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29 October 2015
Dear Sirs
Report of factual findings in connection with the apportionment of costs by Sefton Metropolitan Borough Council in relation to taxi licensing.
This report is produced in accordance with the terms of our agreement dated 2 October 2015.
Sefton Metropolitan Borough Council (the “Council”) have prepared the schedule of taxi licensing costs to be charged to the related reserve and remain solely responsible for it and for the creation and maintenance of all accounting and other records supporting its contents. The Council are also responsible for identifying and ensuring that the Council complies with the terms of the Local Government 1976 Act (the ‘1976 Act’).
We have performed the procedures agreed with you and listed below on the schedule of taxi licensing costs that are proposed to be charged to the related taxi reserve. Our work was performed in accordance with the International Standard on Related Services (ISRS) 4400 ’Engagements to perform agreed-upon procedures regarding financial information.’ The procedures were performed solely to assist the Council in fulfilling their reporting obligations under the 1976 Act evaluating the reasonableness of the proposed taxi licensing costs that are to be recharged to the related reserve. We performed the following procedures:
1. We obtained from the Council a listing of the individual costs which are proposed to be apportioned to the taxi reserve. We were reliant on a complete listing being provided by the Council and did not seek to check the completeness of the listing;
2. We reviewed the Council’s schedule of taxi licensing costs (as noted in point 1 above) provided against the requirements of paragraph 53 and 70 of the 1976 Act and legal advice provided to the Council dated 12 August 2009,to identify whether the costs identified are in line with this guidance;
3. We documented the apportionment basis and made observations based on the methodology that has been used; and
4. We reviewed the calculations made by the Council, who proposed, based on their review of the apportionment charge, backdating to 2010/11 the difference between the updated apportionment charge and the balance previously charged to the reserve. We reviewed the
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calculation to ensure that the costs proposed are consistent with the apportionment method reviewed in point 1 and 2 above.
Within the costs that are proposed to be charged to the taxi reserve by the Council, there are seven categories of expenditure being:
Employees – Salaries, NI and Superannuation;
Employees – Other costs;
Supplies and Services;
Support services;
Transport;
Third Party Payments; and Capital Costs.
In undertaking the procedures (as described above) against each of these expenditure categories we noted the following:
1. Employees – Salaries, NI and Superannuation
There are two types of salary cost that fall into this category, being:
Costs related to those Council employees who work full-time on the provision of the taxi licensing service, for example the Taxi Licensing Shift Officer and Taxi Licensing Enforcement Officers; and
Those employees who spend a proportion of their time on the service, for example Principal Trading Standards Officer and Head of Environment.
1.1 Are the costs eligible for charging to the taxi reserve in line with the 1976 Act?
For the costs noted above, it would appear that the requirements of the 1976 act have been met with the exception of those costs that have been incurred for individuals who spend a proportion of their time undertaking taxi licensing related activities. Given the nature of the roles for these staff, it would seem reasonable that a proportion of their time would be spent directly in relation to the taxi licensing service. There is insufficient information to substantiate the proportion of costs related to each FTE that is proposed to be charged.
1.2 Findings in relation to calculation methodology
The costs proposed are based on the lowest band in each grade rather than the actual salary paid; and
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There is insufficient information to support the apportionment of FTEs for those who are not fully involved in the taxi service.
1.3 Recommendations
The Council should include actual costs for the members of staff that are to be charged to the taxi reserve; and
The Council should review its apportionment methodology for those staff who spend a proportion of their time in relation to the provision of the taxi licensing service. The Council should be able to clearly show the proportion of time each individual spends dealing with taxi licensing related activities to evidence that the costs are in line with paragraph 70 of the 1976 Act.
2. Employees – Other costs
Employees other costs relate to additional costs incurred directly related to the employment of the Taxi Licensing Shift Officer and the Taxi Licensing Enforcement Officers. These are costs such as employee’s insurance and medical expenses.
2.1 Are the costs eligible for charging to the taxi reserve in line with the 1976 Act?
Subject to the revision of these costs based on our findings in 2.2 and recommendations in 2.3 below, it would appear based on information provided that the requirements of the 1976 Act have been met.
2.2 Findings in relation to calculation methodology
There is insufficient information regarding the calculation of the employees’ insurance to evidence that it directly relates to the employees noted in 2.1 above.
Beyond the employees’ insurance additional costs are incurred, which over the period 2010 to 2015range from £0 to £1,082, with a downward trajectory to between £0 and £266 over the last three years. Based on these figures an estimation for future costs would be in the range of between £159 and £458. The Council have proposed £250.
2.3 Recommendations
The Council should revise its calculation of employees’ insurance to a cost-per-head allowing this to be directly related to the employees noted in 2.1 above. This also reduces the cost proposed from £250 to c.£66. This should be adjusted historically and in future projections.
3. Supplies and services
Supplies and services costs relate to directly attributable supplies and services costs for the provision of the taxi licensing service. This includes, for example, Criminal Records Bureau/ Disclosure and Barring Service checks; taxi license plates; and employee costs relating to an additional member of staff employed at the One Stop Shop.
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3.1 Are the costs eligible for charging to the taxi reserve in line with the 1976 Act?
Subject to the revision of these costs based on our findings in 3.2 and recommendations in 3.3 below, it would appear based on information provided that the requirements of the 1976 Act have been met.
3.2 Findings in relation to calculation methodology
Within the costs charged we identified £1,350 of costs that directly related to the Hackney ranks. The Council charges the Hackney drivers an additional amount of £30 on top of the standard license fee. Based on the number of Hackney license holders of c.270, the revenue received will be c.£8,100; and
In the projections for 2015/16, the Council have assumed a supplies and services cost of £190k. The trajectory over the last two years being 2014/15 and 2013/14 has been an increase to the costs incurred, with an average of £212k compared to an average of £162k in the three years 2010/11 to 2012/13.
3.3 Recommendations
The Council should hold the additional revenue received from the Hackney drivers and the associated costs of the Hackney ranks in a separate account code. This change in process should also be undertaken historically to calculate the remaining balance within the associated reserve. The results of this exercise should be discussed with the Hackney drivers regarding services provided for Hackney drivers or changes to the additional license fee; and
Given our findings the Council should consider increasing its estimated cost in relation to supplies and services for 2015/16.
4. Support Services
Support services costs relate to the apportionment of associated central admin and buildings costs, together with associated costs incurred through the Council’s contract with Avarto.
4.1 Are the costs eligible for charging to the taxi reserve in line with the 1976 Act?
Avarto contract
Subject to the amendment of these costs historically and projected for our findings in 4.2 and recommendations in 4.3 below, it would appear that the requirements of the 1976 Act have been met.
Central recharges
Based on information received, whilst it would seem reasonable that a proportion of central recharges are charged to the reserve. However, we are unable to say if the level proposed meets the requirements of the 1976 Act.
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4.2 Findings in relation to calculation methodology
Avarto contract
The calculation assumes a 50:50 split of costs between the One Stop Shop and the Call Centre. Information received from Avarto notes that the split is not consistent year on year and is subject to change. Avarto noted a current split would be 56% Call Centre and 44% One Stop Shop;
In calculating the cost associated with the provision of the One Stop Shop, £37,500 in relation to an additional employee was removed, as it was believed that this was included within the costs One Stop Shop costs received from Avarto and was removed to avoid duplication. On review it was identified that this is a separate cost from Avarto and not included within the One Stop Shop costs. Therefore, the £37,500 should not be removed from the calculation of the One Stop Shop cost;
In calculating payroll HR costs associated with taxi licensing, the headcount number used by the Council in their calculations is incorrect and should be 3,924, rather than 5,151;
In calculating the costs that should be charged to tax licensing in relation to accounts payable invoicing, the Council have calculated a cost per invoice and applied this to the number of invoices relating to taxi licensing. However, the total number of invoices issued by Avarto used to calculate the cost per invoice is incorrect for 2014/15: the number used should be 70,929 invoices rather than 58,900; and
The total number of PCs used to calculate the IT costs associated with the provision of the taxi service is incorrect for 2014/15: this should be 3,146 rather than the 2,981 currently used.
Central recharges
In its original calculations the Council reduced the central recharges by £16,150, as they believed that a number of costs were duplicated within the central recharges. However, these are specific budgetary allocations and were not duplicated by applying the central recharges. This reduction should therefore not be included in the calculations;
Buildings recharge – a central recharge has been made in relation to the costs associated with taxi licensing. This is based on a historic calculation in relation to square meterage (which is a recognised apportionment basis) and occupancy levels within individual service departments. However, there is insufficient evidence from the current apportionment methodology to evidence that this is the appropriate level of costs associated with the provision of taxi licensing;
Departmental admin recharge - a central recharge has been made in relation to the costs associated with taxi licensing. This is based on a historic budgetary allocation of 6.36% of the departmental budget. However, there is insufficient evidence from the current apportionment methodology to evidence that this is an appropriate level of costs associated with the provision of taxi licensing. We do note that if alternative methods were chosen this would likely lead to a higher cost being apportioned to the taxi reserve, for example using apportionment based on salary costs the charge would be 10.21% and gross expenditure would be 12.59%.
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4.3 Recommendations
Avarto contract
The Council should review and revise its costs associated with the Avarto contract to take account of our findings in 4.2 above.
Central recharges
The Council should review and revise its apportionment methodology in relation to central recharges to clearly evidence that the costs charged to the reserve directly relate to the provision of taxi licensing in line with paragraph 70 of the 1976 Act.
5. Transport costs
Transport costs, relate to maintenance, license, lease costs and fuel costs for the taxi license enforcement vehicles.
5.1 Are the costs eligible for charging to the taxi reserve in line with the 1976 Act?
We have identified some costs that have been included do not meet the requirement of the 1976 Act.
5.2 Findings in relation to calculation methodology
Included within the transport charge are costs in relation to the trading standards vehicle operated by the Council, which does not relate to taxi licensing.
5.3 Recommendations
The costs that are charged to the taxi reserve should be reviewed to ensure that they include only the costs associated with the taxi licensing enforcement vehicles and costs associated with the trading standards vehicle should be removed.
6. Third Party Payments
Third party costs relate to, for example court/ legal fees for items directly related to the cost of the taxi provision; vehicle breakdown cover (AA) and van radio rental.
6.1 Are the costs eligible for charging to the taxi reserve in line with the 1976 Act?
Based on the information provided, the third party costs appear to be in line with the 1976 Act.
6.2 Findings in relation to calculation methodology
The costs charged historically are the actual costs incurred by the Council in relation to items as noted above. The actual costs incurred have fluctuated over the four years between 2010-11 and 2013/14 between £5,800 and £9,462. In 2014/15 the costs incurred reduced to £1,180 as no legal costs were received in this period. The Council have estimated costs in 2015/16 of £9,000.
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6.3 Recommendations
The Council should review its estimation for 2015/16 to ensure that they feel it accurately takes account of historic trends in relation to these charges.
7. Capital costs
Capital costs relate to the depreciation charge of the taxi licensing enforcement van.
7.1 Are the costs eligible for charging to the taxi reserve in line with the 1976 Act?
Based on the information provided, the capital costs appear to be in line with the 1976 Act.
7.2 Findings in relation to calculation methodology
The costs relate to the depreciation charges made by the Council on an annual basis.
7.3 Recommendations
No recommendations to note.
Closing comments
We have discussed the above points with your colleague xxxxx xxxxxxx Strategic Service Manager -Financial Support Services, and acknowledge that the Council are keen to take the necessary steps to revise its proposals in relation to historic and projected charges to the taxi license reserve based on our findings.
Our procedures, as stated in our agreement, did not constitute an examination made in accordance with generally accepted auditing standards, the objective of which would be the expression of assurance on the contents of the Council’s proposed approach in relation to the calculation of and apportionment of costs. We do not express such assurance. Had we performed additional procedures or had we performed an audit or review of the Council’s proposed approach in relation to the calculation of and apportionment of costs in accordance with generally accepted auditing standards, other matters might have come to our attention that we would have reported to you. This report relates only to the Council’s proposed approach in relation to the calculation of and apportionment of costs and does not extend to any financial statements of the company taken as a whole.
Our obligations in respect of this report are entirely separate from, and our responsibility and liability is in no way changed by, any other role we may have (or may have had) as auditors of the Council or otherwise. Nothing in this report, nor anything said or done in the course of or in connection with the services, will extend any duty of care we may have in our capacity as auditors of any financial statements of the Council.
This report is solely for your use in connection with the purpose specified above and as set out in our agreement. No part of this report is to be copied or distributed to any other party except as permitted under the terms of our agreement. We do not accept any liability or responsibility to any third party.
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Thank you again for engxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx to provide you with the outputs outlined in this report. If there are any elements of our work that you would like to discuss then please do not hesitate to contact either xxxxxxxxxxxxxxxxxxxxxxxxxxxxor myself.
Yours faithfully,
_________________
Justice for the 96. It has only taken 27 years...........repeat the same lies for 27 years and the truth sounds strange to people!
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