Failure to complete accounts leads list of concerns highlighted in reports
Bedfordshire County Council and outsourcing provider HBS are conducting a major review of their £267m partnership four years into its 12-year duration.
The Strategic Service Delivery Partnership was wide ranging, covering financial systems, IT, human resources, school services and contracts and facilities management.
But the high hopes for the partnership have not been realised, according to council documents, district auditor reports, Audit Commission reports and a study commissioned by public service union Unison.
HBS has met all the key performance indicators in the contract and has been paid in full for its work, but both council committees and external auditors say the partnership is under performing.
Problems following the introduction of an SAP system by the partnership contributed to the council failing to file its accounts in November 2004, and there has been an overall lack of financial visibility.
The partnership initially went smoothly, with the SAP system going live in April 2003. However, performance rapidly went downhill. In October the same year the council's strategic partnership management board said there were "incorrect input invoices, delays in posting invoices, loss of discount from suppliers, inaccurate commitment accounting with a consequential effect on the quality of budget forecasting" due to the system.
By December the council's resource stewardship committee said problems with the SAP system had meant the council was unable to produce accurate expenditure forecasts and was prone to late invoice payment and misposting payroll.
The social services department had low confidence in SAP outputs and experienced lack of budgetary control, the committee found, according to the Unison report. The report also said there was a lack of support for users experiencing difficulties with the new infrastructure.
These concerns, prompted councillors to create a task group to study the problems. In a report presented to the council in September 2004, the group said SAP had been chosen as part of the decision to contract HBS and the fact that staff had not been consulted about this major systems overhaul contributed to the problems.
"The first learning point would be that if the council wishes to enter into partnership agreements in the future, it should not tie the implementation of specific IT infrastructure to the agreement," the report said. "It may be preferable for all involved to agree the partner and then work in partnership to agree the best IT solution. However, the urgency to update the IT infrastructure was the driving force behind the original decision."
Local government IT managers' association Socitm last month said in a report on partnering in local government that when client and partner were put under pressure to complete a contract, due diligence and other essential processes necessary before completion could be weakened.
Business change, rather than fundamental problems with the technology, seem to have caused Bedfordshire most problems. SAP systems are being successfully used at other local authorities in the UK.
The task group report said, "When using consultants to implement a large-scale system, they must have in-depth knowledge and understanding of the organisation and how it is affected by legislation and internal decision-making flows. This affected the implementation of SAP substantially. The complexities of purchase ordering within social services were not fully appreciated."
Unison said, "There appears to be a lack of understanding about the needs and systems of the county council and the cultural change required to move to an entirely new system."
The council's problems were also highlighted by external auditors. In February 2004, an audit and inspection letter for 2002/ 2003 from the district auditor said that in introducing SAP "a number of key aspects of good internal financial control have lapsed".
There was an "inability to provide accurate budget monitoring information in certain key service areas", a "failure to complete proper bank reconciliations", and an "inability to develop a robust interface between the payroll and general ledger systems".
It also said, "Internal audit is finding it difficult to form a view as to the effectiveness of key financial systems." The letter did say that the district auditor could still rely on the work from the council's internal audit team.
The annual audit and inspection letter 2004, which was included in an Audit Commission review of the partnership in spring 2004, said, "We found that while key performance indicators were being met in accordance with the partnership contract,relationships were strained,accountabilities were blurred and resources on both sides of the partnership were overstretched. Overall, the partnership was not delivering improvements in services and increases in capacity originally envisaged."
It blamed poor contract management and "implementation of the new main accounting system [SAP] absorbing considerable and unexpected levels of resources on both sides of the partnership".
The council failed to publish its 2003/2004 statement of accounts by 30 November 2004 and district auditors issued a legal notice requiring it to produce an acceptable action plan to enable the accounts to be completed and verified.
When the district auditors presented to the council in January this year, they said, "Action must be taken to restore financial management and control. However, there were barriers to achieving this aim. The extent and nature of the problems were not currently understood by the council, but included problems arising from the arrangement with HBS, weaknesses in financial systems; and the audit of the 2003/2004 accounts."
The same month a letter from the Audit Commission said, "The council's inability to prepare timely, supportable statements of account is indicative of an inability to manage its financial position effectively. Action must be taken to restore financial management and control."
Amid these difficulties, plans to introduce SAP HR modules to support schools have been scaled back, according to Unison.
The council welcomed the Unison commissioned report but said it was unlikely to add anything to the review of its partnership with HBS, which began in February and is nearing an end.
HBS said it was working with the council on the review, which was "part of normal business practice". There is a "mutual desire for a continuing business relationship".
The council added, "We expect the results of the review to deliver considerable benefits which will enhance the county council's drive for improved service to the people of Bedfordshire."
The initial partnership between HBS included:
- A £7.8m investment in new IT, including an SAP integrated resource management system
- A 45-seat customer contact centre
- A regional business centre in Bedford
- High-quality and competitive support for schools
- A £6.9m investment in accommodation and an annual cost reduction of 2%, worth roughly £900,000 a year.
Why the deal is not delivering
Overall, the partnership was not delivering improvements in services and increases in capacity originally envisaged. Key factors contributing to the position were:
- Lack of vision and strategic direction for the partnership beyond its initial three years
- Lack of focus on service improvement
- Key personnel changes within HBS affecting the management required to run the partnership
- Poor contract management
- Implementation of the new main accounting system [SAP] absorbing considerable and unexpected levels of resources.
Source: Audit Commission annual audit and inspection letter, January 2005