With the concurrence of the Chairman under Section 100B (4)(a) of the Local Government Act 1972, this matter has been included on the agenda to provide an interim report on the Adult Services increase in overspend for 2005/06.

Contact: Peter Robertson, (01962) 87300; [email protected]

Jon Pittam, (01962) 87400; [email protected]

Rea Mattocks, (01962) 847200; [email protected]

1 Introduction and Summary

1.1 The Leader requested a report to explain how the Adult Services budget is showing a significant increase in overspend for 2005/06 that was not predicted earlier in the year. In order to meet this requirement, an audit and full Extraordinary Review of Adult Services budgets, budget monitoring and processes has been commissioned by the Chief Executive (see Appendix C for the full terms of reference) and will be reporting to Cabinet, once completed. This report is an interim report to highlight the findings to date, and current predicted overspend.

1.2 The January budget position statement, as reported to the Adult Services Policy and Review Committee was based on data for Period 7 (to the end of October) and showed a projected overspend of £5.5m. This projected overspend was due to increases in the amount of care provided to existing clients and increases in the number of people who met the eligibility criteria. The January report highlighted that demand pressures were increasing rather than reducing, despite management action, but it was expected that continued management action would slow down the rate of increase. This, combined with offsetting savings of £1m and the LPSA1 reward grant of £0.5m lead to a predicted projected overspend of £4m at period 7.

1.3 It is now apparent that the pressures reported were understated, and management action taken was not able to restrain the demand from existing and new clients sufficiently to bring the budget into balance.

1.4 In addition, the LPSA1 grant monies are in dispute and unlikely to be resolved in Hampshire's favour.

1.5 As a result of these changes and factors, a predicted overspend of £11.3m (4.6% of the total budget) is now forecast as shown in Appendix A.

1.6 This overspend position creates severe pressures for 2006/07. The budget was based on repaying an overspend of only £2m, and dealing with the client activity carried forward at that level, not with the level of activity that now exists. Clients of Adult Services usually remain with the service for their lifetime, and commitments entered into in one year are carried through into following years. Money is only released from the placements budget if people improve and need less or no services, or if attrition occurs. The Leader in his budget speech referred to changes to assimilate some of the predicted overspend and to provide some assistance in 2006/07. This is not part of this report, but will be returned to in the report on the provisional outturn for 2005/06 for the County Council which will be considered by Cabinet in April.

Table 1 : Summary of variances

	Period 7		Period 10
	£m		£m
Adult Services:
Adults	+1.9		+3.4
Older People	+3.6		+10.5
	+5.5		+13.9
Management and Resources	-1.0		-0.9
Other measures	0		-1.7
TOTAL	+4.5		+11.3
LPSA Reward Grant - Older People	-0.5		-0.0
TOTAL	+4.0		+11.3

The questions to be addressed are:

· What are the reasons for the increase in projected overspend between Period 7 and Period 10?

· What are the overall and longer-term reasons behind the projected overspend?

· What immediate actions are being taken to minimise the overspend in 2005/06 and reduce spend in 2006/07?

· What are the medium term actions to stabilise the position?

Each of these matters is considered in turn in this paper.

1 Reasons for the increase in projected overspend

1.1 The forecast overspend has risen sharply between that reported for Period 7 and that for Period 10 for two main reasons:

· It was expected to drive down spending through management action, but whilst the action did prevent further growth in spending, it did not reduce it, and the pressures of people presenting to Adult Services continued to grow throughout the year.

· The interface between SWIFT (the management information system) and SAP (the financial system) was bedding down and this made it difficult to establish a view of gross spending pressures. Judgements were made on previous years' patterns and activity and a view was taken as to the potential outturn, which proved to be overly optimistic.

1.2 For Older People there are 12,000+ client records and predicting outturn is always challenging when having to deal with this amount of information. The judgements about patterns of activity, taking into account information that was available at the time through the SWIFT information system and SAP financial system lead to a view that, after substantial error corrections were made, £5.3m of pressure was indicated, and this is what was reported to Members at period 7. This did not, at the time, feel inconsistent with previous years in which the adult services elements of Social Services had projected pressures, but had typically been able to bring spend in closer to budget at final outturn. However, it is clear now that the pressures being reported during 2005/06 were higher than previous years.

Since that report:

· The interface between SWIFT and SAP has improved.

· From period 7 onwards, rather than basing outturn on commitments, it has been possible to use the 7 months' worth of actual expenditure which has been projected forward and is, therefore, more reliable.

· Using this methodology, it is evident that there were some £11m of pressures on Older People at the end of October.

1.3 In Younger Adults, the predominant factor has been the increase in the projected overspend for Physical Disability. A pressure of £0.5m had been identified earlier in the year, and this had grown to £0.85m by Period 7, but with management confident that this position could be managed down in the remainder of the year, as has happened previously for this client group. However, management action has not compensated enough for the substantially increased pressure, and in addition, data updates reflecting improved system reliability showed additional commitments. Consequently, a £1.6m overspend is now projected.

1.4 The Learning Disability service has successfully restrained demand but been unable to reduce the projected overspending of £1.9m, and so the forecast outturn has remained. There is a small underspend (£50,000) projected for mental health.

1.5 Overall, the analysis of data as at the end of October made judgements which have proved overly optimistic and the management actions put in place have succeeded in restraining, but not reducing, the level of spend.

2 Overall and longer-term reasons behind the projected overspend

2.1 The level of overspend for the year as a whole is essentially explained by more care being provided (more clients and higher levels of dependency for existing and new clients) than was allowed for in the budget.

2.2 In social care, demand usually exceeds the budget available, and this was the case for 2005/06. It is normally expected for this to be managed throughout the year. Historically, the Social Services department has managed such pressures down to less than 1% of the budget at outturn, with underspends as frequent as overspends. This year an overspend of up to 5% is predicted.

2.3 The budget was set, then, on a basis which required successful management of demand within the legal need to provide services as assessed. For example, if the placements budget is over-committed at the start of the year, it is expected that management action should reduce the total number of clients within the year to meet the budget.

2.4 Three factors combined to make the management of demand much more difficult that in previous years:

· increases in underlying levels of demand, both in 2004/05 with a full year effect in 2005/06, and in 2005/06 itself. These are due to both demographic factors and issues linked to the state of the health economy.

· the budget required efficiency savings of £2m. It is expected that efficiencies will be achieved, but whereas in other years such measures would have been available to help with the cost of increased demand, they were already assumed in the 2005/06 budget.

· the transitional cost of the Enhance project: £3.8m was budgeted for this, leaving less budget available for other demand pressures. Actual transitional costs have been higher, due to slower implementation than planned.

Client activity is summarised in the following table:

	1	2	3	4	5	6
	No. of clients allowed for by budget (full year equivalents)	Average gross cost per client/ year assumed in budget	Budgeted total spend (1 x 2)	Average number of clients being provided for (fye)	Average actual expected gross cost per client per year	Predicted total spend (4 x 5)
		£000				£m
Older People	11,988	10.8	130.5	12,192 +1.7%	11.5 +6.4%	139.6 +7.0%
Learning Disability	3,281	19.6	64.2	3,324 +1.3%	20.2 +3.1%	67.1 +4.5%
Physical Disability	1,477	11.1	16.3	1,623 +9.9%	11.1 -	18.1 +11%

Note that these are best assessments which may be subject to refinement, as on-going work continues to refine the systems and improve staff's ability to input accurately into the systems, and findings from the review will be incorporated.

2.5 Overall, more care has been provided than is budgeted for, and there has been an increase in numbers of referrals to Adult Services in 2005/06 as well as an increase in dependency levels, and therefore a greater number of people needing services. There has also been a significant increase in the average unit cost for each client receiving care.

2.6 In the short term, it is difficult to make savings in placement budgets as money will only be released if there is attrition or people regain their independence and no longer need care. This has not happened at a fast enough rate to offset new demand.

2.7 The analysis at 3.4 shows that pressure (gross of income) arose from increased numbers and dependency levels of clients as follows: Older People £9.1m, Learning Disability £2.9m, Physical Disability £1.8m. Appendix B suggests that the positions lying behind these figures are somewhat different between client groups and care types, though some of the data does require further verification:

· In Older Persons' domiciliary care, numbers of packages purchased are 5% above the level assumed in constructing the budget. Cost per package has remained relatively stable for external packages. For in-house home care, numbers have fallen whilst cost per client has increased: that is consistent with offering more intensive care on a reablement basis.

· In Older Persons' residential care, numbers have increased but with a sharp (9.8%) increase in the cost per client. That suggests significant re-classification of clients as having higher needs. There have also been costs associated with in-house homes that were not fit for purpose and this has increased the unit costs, as occupancy levels were low.

· In Older Persons' nursing care client numbers are within expectations but transitional costs from Enhance have been £4.6m compared with the budgeted £3.8m, reflecting the increased costs of slower implementation.

· The timetable for new nursing homes coming on stream has meant that only 109 beds are expected to be used on average across the year compared with a budgeted 169. That translates into an extra 60 beds needing to be purchased from the independent sector at a net cost of £1.35m

· The dominant factors in Learning Disability are increases in both number (1.3%) and cost (3.1%) of residential care placements. This is likely to represent a combination of additional provision for clients with deteriorating conditions, and higher needs assessments for new clients than for those clients passing out of the system. The gross pressures shown in the analysis of client activity (which were not allowed for in the original budget) were significantly offset by new Section 28A income which reduces the overspend.

· Physical Disability shows significant increases in nursing care, domiciliary care and direct payments, although unit costs per client remained similar to last year due to the balance of numbers in overall residential and nursing care versus those receiving domiciliary care.

2.8 Why has 2005/06 seen demand at such levels? The background paper to the January meeting of the Executive member set out in detail many of the trends which appear to lie behind this problem. The case made was that the demographic factors already in place - notably, an ageing population and an increasing prevalence of disabilities - have been exacerbated by restrictions in local health capacity due to Health's own financial problems. Those problems have been especially acute since 2004/05, and the surge in demand in terms of numbers occurred largely in the second half of that year.

2.9 It is understood that many other authorities - especially in the South East - are likely to overspend on their Adult Services budget this year, confirming that these are widespread trends. Appendix B sets out these factors, and also shows newly-acquired comparative information on the rate at which new clients were taken on in 2004/05, which can now be seen as a critical period for increased demand: Hampshire's position was typical for Older People but showed a comparatively high increase for Younger Adults.

2.10 Other factors have undoubtedly contributed to the overspend:

· the need to minimise the impact of any savings action taken on the department's performance rating

· reductions in Supporting People funding with knock-on consequences for spending on learning disabilities

· the fining regime, which means that it costs rather than saves money to slow down or reduce provision of care packages for those in hospital.

2.11 However, three fundamental questions remain:

· has the increase in demand been minimised given the number of referrals by applying eligibility criteria consistently and with sufficient rigour so that only those who qualify receive care?

· once eligibility is agreed, is the right amount of care provided, consistent with minimum statutory requirements?

· is the data now being used accurate; are the systems robust and are staff inputting correct information into the systems?

Those issues will be examined further as part of the investigation now under way.

3 Immediate actions to minimise overspend and reduce spend in 2006/07

3.1 The Leader's budget speech on 22 February suggested that there may be some help for Adult Services with the repayment of part of the 2005/06 overspend, but even were that to be met corporately, spending is currently running at a level which cannot be sustained by next year's budget and immediate action is being taken to reduce the overspend by £1.7m.

3.2 This action consists of maximising use of Supporting People grant (£1.2m), redefining revenue spend as capital (£0.2m), a recruitment freeze in the last two months of the year and cessation of all training not already committed in financial terms. Unfortunately, none of these measures helps with the 2006/07 position.

3.3 The key to controlling 2006/07 spending will be to manage down client numbers and the average cost of care packages being awarded.

3.4 It will also be crucial to take immediate steps to enact and monitor the outcomes from the savings plans already built into the 2006/07 budget. These are already at the limits of achievable change. The key here is to ensure that where services are re-provided in a different way, there is adequate evidence to show that future service costs will be reduced, not increased.

4 Medium term action to stabilise the position

4.1 As a complement to the immediate actions, an audit task group has been set up consisting of staff from the Chief Executive's department, Internal Audit and County Treasurer's Consultancy team. The project brief for this work is attached as Appendix C. The main strands are :

· Phase 1: to report to the Chief Executive as soon as possible in advance of 29 March Adult Social Care PRC. To establish the facts giving rise to the current budget projection and why it was not predicted with a reasonable degree of accuracy

· Phase 2: follows on from Phase 1, timelines to be agreed. To explore and report on detailed findings for specific service areas of concern within Older people and People with Learning Disabilities, and identify areas for potential improvement that will help to put Adult Services spending on a sounder financial footing in the short and medium term.

· Phase 3: to start in parallel with phase 2, timescales and resources to be agreed. Scope and plan the resources and activities required to carry out and monitor the improvement plan within Adult Services.

4.2 The figures in this report may change for two reasons:

· The findings of the Extraordinary Review might affect some of the initial views taken in this report.

· The figures in this report are based on period 10 projected to the year end and are, therefore, provisional. They may change when the final accounts analysis is completed, and all creditors and debtors have been finalised.

Recommendations

1. That Cabinet agree the actions outlined in this report and call for a report on the results of the full audit into Adult Services budgets.

Section 100 D - Local Government Act 1972 - background documents

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

NB the list excludes:

1. Published works.

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

Appendices:

A : Summary of variances

B : Demographic and Comparative Data

C: Extraordinary Review Brief