Cash-stricken councils work together to save costs

Mark Sheldon is rather hoping a problem shared is not just a problem halved – more like a problem quartered. The chief financial officer at Cheltenham Council is leading the council in taking the shared services route, much like an increasing number of cash-stricken councils trying to comply with the Local Government Spending Review.

Last month, its Go Project officially got under way. It will be harmonising job roles and processing finance, IT and HR departments that will see Oxfordshire District and Forest of Dean Councils link up in November, with Cheltenham and Cotswold Council joining to complete the quartet by April 2012.

“The project is the outcome of discussions started last year between all the FDs in each council,” says Sheldon, who joins the likes of Dover Council, which last year hired a shared services director to link Canterbury and Thanet Councils, and Somerset Council, which has financial shared services with the county’s other public bodies.

“We see pressure to cut back office costs looming,” Sheldon says. “We believe that we can save 20 percent by removing the need for four payroll teams, four invoicing teams, four of everything in VAT accounting – and auditing.”

The logic of the shared services model is beautifully simple: remove duplication, achieve economies of scale, create self-service (staff input holiday dates, sick leave and other information); leaner finance teams are freed up to add more value, according to Sheldon.

Difficult times

The harsher reality is that shared services, either between councils or departments, are designed to strip out cost – financial professionals included – and this adds extra burden on those left behind.

Paul Brittain, head of finance at Norfolk County Council, says five finance jobs will be shed this year and 40 more will go next year, as it rolls out an internal shared services platform, bringing IT, HR, finance, legal, customer services and organisational development into a single function. Norfolk County Council spends £48m a year on support services (out of a £603m total budget), and it needs to save £5.3m from this as part of its contribution towards £60m savings for 2011-12.

“We are facing difficult times,” he says. “With less staff, we also need a financial reform project to see how we strip out unwanted expertise. Until this project, each services department had its own finance and accounting processes, so standardising it all through a single finance team is a challenge.”

Brittain’s solution will be to have finance business partners liaising with each of the services directors and report back to him and the board.

“[The finance department] is probably taking a bigger hit than the HR department in terms of cost savings,” he admits, but says that it is “manageable”.

Because finance must meet regulatory standards, Brittain is adamant that he will not cut his team to the point at which “it exposes us to financial risk”, but says he realises that “performance may be affected in certain areas”.

Doing internal shared services means the option to develop intra-authority shared arrangements is not ruled out.

“This is not off the cards,” says Brittain, noting that Norfolk County Council already shares information and communication technologies with two other district councils. “We have started receiving requests from district councils to do their financial audits, but we have to focus on getting our own financial department into shape first before we provide services to others.”

Doom and gloom

But while shared services require disruption, FDs agree it is not all doom and gloom. Cheltenham and its three bedfellows need to save costs, but Sheldon thinks he got the best deal, as it has allowed Cheltenham to get a new enterprise resource planning system that it could not have afforded on its own.

“We are able to club together with three other councils, and we will all benefit by getting rid of old systems that are falling apart,” he says. “With old systems, you spend a lot of time doing things that do not add value. Not anymore.”

For Sheldon, the change is an organisational one. “We have to remove departmental protectionism and get the organisation to think as a whole,” he says. “But we have also been able to create new, generic finance roles across a single function that should give finance professionals new skills and more progression opportunities.”

It is no wonder that more and more councils are being tempted to share and share alike. However, some councils are taking a more cautious approach to sharing. Westminster Council, which voted to make total savings of £60m in the next two years, is in advanced talks with both Kensington & Chelsea and Hammersmith & Fulham councils to have tri-partite back-office functions, but councillor Melvyn Caplan, Westminster Council’s cabinet member for finance and resources, claims that “it will very much be on a service-by-service basis”.

He admits that the lure of saving 10 percent of back-office costs, as a shared services solution would do, is tempting.

“But you also incur costs when you smash organisations together,” he says. “We do not have this privilege, so are in a lengthy process of identifying which departments are most compatible.”

Caplan believes a more cautious approach is the expeditious one because it means the council remains solution-agnostic. He favours neither outsourcing with providers such as Capita – which promises up to 30 percent savings – nor using internal resources.

“We think paper-based services have the most potential to join a shared services model, but we are not loyal to outsourcing or insourcing: we will look more to what is more efficient,” he says. “But I foresee the finance department going to an outsourced model. The geography of this work is far less important than children’s services.”

However shared services are organised, finance chiefs will have to solve two sticky problems: which council will be the lead one, and how will savings be shared? Between Cheltenham and its partners, the broad deal is that the others will get a percentage if a council makes more savings than another, but the exact detail is still to be thrashed out.

Separate trading companies

Some councils, such as Norfolk, which is already part of the Norfolk Strategic Partnership (a company which includes the county council, district council and voluntary organisations), are thinking of setting up their own separate trading companies to manage shared services. But one thing that will not change is the fact that shared services is a largely one-way street once embarked upon. Cheltenham is committing to a shared services pact that will remain in place for at least 10 years, and trying to unravel this in a decade’s time is highly unlikely.

Critics might ask why finance teams have not pooled their expertise and systems together before.

“We had already been doing back-end rationalisation for some time,” says Caplan. “And a lot of our shared services plans will not kick in for another year, because of the time it has taken to set things up properly.”

Brittain admits that finance directors are under greater scrutiny than ever before.

“It is just the way that finance teams and other service departments will be running in the years ahead,” he says. “And there is no way of going back on this.”