Public Accounts Committee

REPORT

The Public Accounts Committee

The primary function of the Public Accounts Committee is defined in Standing Orders[1] as the review of reports by the Comptroller and Auditor General regarding –

· The audit of the Annual Accounts of the States of Jersey and to report to the States upon any significant issues arising from those reports;

· Investigations into the economy, efficiency and effectiveness achieved in the use of resources by the States, States funded bodies, independently audited States bodies (apart from those that are companies owned and controlled by the States), and States aided independent bodies;

· The adequacy of corporate governance arrangements within the States, States funded bodies, independently audited States bodies, and States aided independent bodies,

· and to assess whether public funds have been applied for the purpose intended and whether extravagance and waste are being eradicated and sound financial practices applied throughout the administration of the States.

The Public Accounts Committee may also examine issues, other than those arising from the reports of the Comptroller and Auditor General, from time to time.

The Public Accounts Committee represents a specialised area of scrutiny. Scrutiny examines policy whereas the Public Accounts Committee examines the use of States’ resources in the furtherance of those policies. Consequently initial enquiries are made of Chief Officers rather than Ministers. This is not to say that enquiries may not be made of Ministers should the reports and recommendations of the Public Accounts Committee be ignored.

The work of the Public Accounts Committee is ongoing rather than on a one-off basis and the Committee will return to topics previously examined in order to evaluate whether recommendations have been followed or procedures improved. If such a follow-up is unsatisfactory then the Committee may decide to hold further public hearings in order to identify the reasons for the lack of progress.

The current membership of the Public Accounts Committee consists of –

States Members	Independent Members
Deputy Sarah Ferguson (Chairman)
Deputy of St. Ouen (Vice Chairman)	Mr. Tony Grimes
Deputy Alan Breckon	Advocate Alex Ohlsson
Connétable of St. Peter	Mr. Chris Evans
Connétable of Grouville	Mr. Roger Bignell
Senator Jimmy Perchard	Mr. Martin Magee

Introduction

1. In 2005, the States approved a proposition concerning the management of property held by the States, “States of Jersey Property Holdings: establishment, P.93/2005 of the Policy and Resources Committee, attached as an Appendix. This proposition envisaged that –

(1) a new unit, States of Jersey Property Holdings (JPH), would be established,

(2) responsibility for ownership, management and maintenance of all of the States’ property assets would be transferred from departments to JPH,

(3) JPH would be responsible for improving the efficiency of the States’ property management and maximising, identifying properties that are no longer required for the States’ use,

(4) maximising and, where appropriate, realising the value to the States represented by the property assets, and

(5) reporting to the States Assembly on the way in which it intends to discharge its responsibilities and on its performance.

2. As presaged by the original proposition, States of Jersey Property Holdings prepared a Strategic Plan which was included as an Appendix to the Strategic Plan issued by the Council of Ministers early in 2006. Subsequently an Annual Business Plan was produced and included as a part of the States’ Business Plan for 2007. That part of the States’ Business Plan was not approved by the States Assembly but, in effect, referred to the Public Accounts Committee.

3. This Report sets out the Committee’s view on the Property Business Plan for 2007 after taking account of a report on the Plan which was published by the Comptroller & Auditor General in November 2006.^[2] Following publication of that report, on 11th December 2006, the Committee held a public Hearing at which evidence was taken from Mr. Bill Ogley, Chief Executive to the States, and Mr. Eric Le Ruez, Chief Officer of Jersey Property Holdings.

The Committee continues to support the objectives and approaches set out in the proposition which led to the creation of States of Jersey Property Holdings.

4. The principal objective of the proposition was to achieve proper and effective management of properties held by the States of Jersey through the centralisation of management responsibility, staff and budgets in the hands of JPH.

5. It was intended that this would improve management of property holdings by –

(1) centralising staff responsible for management and maintenance thereby eliminating wasteful duplication between departments,

(2) through JPH charging annual rentals for property occupation which would more accurately reflect the true cost of property occupation, thereby ensuring that all departments recognise the full cost of their activities and seek to improve the efficiency of their use of accommodation, and

(3) through identifying and realising the value of surplus properties.

6. In the Committee’s view, these steps were long overdue –

(1) The ineffectiveness of the States’ management of its property assets had, over many years, been the subject of various investigations and reports.^[3]

(2) Accommodating departments in many buildings of differing ages and differing conditions is unlikely to lead to efficient use of space and a minimisation of cost.

(3) Disseminating responsibility for maintaining the States’ properties between many small units is not likely to be an efficient use of resources or to ensure that properties are properly maintained.

(4) Finally, creating a central record for all property and the costs of its management is in itself an important step since an organisation which does not record and measure the use of its assets is unlikely to take their efficient use seriously.

7. Thus the creation of Jersey Property Holdings is a welcome, if belated, step towards improving the efficiency of the States.

2007 Property Business Plan

8. There was little time available to JPH between the approval of P93/2005, its creation and the need to publish the 2007 Business Plan. As a result, this Business Plan is limited restatement of a series of aspirations and intentions together with the publication of a list of properties intended for disposal. Inevitably, most of these properties were long ago identified as surplus to the requirements of the States and thus as suitable for disposal. As Mr. Le Ruez said in the public hearing –

“ ... we have concentrated on, shall we say, relatively easy targets, property that can be identified today as being surplus to the States requirements and which would be best sold rather than kept and perhaps being a liability to the States in future years.”^[4]

9. Inevitably, there had been no time to prepare a detailed long term plan for departments’ property requirements when the 2007 Property Business Plan was published. As Mr. Le Ruez told the Committee –

“In preparing that first Property Plan, we did carry out a, I have to say, quite a hurried exercise in trying to establish departmental need for the next few years, where possible matching those either to existing property or to capital bids where new property or new land was required.”^[5]

10. Given the limited time available for its preparation, in the Committee’s view, a sensible approach was adopted to preparation of the 2007 Property Business Plan. It must be recognised, however, that the Plan represents no more than a first step towards achievement of the policy objectives set out in P.93/2005 and that consistent management attention will be required if those objectives are to be achieved.

11. Because of its concern that the practical implementation of P.93/2005 should not be unduly delayed, the Committee reviewed what in its view are the principal stages by which the proposition should be implemented.

Transfers of responsibility

12. It is important that all property management responsibilities should be transferred to States of Jersey Property Holdings without unreasonable delay. It was evident when the Committee interviewed Bill Ogley and Eric Le Ruez on 11th December 2006 not all departments had transferred property management responsibilities to States of Jersey Property Holdings –

“The big one that is left is Health and Social Services ... the actual buildings themselves effectively are under the administration of Property Holdings, but for Health and Social Services we do not have the budget or responsibility for maintaining those buildings yet.”^[6]

13. In answer to subsequent questions it also became clear that responsibility for –

(1) the property assets of the Education Sports and Culture department would not be transferred until 31st December 2006,

(2) the property assets of the Homes Affairs department (i.e. principally, the Police Service, and the Fire Service) would not be transferred until the first half of 2007.

14. No date was given for transfer of the Prison’s property.^[7]

15. The related budgets were also being transferred to JPH. Of course, these transfers were not reflected in the States published Budget for 2007 as the work for that had been completed before the transfers had been agreed. They will be reflected in the formal budget for 2008.^[8]

16. By the end of 2006, about sixty staff would have transferred to JPH whereas in 2000, the Audit Commission estimated that the number of staff who should be transferred would be about 135.

17. The length of time taken for these transfers to be effected and the numbers of staff identified for transfer cause concern over the degree of co-operation being shown by departments –

“Mr. Le Ruez: “I mean, we have had full co-operation from the departments to date and the transfers have taken time because it is quite complex, actually, extracting the budgets relating purely to property and not to the services. But I can say that wit Transport and Technical Services that has been successfully achieved; Education we are just about there now; and with the Home Affairs budget we still have some negotiation to do but that is not a very large budget. The big one is certainly Health and Social Services and that is taking some time, I agree.”^[9]

18. The Committee noted the progress that had been made in effecting the transfers of responsibility but was concerned that –

(1) the transfers of the Home Affairs Department’s responsibilities together with relevant staff and budgets were taking so long; and

(2) Mr. Ogley and Mr. Le Ruez had been unable to give a date on which the property responsibilities, relevant staff and budgets of the Health and Social Services department, a department with an extensive portfolio of properties would be transferred to JPH.

(3) The Corporate Management Board should be alert to and should act to prevent any department delaying the transfer of responsibility relevant staff and responsibility.

JPH’s resources

19. It is important that JPH should have the professional skills necessary to discharge its responsibilities. Inevitably, in view of the early stage at which the 2007 Property Business Plan was prepared, the staff of States of Jersey Property Holdings consisted largely of the previous staff of property services and property management staff transferred from departments.

20. The Committee recognises that much has been achieved in the months since the creation of JPH –

“... a lot of the last twelve months or so has been spent in getting together a new structure called Property Holdings, setting ourselves up with a design and maintenance division, finance and strategy division, and a property management division. With that now in place and directors in place ... we are moving forward.”^[10]

21. Yet it is acknowledged that JPH needs the following further skills at least –

(1) JPH needs to appoint an asset manager to be responsible for establishing departmental property requirements.^[11]

(2) JPH will need either to have commercial property expertise within its own team or to have ready access to such expertise to ensure that when surplus property is realised the States’ interests are properly safeguarded.

22. Timely recruitment will be necessary if the JPH is to be able to meet expectations. For example, although at the public hearing, Mr. Le Ruez was not able to indicate who would be appointed to act as asset manager, he indicated that the more strategic assessment of the States’ property needs which he envisages as this manager’s responsibility would be brought to the States ‘probably in 8 to 9 months’ time’.^[12]

23. The Committee noted the progress that had been made in creating the JPH team, but is concerned that delays in recruitment may impede JPH’s ability to meet the expectations that P.93/2005 created.

Financial environment

24. Creation of the appropriate financial environment for JPH will be a critical step in encouraging departments to manage their needs for property more effectively –

“Mr. Ogley: ... it is a significant piece of work and we need to, as every organisation has gone through this transition, find the most cost-effective way of doing it that will change behaviours because that is what we are about.”

“Mr. Le Ruez: If you have departments using property but not actually paying for it in the sense that whether they have got 20,000 square feet or 10,000 square feet ... makes no difference whatsoever to their budget, they will happily sit with 20,000 square feet because it makes no difference to them. If you can introduce a system whereby it is advantageous for departments to use their property effectively, then we will have succeeded.”^[13]

25. The Committee was told that Chief Officers had not decided how this would be done –

“Mr. Ogley: “... we do not know exactly how we will do it yet. There is a lot of work to go into it and I think that is what most organisations find, is it would be very easy to introduce a method of charging. You have to have a method which is realistic in terms of ... reflecting real value. So what you are not doing is entering into a system where you are giving people money ... to release property and the money they have got is worth more than the property... then all you end up with is everybody saying: ‘Thank you very much, I will have my £100,000’ and you walk away and you have got something worth half of it ... I think we have got a lot of work to do... I think it is important because in the long term it is what will change and make management of this much better and change behaviour.”^[14]

26. Whilst Mr. Le Ruez suggested that this process would lead to the introduction of a fairer approach to charging in 2008^[15], the Committee noted that Mr. Ogley appeared to be more cautious.

27. It has to be admitted that one of the consequences of the introduction of Ministerial government has been a lengthening of the process by which annual budgets are prepared and reviewed. For example, the draft budget for 2008 will be published in the early months of 2007. The effect, when considering the implementation of new infrastructure within the States is that lead times are very long indeed. This is a subject that may merit the Committee’s closer attention in due course.

28. The Committee accepted that the introduction of a ‘fair and equitable method of charging’ was a major and difficult piece of work not least to ensure that its desired effect to increase pressure to improve efficiency is achieved, but considered that –

(1) the many years that had passed in reflecting on the proposal that such a system should be introduced, and

(2) the potential of such a system to encourage beneficial departmental behaviours,

(3) the Corporate Management Board would have failed in its duty to realise the expectations created by P.93/2005 if such a system were not introduced with effect from 2009.

Governance of JPH

29. Proposition P.93/2005 envisaged that JPH would be a –

“... department of the States, reporting to the Finance and Resource Minister under the new Ministerial structure. The Chief Officer of States of Jersey Property Holdings will be accountable to the Chief Executive of the States and to the Treasury and Resources Minister for the management of assets including the delivery of any agreed financial return to the States.”^[16]

30. Proposition 93/2005 also envisaged the creation of –

“The Property Board, reporting to the Corporate Management Board, will initially be responsible for ensuring all necessary structures are in place to promote good corporate governance through transparency of action and clear lines of accountability.

The Property Board will work with States of Jersey Property Holdings to produce the initial States Property Plan and thereafter provide an interface between departments and States of Jersey Property Holdings to review States property policy and its implementation through States of Jersey Property Holdings.”^[17]

31. Although P.93/2005 gave the clear impression that the Property Board would be created at an early stage in the life of JPH, in fact this has not happened –

“Mr. Le Ruez: The property board, as I understand it, would be set up by the departments to look at the services being provided by Property Holdings, and that has not been set up yet.”^[18]

32. Furthermore, the purpose of the Property Board appears to have changed. Whereas the original Proposition envisaged that the Board would ‘be responsible for ensuring that all necessary structures are in place to promote good governance’, Mr. Ogley suggested that –

“The intent to create a property board is actually more of a customer service board than a governance board. It is for the people who are the occupants of the property to have a group to gauge their satisfaction with the way the property is maintained for their use.”^[19]

33. It is clear that the preparation of business plans for examination by the States assembly was intended to be an important element of the oversight of JPH and of plans for property disposals in particular. This oversight could be circumvented if JPH were to make extensive use of the powers in the States’ Standing Orders to make disposals without prior reference in a business plan agreed by the States Assembly. The Committee therefore welcomes the following explanation given by Mr. Le Ruez and expects that it will be followed in respect of all property disposals proposed by the States irrespective of whether the properties concerned fall within the remit of JPH –

“Mr. Le Ruez: ... under Standing Orders the Treasury and Resources Minister could take a decision and it would simply be reported to the States, but it is I think expected that for property disposals, certainly significant property disposals, the States would have the opportunity to consider the proposal before the Treasury and Resources Minister actually takes a decision.”^[20]

34. One of the steps necessary to promote good governance would be the identification of proper ways of measuring the performance of JPH –

“Performance will be measured against public and private sector benchmarks and may be subject to review by the Public Accounts Committee.”^[21]

35. Such benchmarks are not set out in the 2007 Property Business Plan.

36. Going beyond the plans set out in P.93/2005, the 2007 Business Plan envisages that JPH should become a trading organisation in 2008 –

“The Deputy of St. Ouen: Bearing in mind ... that there is a huge volume of work to do to achieve all the objectives laid out in P.93, do you see [2008] as being achievable or even required?

Mr. Le Ruez: Yes. Well, I think it is desirable and I hope it is achievable. It would require the approval of the States ... probably by no later than September [2007]. But I think it is desirable if Property Holdings is, as well as being able to increase income or increase effectiveness of property, but also be able to invest in property which will be required if we are really going to pursue the effectiveness of the use of office accommodation in the future. There will be a need for some capital investment, though, I have no doubt.”^[22]

37. In a subsequent answer, it became apparent that 2008 represented the earliest point at which JPH could become a trading fund.

38. In passing it became apparent that, as a trading fund, JPH would be distinct from the development organisation to be established on the foundation of Waterfront Enterprise Board (WEB) which is intended to be a ‘state-owned vehicle, 100% as a separate company, that would have the ability to develop sites’.^[23]

39. Whilst trading fund status may eventually be appropriate for JPH, completing the formation of JPH and implementing the detailed proposals in P.93/2005 will require consistent effort and there is a risk that this work will be delayed by distractions such as the consideration of trading fund status.

40. In the Committee’s view, it is important that –

(1) the governance arrangements surrounding JPH should be put in place as soon as possible, and

(2) irrespective of whether trading fund status is attractive for JPH, consideration of that status should not be allowed to delay the completion of the establishment of JPH and the implementation of the detailed proposals in P93/2005 for the oversight of JPH.

41. The Committee will return to this subject after the end of 2007 to check that –

(1) the governance arrangements proposed in P93/2005 have been established, and

(2) in particular, that appropriate performance measures for JPH have been agreed.

Savings: efficiency and disposals

42. The 2007 Property Business Plan envisages that JPH will –

“... deliver revenue savings of £1.5 m from 2008 and annual net capital receipts rising from £1m in 2007 to £4m from 2009 onward.”

43. It is recognised that actual receipts will vary significantly from year to year.

44. The Committee reviewed the projected efficiency savings (£1.5 million annually from 2008) which were described by Mr. Le Ruez in the following way –

“I expect to see some savings being made on property maintenance contributing to that £1.5 million and potentially some staff savings as well as increased income... some of it has already been achieved with the leases at Axminster House and Bond Street being terminated this year.”^[24]

45. As such, the projected efficiency savings are not a saving on the true cost of property to the States. The current plan does not include the effect of any such savings, not least because JPH is not yet in a position to forecast what savings in the cost of property may be possible –

“Advocate A Ohlsson: ….when you get to 2009 you will have a clearer idea of what the true cost of property is to the States?

Mr. Le Ruez: Absolutely, yes.

Advocate A. Ohlsson: At which point you will see presumably more ambitious targets?

Mr. Le Ruez: Well, we hope so, yes. Yes, I think there is more potential there, certainly, yes.”

46. In other words, the current projected efficiency savings are a cautious forecast of what should be possible.

47. The Committee also reviewed the current property disposals programme and noted that, on a conservative view, the realisable value of the properties identified for disposal represents a significant proportion of the total projected receipts for the years 2007-2009. It should be remembered that, in view of the limited time available for preparing the plan, the properties to be sold are largely those which had been identified as surplus before the creation of JPH which suggests that these projections are also cautious.

48. The proceeds of the proposed disposals are, as explained by Mr. Le Ruez and Mr. Ogley to be credited to the Land Acquisition Vote and thence to the Consolidated Fund and will represent a part of the funding of the States’ planned capital expenditure. The Committee welcomed this confirmation, supporting the view that it is inherently unattractive and imprudent to use the proceeds of sales of capital assets to finance revenue expenditure. This general principle was endorsed by Mr. Ogley, the Chief Executive –

“Mr. T. Grimes: As a principle then, is it the view of the Chief Officer that you do not utilise capital sales to fund the revenue cost of the States budgets?

Mr. Ogley: No.”

“Mr. T. Grimes: So a department that sells property would not be able to redirect those funds into the main annual expenditure budget?

Mr. Ogley: This was the point of transferring all of the property into one pot, creating a Property Holdings, because the experience as was recounted to me was that that tended to be what happened. If somebody had a lot of asset