REPORT TO BUDGETARY CONTROL PANEL                 ITEM 4
 
15TH OCTOBER 1991
 
IMPROVING BUDGETARY CONTROL ; A REVIEW OF CODING PROBLEMS
 
REPORT OF THE COUNTY TREASURER AND COUNTY EDUCATION OFFICER
 
 
     Summary
 
1.   As a part of the second phase of the review of budget
     management in the Education Department, Price Waterhouse
     were asked to lead a task team to review the problems with
     coding and to identify actions to reduce future errors.
 
 
2.   The purpose of this report is to inform the Panel of the
     results of the review.
 
3.   The report discusses the reasons for coding problems and
     how they can be reduced.
 
     Background
 
4.   Wherever a financial transaction takes place, a code is
     used so that payments and receipts are identified with the
     appropriate budget.  Schools, colleges and education
     offices undertake millions of transactions each year.
     During the first year of Local Management of Schools, the
     Education Department experienced a dramatic increase in
     the volume of coding errors.  This was of such concern
     that a special team (the "Cavalry") was established to
     correct a total of some 19,900 miscodings.  The
     implications of these miscodings were a reduced confidence
     in the ability to manage budgets with a consequent
     reduction in the accountability of budget managers.
 
5.   The main factors contributing to the problem were the
     changes in systems required by LMS and a far greater
     involvement of schools in coding of payments.
 
6.   Action has already been taken by the department to reduce
     significantly the frequency of errors.  This includes the
     method of allocation of the statemented pupils budget to
     schools and a major review of payroll processes.  A steady
     "bedding-in" of systems in year two of LMS is also
     improving the situation.
 
     Approach to the Review
 
7.   The key objective of the task team's review was to
     identify the source of coding errors and to prevent them.
     The basic approach therefore involved four stages:
 
       i)  documenting and clarifying systems and procedures
 
 
      ii)  analysis of a 10% sample of the critical types of
           errors
 
     iii)  liaison with divisions and schools to establish
           their actual role and perceptions of the problems
 
      iv)  review and assessment of findings
 
     The key outcomes of the review are outlined below.
 
     The Schools Perspective
 
8.   A crucial part of the review was to visit a sample of 8
     schools to hear their view of the problems, check the
     actual processes followed and confirm initial findings.
 
9.   Interviews were conducted with Head Teachers, Deputy Head
     Teachers and school administrative staff in 8 sample
     schools across the county.  Schools were extremely
     co-operative and constructive.
 
     The Impact of the Financial Management System (FMS)
 
10.  Successful implementation of the validation procedures
     within FMS (the county's electronic financial management
     system) will reduce the volume of invalid codes and
     improve the speed with which errors can be identified and
     rectified.
 
11.  The initial coverage of FMS, which is being introduced on
     a phased basis, will be limited to all phase 1 schools and
     representative divisional and headquarters sections, and
     will cover the equivalent of one third of the Education
     Committee budget.  FMS will be extended to cover a greater
     proportion of budgets once hardware and training
     requirements have been considered.  It should also be
     noted that approximately half of the invalid code errors
     occur on payroll transactions.  As is the case with any
     other management information system, these invalid codes
     cannot be prevented without automatic code validation.
     Manual validation procedures have been considered but not
     yet introduced as these might lead to unacceptable delays
     in processing salary and wages payments.
 
     Assessment of the Volume of Coding Errors
 
12.  Although the review has identified scope to make
     substantial further reductions in the number of coding
     errors, there has already been considerable progress. For
     example, the forecast number of miscodings in 1991/92 is
     10,400, almost half the 1990/91 level.  This improvement
     was confirmed during visits to schools during which all
     schools in phase one of LMS commented on the improvement
     in the accuracy of coding.
 
13.  Analysis of samples of coding errors in 1991/92 shows that
     the most critical areas are coding of teachers salaries,
     supply teachers and general invoices, although errors do
     occur on most types of transaction (as detailed in
     Appendix 1).
 
14.  A new way of monitoring future performance has now been
     developed by the review team.
 
15.  The key measures are outlined in Appendix 2.  The
     information will become more meaningful once data has been
     recorded over a sufficient period of time of approximately
     4-5 weeks for trends to begin to be established.  In the
     longer term, year-on-year comparisons will be possible.
 
16.  A number of external factors will significantly affect the
     errors - these include the introduction of FMS (potential
     improvement) and phase 3 of LMS (potential initial
     deterioration).
 
     Short Term Actions taken to Reduce the Volume of Errors
 
17.  A number of causes of errors has been identified from the
     10% sample which can be rectified quickly .  These short
     term actions are detailed in Appendix 3 and demonstrate
     that, although tackling the source of problems can be time
     consuming, it can yield significant results.  It is
     forecast that these nine actions alone will reduce the
     number of invalid code errors by up to 39% (payroll) and
     11% (non-payroll).
 
     Longer Term Actions Recommended
 
18.  As the volume of errors declines higher priority can now
     be given to tackling the source.  This is essential and
     in future, attempts will be made to contact the originator
     of an error and inform them of the correct codes to use.
     This will inevitably take time in the short term, but
     should yield significant improvements long term.  Greater
     clarification of responsibility for error correction
     between Divisions and Headquarters is necessary to ensure
     that the most effective correction procedures are followed
     and that schools understand who to contact for help.
 
19.  This approach will need to be complemented by a more
     comprehensive approach to the training of school based
     staff.  Whilst the quality of training on new systems is
     generally very good, following-up the training tends to be
     confined to sorting out problems.  A more active programme
     of ongoing training would undoubtedly rectify a number of
     misunderstandings in schools and would respond to some of
     their concerns about lack of feedback on whether they are
     following procedures correctly.  Arrangements are being
     made to ensure adequate resources are directed towards
     provision of this training.
 
20.  More specifically further training on INSET (GEST) coding
     will be provided, because of the complexity of the
     procedures required by the Department of Education and
     Science and indications that many schools are still very
     unclear about coding this expenditure.
 
 
21.  Further scope exists to simplify systems.  An example of
     how this has already been achieved is the allocation of
     money to support children with SEN statements without
     having to use special codes, greatly reducing the number
     of coding errors.
 
22.  The single most significant cause of errors identified
     arises on claims for supply teachers.  This problem is
     essentially caused by the very detailed coding schools are
     required to use for INSET (GEST) government grant claims.
     It is considered that more systematic coding checks in
     this area are essential given the current incidence of
     errors.  These are to be built into procedures as part of
     the processing for payment.  Teachers' payroll (within
     County Treasurers) would be responsible for identifying
     coding errors - referring these to Education Finance Unit
     for retrospective correction and to ensure that the people
     originally making the error are advised.
 
23.  For non payroll transactions, consideration is to be given
     to the greater use of direct data entry (a process which
     can automatically check codes for these transactions as
     they are are processed), to reduce the number of invalid
     code errors - particularly on petty cash claims.  The FMS
     system is designed to provide for local direct data entry
     of commitments and invoices and the County Treasurer will
     pursue code validation procedures in all future reviews of
     systems.
 
     Conclusions
 
24.  The review has identified a number of short term actions
     that make a further significant impact on the volume of
     errors and has also identified longer term actions to
     address the principal causes of errors.
 
     Recommendation
 
25.  That the review be noted and performance information on
     the correction of code errors as outlined in Appendix 2 be
     presented to future meetings.
 
 
PB3066 (KR)
 

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