Contact: Paul Carey-Kent, Deputy Treasurer, 01962 847525

David Howells, Director of Corporate Services, 02380 644000 ext 203

1. Introduction

1.1 The move to precepting status, now confirmed for 20044/05, does not change the constitutional arrangements of this Authority, which is already separate from the constituent authorities, but it does represent an extra element of independence. As such, it is appropriate to consider whether the current banking arrangements - which see this Authority subsumed within the County Council's banking arrangements - continue to be appropriate.

2. Options Available

2.1 There are three broad options available:

· Option 1: No change. There will be no cost to this option, but both the County Council's bank and the Audit Commission have raised potential concerns about the lack of visible separation which such an approach would bring in the context of precepting status.

· Option 2: Separate bank accounts but with shared systems and jointly administered treasury management. This Authority would have a separate bank account into which the major sources of income would be paid direct - grants and precept income. This Authority would continue to use County Council systems, but with a separate bank account, which would then be charged with the appropriate costs, eg to reimburse the County Council for the costs of relevant payroll runs and on a periodic basis (eg weekly) for payments made to suppliers in respect of this Authority's spending. The current accounting arrangements using the County Council's SAP system would continue, overseen by Jon Pittam as Treasurer to both bodies. For treasury management purposes, the balances of this Authority and the County Council (as well as the Police Authority who already operate under similar arrangements) would be pooled so that scope for evening out cashflows across the three authorities and getting the best market return on temporary investments would be maximised. The Audit Commission would be able, as now, to carry out tests to ensure that any charges made to this Authority under these arrangements are correctly attributed to it.

· Option 3: Complete separation of this Authority's activity from systems of the County Council. This could be achieved by either re-implementing SAP for the Fire Authority, or by moving Fire on to different financial systems. The result would be that all income and payments would be debited directly to the Fire bank account, treasury management would be handled separately from any other Authority and this Authority's independence would be maximised. The disadvantages would be:

· potentially higher banking costs (a re-tendering exercise would be needed)

· difficulties in treasury management: on its own, the Fire Authority's cash flows would provide more challenging fluctuations. At least one extra member of staff would be needed at least to manage that separate cashflow. Interest rates obtainable would be lower, and overdraft facilities more expensive as the market will not deal in the relatively small amounts which would then apply.

· the costs of system change would be considerable, both in cash terms and in deflection of management time when there are many other competing priorities at present.

· economies of scale will be lost in such matters as payments, as instead of one BACS and payment advice being sent to a given supplier covering payments from both County Council and Fire, two separate payments will have to be sent.

· such arrangements could not be implemented in time for 1 April 2004, but would have to be introduced later - perhaps from 1 April 2005.

2.2 Cost estimates are difficult, but in broad terms Option 2 might be expected to cost an extra £25,000 in one off development requirements, whilst Option 3 might require one off investment in the order of £0.5m to implement new systems, and ongoing annual costs of at least £30,000.

3. Conclusion

3.1 Option 2 would be a sensible way forward, as it provides visible initial independence without losing the economies of scale gained through linking with the County Council systems. Its main disadvantage is that should this Authority wish to move to use of a Treasurer and financial services contractor separate from the County Council at some stage, then they will be less well placed to do so and the cost of Option 3 will then be likely to apply at that stage. However, it would appear sensible not to incur such costs until/unless such a policy view were taken.

Recommendation

Option 2.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

Published works.

Documents which disclose exempt or confidential information as defined in the Act.

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