Agenda item

Report of the City Treasurer.

5.1       Neil Sellstrom (Finance Consultant) presented the report which focused on the risk relating to operational administration – failure of financial system.  A tri-borough contract for a new financial system with BT had gone live in April 2015, however a number of challenges had arisen during its implementation, both in terms of Finance and Human Resources (HR) functions. The main issues had been concerning problems experienced in respect of payment of lump sum payments for Pension Scheme members and payment to suppliers for services provided. These issues were particularly apparent in April and May 2015 when the new financial system had just gone live. Neil Sellstrom advised that there had not been a failure of a financial system, but the risk posed was the possibility of not being able to use the financial system which also impacted upon a number of other financial functions beyond pensions. He stated that initially costs had not been seen to be coming in, which also raised issues in respect of completing end of year accounts. Since then, a comprehensive testing of information had been undertaken and significant progress had been made in resolving issues on the financial side.

5.2       Nikki Parsons (Pension Fund Officer) advised that a ‘workaround’ solution had been put in place to ensure that payments to Pension Scheme Members and suppliers were being made as steps were being taken to resolve the issue.

5.3       Trevor Webster (Senior Human Resources Manager) added that officers’ functionality at the Council had improved since the introduction of the new financial system, however the pension administrator, Surrey County Council, was still experiencing problems as a result of the continuing issues with the functionality of the BT interface. As a result, Council officers were having to provide Surrey County Council with information on matters such as leavers and new employees.

5.4       Members enquired about the cost implications of the additional work being undertaken by the Council because of the problems encountered and whether the Council would be compensated. Members also asked whether additional work would be required in terms of completing annual accounts. In terms of risk rating, it was queried whether this took account of the mitigating actions being taken, or whether these mitigating actions were put in place in response to the risk rating.

5.5       In reply to issues raised by the Board, Nikki Parsons advised that the problems experienced had meant more work for the Council in completing end of year accounts. She advised that the auditors were analysing the accounts more thoroughly than last year and were looking at areas such as contributions, payments and reconciliations, however they had been satisfied with what they had looked at so far. Nikki Parsons informed Members that she had visited the BT offices in Jarrow with Finance colleagues to discuss the issues involved and although there had already been some significant improvements, the Council was still taking on more work and two contractors had been brought in to assist in data testing. Weekly conference calls with BT were also taking place and an issue log had been produced recording all the problems encountered. Nikki Parsons advised that the risk rating reflected the residual risk, however only a small number of officers dealt with pensions, although it did benefit from tri-borough support. The risk had increased as the end of the financial year neared.

5.6       Trevor Webster added that the risk rating also depended on how fragile the work around is and if existing staff left the Council, the loss of experience would increase the risk. He advised that commercial discussions were taking place with BT concerning possible compensation because of the problems experienced and the additional work required to be undertaken by Council officers as a result.

5.7       A Member commented that he was satisfied with the remedial action being taken to date and noted that most risks were rated as either low or medium risk. Another Member asked if the Council was confident that BT could resolve the issues satisfactorily and remarked that other local authorities’ experience of working with BT had been patchy. The question was also raised about whether schools could give notice to opt out of the BT contract. The Board also sought further information in respect of how any compensation from BT would be pursued.

5.8       In response, Nikki Parsons stated that initially officers did not think BT had the resources or knowledge to resolve the issues, so visits to BT offices had taken place for knowledge sharing so that BT had a greater appreciation and understanding of the issues and the resulting implications of them. Neil Sellstrom added that the pensions interface with BT and Surrey County Council had now been identified as the main priority to resolve.

5.9       Trevor Webster informed the Board that it had been recognised that BT had not initially allocated sufficient staff to support work around pensions and also to the Council in general. However, the Council had convinced them of the need for more staff and BT were now in the process of undertaking this. The Board was advised that schools did have the right to opt out of the BT contract, provided they gave sufficient months notice. However, the payroll providers still needed to interact with BT in order to ensure that information was accurately recorded and providing they updated the pensions portal accordingly, then no problems with payments would occur. Trevor Webster confirmed that the Council would undertake any pursuit of compensation from BT as the issues experienced had created a host of in-house costs. This would involve high level commercial discussions between BT and the Council. He added that Surrey County Council was considering introducing charges for IT costs.

5.10    The Board requested an update on progress with BT and Surrey County Council in addressing the problems in respect of lump sum and supplier payments, including identification of additional potential costs to the Pension Fund driven by the BT interface issue, at the next meeting. The Board also requested that the next Risk Register Review report focus on two risks, pension legislation and regulation changes and the introduction of European Directive MiFID II at the next meeting.