive resistance

» Gather feedback from staff and adjust the plan



Next Steps – Programme Management Plan5. Programme Management Plan for completion by end of December 2007 to include:

» determining the source of funding for the change as part of the business case

» governance framework and creation of Project Initiation Documents

» confirmation of work streams and requirement for internal and external resources

• programme, project managers

• change and stakeholder management expertise

• expertise on finance transformation

• expertise in the complex preference exercise process and consultation with the Trade Union Side

• process and implementation expertise

• business case and benefits realisation manager

» initial consultation with the Trade Union Side and staff

» integration with other Department initiatives

» development and management of the business case process



Management Summary - Implementation Plan Overview

Establish Project Steering GroupEstablish Project Steering Group

July Decision / Sign-off Next Phase

Change Management, Communications and Culture

LMAT Capability & Structure

Centralise Transaction Processing

Project Management / Business case managementProject Management / Business case management

Immediate Action / Mobilisation

Immediate Action / Mobilisation Change Implementation ProjectChange Implementation Project

Review LMAT Strategy Review LMAT Strategy & Transfer control & Transfer control

of LMATsof LMATs

Implementation planningImplementation planning - Project plan, resourcing- Project plan, resourcing - Integration with other projects- Integration with other projects - Update LMAT Vision & Strategy- Update LMAT Vision & Strategy

Decision to centraliseDecision to centraliseTransaction Transaction processingprocessing

Risk assessment, end to end process Risk assessment, end to end process agreement. FSSD Readinessagreement. FSSD Readiness

Transfer responsibility to FSSD, performance Transfer responsibility to FSSD, performance management system, data and process changesmanagement system, data and process changes

Plan to Close the LMAT Plan to Close the LMAT capability capability

gapgapDesign roles, responsibilities, Design roles, responsibilities,

Secure required GMAsSecure required GMAsDeploy new roles, structures, performance targets Deploy new roles, structures, performance targets

in all core parts of the Departmentin all core parts of the Department

Vision, Objectives & Vision, Objectives & StrategyStrategy

Staff, department and stakeholder continuing communications Staff, department and stakeholder continuing communications & feedback, ways of working & Change Management& feedback, ways of working & Change Management

Workstream Completion be end of December 2007

Performance feedback including staff perceptions

Staff changes

Consultation and Preference exercisesConsultation and Preference exercises Staff changesStaff changes1

2

3

4



Programme & Change

Management

Strategy Implement the LMAT Strategy in the context of developing CLGs financial management competencies

Stakeholder & Customer Needs

Understand how to deliver valueTo the business for financial information & decision supportCentral finance for financial information & controlOther stakeholder needs

People

Put the right people in place•Recruit•Upskill•Manage out poor performers•Provide career structure•Control from the Centre

Provide the right toolsIT Applications:-Budgeting, Programme management & planning-Integration of programme tools with SAP-Decision support toolsManagement Techniques:-Performance measurement and management

Systems & Infrastructure

Integrate the processes-LMAT, business, procurement, & accounting-Centralisation of transaction processing -Reinforce accountabilities & responsibilities

Ways of Working

Resources

Deployment

To

ols

Ser

vice

Del

iver

y

Objectives

Next Steps - Change Implementation Core Components




Baseline Analysis



Background to the Assignment> The Department is changing:

» Moving towards a strategic and policy focus with delivery through partners, supported by a slimmer, professional core able to deliver with reduced resources

> The LMATS were introduced in 2005/06, following a successful pilot. The current business perception is that although improvements have been made in terms of data integrity, the quality of the service being delivered by LMATs is not consistent and the primary focus remains on transaction processing rather than on the value-added services envisaged in the LMAT business case

> The Central Procurement Division Smarter Business Process outline business case for the centralisation of invoice processing assumes a baseline of LMAT transaction processing costs of £1.1m that requires validation

> The professionalisation of the Department’s financial capability continues to gather pace and is essential if it is to meet the future financial management challenges that will arise as a result of tight constraints on public expenditure




Original LMAT Strategy



…and the realisation of significant efficiency and procurement savings

LMAT Original Strategy

> Proposed changes included:

1. Centralisation of invoice processing to FSSD

2. A CPD procurement specialist within the LMAT

3. Transfer SAP processing from the line to the LMAT

4. GMA to report to the local Group Director General

5. Financial Qualifications

• GMAs to be qualified accountants

• Local Management accountants to be at least part qualified accountants

6. LMAT to provide a finance support role to programme budget managers

7. Accountability for strategic planning and performance reporting to be transferred to the GMA or a BDA

8. Maintain the responsibility of a PBM to manage the Programme

9. GMA to provide financial management and policy advice to Group senior management

To contribute to the improvement of financial planning and control processes…

X

X

X

X

X

X

X

X

Implemented?



LMAT Original Strategy Implementation

Only two of the proposed changes have been

successfully implemented!




Current Analysis

Headcount



Current LMAT Analysis - Headcount

> The total LMAT in post headcount is 89, 4.51% of 1,972 headcount within the Groups

> The range of LMAT size ranges from the smallest (PPI) at 2.92% to the largest (Gov & Comms) at 6.25% as a % of Group total headcount

> There is no obvious correlation between LMAT and Group size

> There is an unclear differentiation between the roles and responsibilities of the EO and AO grades

Civil Servants Cont's TOTAL

GMA 3 1 4 4.5%SEO 7 7 7.9%HEO 22 22 24.7%EO 30 30 33.7%AO/AA 20 6 26 29.2%Total In post 82 7 89 100.0%Long term sick 1 1 Total 83 7 90 Vacancies 4 4 Total Posts 87 7 94

Headcount (2 July 07)

No correlation between the size of the Group and the LMAT headcount

Business GroupStaff

NumbersHead Count

% of Group Head Count

Prog Budget

£m

Admin Budget

£m

Programmes, Policy & Innovation 617 18 2.92 8,485 34 Corporate Delivery & Transformation 462 19 4.11 46 18 Equalities 170 7 4.12 120 9 Places & Communities 211 13 6.16 1,042 15 Governance & Communications (incl F&R) 512 32 6.25 276 31

Total 1,972 89 4.51 9,969£ 107£

2007-08LMAT



Current LMAT Analysis - LMAT Scope

> The LMATs have oversight and responsibility for only 31% £10bn of the core Departments total expenditure of £33bn

> The remaining £23bn is managed outside of the LMAT structure with limited direct oversight and input from the LMATs

Department Expenditure £m

£10,140 , 31%

£22,956 , 69%

LMAT Controlled Expenditure

Non-LMAT Controlled

Business GroupStaff

Numbers %Head

Count

% of Group Head

Count

Total Expenditure

£mProg Budget

£m

Admin Budget

£m

Programmes, Policy & Innovation 617 31% 18 2.92 8,519 8,485 34 Corporate Delivery & Transformation 462 23% 19 4.11 128 46 82 Equalities 170 9% 7 4.12 129 120 9 Places & Communities 211 11% 13 6.16 1,057 1,042 15 Governance & Communications (incl F&R) 512 26% 32 6.25 307 276 31 Total LMAT Controlled Expenditure 1,972 100% 89 4.51 10,140£ 9,969£ 171£ Non-LMAT Controlled Other Places & Communities 375 375 Revenue Grant Support 3,162 3,162 National Non-Domestic Rates 18,500 18,500 Other Local Government 919 919 Total Non-LMAT Controlled Expenditure 22,956 22,956

Total Departmental Expenditure 33,096£ 32,925£ 171£

LMAT 2007-08




Current Analysis

Organisational Structure



Current LMAT Analysis - Typical Organisational Structure

> LMAT organisation structure has narrow spans of control (1 to 1 relationships) with limited sharing of EO/AO resources across an LMAT

> EO/AO Headcount of 56 costing £1.8m per annum will be directly impacted by Centralisation of transaction processing

GMA

SEO

HEO HEO

EO EO

AO AO AO

(Qualified Accountant)

(Qualified or finalist)

(Qualified /studying)

Studying CIMA/ACCA

May or may not be AAT26 =

£0.8

30 = £1.0m

TOTAL 89 staff = £3.4m per annum

Current Headcount & average direct

annual salary costs

Deputy DirectorDeputy Director

Finance Directorate

Transaction Processing

4 = £0.3mSupport to

the DG

7= £0.4m

22 = £0.9m

Support to BMs & Central Finance

Traditional hierarchical structure…

…but not consistent with new ways of working




Current Analysis

Process Costs



Current LMAT Analysis - Process Costs

> £1m+ per annum, 29% of LMAT payroll costs, absorbing 1/3rd of the FTEs across all the grades is involved in managing the procurement and invoice process.

> This is likely to be an understatement as the LMATs are not structured for efficient workload management and productivity is considered to be low.

> The Smarter Business Process Business case assumed an annual cost for transaction processing of £1.1m in respect of 40 EO/AOs, which is consistent with the results obtained from the activity analysis.

> Under utilisation is likely to be analysed to processes such as “other activities” and “training and personal development”.

> Average process cost per order = £29 (£1m/34,000)

Process

Resources Consumed

H/count

Annual Costs £'000 %

1 Procurement & invoice processing 29 1,008 29 2 Financial & Management Information 17 784 23 3 Management Activities 9 390 11 4 Other activities 10 376 11 5 Other SAP input 8 297 9 6 Financial Controls 6 247 7 7 Advice & Guidance to the line 7 239 7 8 Training & Personal Development 3 135 4

Total 89 3,476£ 100

£1m + per annum consumed by processing invoices…

Source: Activity Analysis returns completed by the GMAs

…of which 75% (c25k) of purchase orders are for less than £1,000.




Current Analysis

Skills and Competencies



Level 1

START UP

Level 2

CONTROLFocus on compliance and control

Level 3

INFORMATIONFocus on measuring how resources are used and managing for the efficient and economical use of resources

Level 4

MANAGEDFocus on balancing efficient and economical use of resources with quality / effectiveness of results achieved

Level 5

OPTIMISINGFocus on continuousimprovement and learning

•LMATs level of maturity is variable•Focus remains on Level 2 and attaining effective control and compliance

Current LMAT Analysis - Financial Management Capability Model

•Level 3 provides the base from which LMATs can provide the desired value-added capability

Level 2 OBJECTIVES•Internal Control•Financial & Outcome information•Stewardship•Regulatory compliance

Level 3 OBJECTIVES•Risk Management•VFM

CLG stuck at level 2…

…but LMATs need to step-up to at least level 3



Current LMAT Analysis - Skills and Competences

> As part of the Department’s Keegan action plan objective to develop “quality financial management in the line” there is a specific action to identify and mandate the required grades and qualifications for GMAs and LMAT staff and to restructure the LMATs and improve skills to provide stronger support to the line.

> Although all GMAs are now qualified accountants, those holding or studying for a recognised accounting qualification at the SEO/HEO grades is currently only 35% (10 out of 28) and are not universally pursuing an accounting qualification.

> However, the competence, i.e. the ability to deploy technical accounting skills and experience, even amongst the qualified accountants, is considered by the line to be insufficient to meet their needs for “value-added” services such as financial risk management, technical advice and guidance, investment appraisal, forecasting and other types of decision support.

Low level of accounting qualifications…

…impairs the capability to provide added-value services to the line



Current LMAT Analysis - Professional Qualifications

> Only 10 of the 28 HEO/SEOs are fully or partly qualified accountants (CIMA, ACCA, ICAEW)

> 51% of LMAT staff do not hold or are studying for a financial qualification

> There is evidence of renewed interest in finance qualifications especially amongst the EO and HEO grades

LMATs are reliant upon a limited pool…

…of fully qualified and experienced staff

AO/ EO

HEO/ SEO GMA

AAT part or fully qualified 24 27% 14 10Full or partly qualified or studying 20 22% 5 10 4No finance studies or qualifications 45 51% 38 8 0

89 100% 57 28 4

TOTAL




Current Analysis

Ways of Working



LMAT Original Strategy - Roles & Responsibilities

ROLES RESPONSIBILITIES

Group Management Accountant

>Line Management of the LMAT

>Financial advice in support of Group strategy development

>Programme & Admin financial planning

>Compliance with HMT, CLG financial policies and procedures

>Reports to the Director General and provides support to the Finance Directorate

Local Management Accountant (SEO)

Financial Management Advice to the Line (Directors, Divisional and Programme Budget Managers)

Finance Support Officers (HEO/AO)

Financial Management & Transaction Service to a Directorate for both programme and administration expenditure:

>Procurement

>Assistance & Support to Budget Managers

>Ensuring the quality of financial data and complying with reporting timetables

>Liaison point for cascading from Central Finance financial reporting policy and procedures

The responsibilities for the LMAT roles…

…were clear but remain largely unfulfilled



Current LMAT Analysis - Ways of Working

> People and Structure

» small team approach does not support resource flexibility and capability development and is inconsistent with the New Ways of Working being developed by the Department.

» time allocated to core activities is spread across the grades

• lack of a clear definition of roles and priorities

• AOs and EOs priority is completing the procurement and invoice paper-chase

> Process

» Delivery approach focused upon compliance with process rules and the LMAT Operations Manual rather than business requirement

• for example the management of the procurement process

» No consistent, shared timetable for the completion of key financial tasks and controlling the quality of the content

• For example the production of monthly reports and balance sheet reconciliations

> Systems

» The systems (SAP, spreadsheets, programme management, payroll and HR) do not provide a common and consistent view of data and need to be manually reconciled with each other.

Inefficiencies are inherent …

…in all aspects of current ways of working



Procurement Process

High Level Process



Compliant Procurement Process

> A compliant procurement has the following process steps:

1. An authorised “request for procurement” (RFP) if not covered by a blanket order

2. A purchase order sent to the supplier (PO)

3. A goods received note (GRN) to evidence supply

4. A supplier invoice that matches with the RFP, PO and GRN.

> This process is applied to all procurements that are not done electronically or using the Government Procurement Card.

> 75% of procurements (c25,000 per annum) are for less than £1,000



The Procurement Process

Supplier

Delegated Authoriser

Line Manager

LMAT

1. Need & preferred supplier identified

2.Give authority to

proceed

3.Obtain price, Negotiate terms with supplier

3.Agree terms with customer

4.Complete Purchase

Requisition Form

5.Authorise PRF

6.Validate PRF-DA, Procurement

-Process /rules (<£20k) -Authorised Supplier

7.Complete & submit

PO

8.Process PO

9.Deliver Goods/ Services in

accordance with PO

10.Receive Goods/Services- Complete GRN

12. Produce Invoice for accepted

goods/ services

15.Authorise Invoice

16.Process Invoice for Payment against

PO & GRN

FSSD 17.PAY Invoice

11. Input GRN to

SAP

13. Invoice date stamped,

14. Auth’n

Needed?

Y

N

FAX

File



Non-Compliant Procurement Process

> Non-compliance with the procurement process means that some or all of the required documentation (RFP, PO,GRN) is not available, with the consequence that the SAP accounting system will not accept the supplier invoice as valid and one that can be processed for payment.

> The majority of procurements (70%+) are non-compliant and for amounts less than £1,000.

> On receipt of a non-compliant invoice, the LMAT will seek to identify the business manager responsible for the procurement and who has the appropriate delegated authority.

> The missing documentation (RFP, PO, GRN) is then generated and processed to maintain the audit trail and enable the invoice to be cleared for payment.

> Operation of a non-compliant process is resource intensive for the LMATs, costing £1m+ per annum and arguably provides little, if any, internal control benefit.



Non-Compliant Procurement Process

Supplier

Delegated Authoriser

Line Manager

LMAT

1. Need & preferred supplier identified

2.Give authority to

proceed

3.Obtain price, Negotiate terms with supplier

3.Agree terms with customer

4.Complete Purchase

Requisition Form

5.Authorise PRF

6.Validate PRF-DA, Procurement

-Process /rules (<£20k) -Authorised Supplier

7.Complete & submit

PO

8.Process PO

9.Deliver Goods/ Services in

accordance with PO

10.Receive Goods/Services- Complete GRN

12. Produce Invoice for accepted

goods/ services

15.Authorise Invoice

16.Process Invoice for Payment against

PO & GRN

FSSD 17.PAY Invoice

11. Input GRN to

SAP

13. Invoice date stamped,

14. Auth’n

Needed?

Y

N

Reconstruct missing

documentation

XXXX

XX

XX

XXXX

FAX

File

XX Non-compliance steps



Current Ways of Working

Strengths & Issues



LMAT Review - Current State - Strengths

> The Smarter Business Process Business Case is being actioned in order to fix procurement non-compliance and facilitate centralisation.

> The CLG Board are committed to quickly address the issues impacting the perceived poor performance of the LMATs

> The role of the LMATs in controlling the SAP input has improved the quality of accounting data.

> The LMAT roles are now physically established in the business

> LMATs support the procurement process as currently defined.

> LMATs are a repository of inherited corporate knowledge



LMAT Review - Current State - Issues

Issues are well understood and acknowledged but what to do next?

> LMATs well conceived, piloted, planned but poorly implemented:» Local Implementation Managers not appointed

» Resourced with personnel with insufficient skills and competencies

» Appropriate toolsets not provided to the budget managers and the LMATs

> Inefficiencies » Non-compliance with procurement process by the business

» Over-compliance by the LMATs

» LMATs not structured for efficient use of resources

» Responsibility for the prompt payment indicator is with the LMATs not the Line.




> Ineffectiveness

» LMATs delivering a poor service to Central Finance and the business

• Central Finance still required to retain resources to manage financial control and quality assure information received from the LMATs

• Inconsistent level of qualifications, skills and competencies across the LMATs

> Lack of Financial Control

» Lack of focus on basic financial controls e.g. balance sheet reconciliations, as evidenced by recent NAO reports

> Inadequate Scope

» The scope of the LMATs does not extend to some areas within the Department that are responsible for large programme budgets or the collection and redistribution of grants and rates. Such expenditure amounts to £23bn (69%) of the Department’s expenditure. These areas e.g. Local Government Finance, are supported by finance staff who have no accounting qualifications and




> Lack of appropriate toolsets

» There is no CLG consistent view of data as accounting, programme management, payroll and personnel systems are not interfaced or integrated. Manual reconciliations must be performed to reconcile between, for example payroll v personnel, accounting v programme management. Failures to keep the systems reconciled may result in misreporting of spend, errors in forecasting and having no control over commitments.

» Integrated applications for programme, financial and resource planning and forecasting

» Integration between HR and payroll systems

> Inadequate Performance Measurement & Management

» Apart from the prompt payment indicator, there are no evident LMAT key performance indicators



LMAT Review - Current State Implications of Issues

> Inadequate financial oversight by the DG Finance over all of the Department’s core expenditure of £33bn p.a.

> Managing controls over an ineffective procurement process absorbs 29% (29 FTEs) LMAT resources costing £1m per annum.

> Marginalised by the business – lack of finance input to “value-added services” policy development, business cases, submissions to Ministers

> Over Resourced & Under Skilled» More people than needed to do the wrong things right e.g. manage the P2P process

» GMAs need to be more finance directors than management accountants

» LMATs do not have the appropriate systems to facilitate delivery of value-added services.

> Resources not managed» No clear career structure for finance staff and the GMAs

» There is no structure to enable resource management across the LMATs.

> Risk of financial control failure

> Reputational Risk of failure of financial controls/procurement



Conclusions

> The LMAT strategy was not implemented

» An insufficient spread of financial trained and competent staff

» The LMATs and the line were not provided with the appropriate toolsets that are integrated with the accounting system to enable consistent planning, performance monitoring and forecasting.

> The LMATs are not meeting their core objectives of:

» Enhancing financial planning and control

» Realising efficiency gains

> Resources are being wasted on transaction processing without any understanding of the financial and non-financial risk exposures inherent in operating a non-compliant procurement process.

> The current LMATs do not have the capabilities to effect the changes required and provide added value service to the line.



Conclusions

> Risks of doing nothing

» Continued waste of resources at least £1m per annum

» Not providing basic financial management control

» Not providing decision support information

» Risk of financial control failure and NAO censure



Annex A

Current LMAT Organisational Structures



GMA

Finance HR, TransformationStrategy & Performance

Unit

Knowledge Management & IT

Working Environment

Legal

HEO

EO

AO

AA

CSU

SEO

Nigel Smith

Neluka Vithanage

Natasha Whitney

Stephen Chapman

Teresa Samuel

Patricia Boakye-Yiadom

Nicholas Kapor

Dawn Smith

Anzell Van Heerden

Patrick Crown

Audrey Burth

Max Siksnys

Sukuma Lahiri

Ajibade Ogunro

Gloria Gabari

Hasha Shah

Roger Palmer

Victoria Reville

Derek Blackhall (qualified accountant)

+Allen Chapman

Contractors

(CIMA)(CIMA)

20 Headcount

Corporate Delivery & Transformation LMAT Structure



SEOFirelink

Fire ControlNew Dimension

Ken Naden

Admin & other

Gary Hope

HEONew Dimension Assets

Pauline Cairney

FirelinkFire Control

Sarah Maryon

F&R Programmes

Julia Carroll

Admin

Zareen Ahmed

EO Alison Alleyne

Jennifer Sealey

Gillian Allchurch

AOKamalasany Ravindran

Pankaj Yadav

Tirath Lotay

Elizabeth Davis

Andrew Moorcroft

Subhra Mukherjee

Tim Fuller

GMA

(CIMA)

(AAT)

ACCA Finalist

(Studying) (AAT)

(CIMA)

Fire & Resilience LMAT Structure

16 Headcount

Ralph Moran



GMA

SEO

AO

HEO

Ralph Moran

Equalities Fire & Resilience

Steve Bradshaw

Race, Faith & Cohesion

Women & Equality Unit,DG’s Office

EOShafi Khan

Edwin Gomes

Usman Ghanti

Esa Manley

Toyosi Ogunyemi

Bryn Reynolds

CIMA

(CIMA Studying)

Paul Searles

Vacancy

Dave Starbuck

Vacancy

Local Democracy, LMAT, DG’s

Office

Local Gov

Finance

Sohini Mehta

Mita Das

Suzanne Ward

Bithika Mitra

Gary Mehler

Tola Ariyo

•Private Office•Deputy Prime Minister

Regina Obiora

Directorate of Communications

Sajal Das

Berkman Osman

Gabriel McGuigan

Janice Newman

Ritis Haria

Una Savage

AAT studying

AATProvides

training support

(Studying ACCA)

CIMA

Studying CIMA

Governance & Communications

See separate org chart

Governance & Communications LMAT Structure

23 Headcount



GMA

SEO

HEO

AO

Philip Mabe

Katherine Hitchman

Vacancy Barry Pullum

EO •Dorrett Annon•David Woolford•Jamil Ahmed

•Stephen Gillbanks

Akeem Yusuf

Elena Figueira •Lynda Agboola•Vacancy

Ayesha Mazhar Onome Oteri

•Serifat Bakare•Selina Ahmed

•Leonard Carter•Victoria Adekoyu (Cont)•Euphemia Dourado (Cont)•Patricia Opara (Cont)

New Housing & Sustainable DevelopmentRegional Urban & Economic PolicyAnalytical Services

•Housing Strategy & Support•Planning•Thames Gateway•Home Information Packs Implementation•European Regional Development Fund Programme

Policy, Programme & Innovation LMAT Structure

18 Headcount



John Hutchinson (Interim)

GMA

SEO

HEO

AO

EO

Kurt Horder

Olusola Jolaoso (Akin)

Divya Patel

Beverley Kong

Theophilus Holdbrook

Rodney Bholan

Victoria Akeredolu

Simon Newitt

John Brookes Danny

Fairbrass

Kevar Bheda

Oluwagbenga Odubunmi

(David)

Local Authorities

Agreements

New Deals for Communities

LMAT Support

LDR & CGD

Places & Communities LMAT Structure

13 Headcount

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