Examination of Witnesses (Questins 100-119)
CABINET OFFICE,
DEPARTMENT OF
HEALTH & HM PRISON
SERVICE
12 DECEMBER 2007
Q100 Chairman: So that answer we
have had from Mr Wheatley is correct, basically, he has done everything
he possibly can and there is nothing more that could be done?
Mr Davis: We have not looked in
detail at what would be the costs of trying to set up the kind
system that Mr Wheatley describes. I think to some extent standard
human resource information would provide some of the answers.
We have not looked at what additional costs might need to be incurred
beyond that.
Chairman: Mr Bacon, are you now satisfied
that the National Audit Office can in fact answer your question?
Q101 Mr Bacon: In relation to the
£7 billion, I am hoping that the forensic audit of the £4
million that Ms Cleveland presumes it cost and where that has
been spent will provide part of the answer. It surprises me that
it is not relatively easy at the touch of a button to track somebody's
career using pretty much off-the-shelf HR software and for him
to do that amongst quite a number of people.
Mr Wheatley: We will do now we
have got them in the shared service sector. When we have completed
the HR roll-out, you are right, it will be much easier to track
individual staff and that is one of the advantages that comes
from having a shared service sector and the really good electronic
data system which we have not had previously.
Chairman: We are making progress slowly,
thank you. Mr Wilson?
Q102 Phil Wilson: Just a few questions,
Chairman. The first on a key fact, it says that the shared services
in the NHS and the Prison Service are delivering savings and successfully
tracking early problems of customer satisfaction. Can I ask Mr
Wheatley and Mr Coates in turn, how did those problems manifest
themselves and how did you resolve them?
Mr Wheatley: The main problems
that we had with purchase and pay, aside from the IT problems—which
I have already dealt with—were that as we began to make
the payments centrally, the care about making sure that the invoice
matched correctly so we could show that we had receipted the order,
that the invoice had been correctly placed, that the right numbers
were on the right invoice—often people asking for payment
did not refer back to the order number—so some simple housekeeping
things were not right to begin with. That meant the bills were
paid slowly and that was a concern. As we have driven up transactablity
we have dealt with those fairly mundane problems. We also have
to be careful that the receipting for goods received is accurate.
To take an example, if we bought 359 washers and 357 turned up,
do we pay the bill or do we not pay the bill because we have not
got full delivery of it? Trying to make sure that we are not failing
to pay bills for very small anomalies that we can sort out later
and, on the other hand, we are not paying bills where there is
a big anomaly or a deliberate attempt to somehow shortchange us.
Getting those rules right has also been important to increasing
transactability and those were the mundane practical issues that
we worked away on problem-solving with in order to get the right
answers that protect the public purse, keep the cost per transaction
down and move things through smoothly so we have got suppliers
who want to supply to us at a decent price.
Mr Coates: The SBS has similar
problems. You cannot disguise the fact that when we first started
the company there were problems over robustness of systems and
reliability of systems and such like. It has taken a lot of hard
work by the company to rectify this, to pay greater attention
to response times, to queries, and to make sure that there is
a big focus on customer care and customer satisfaction. I guess
the answer to the question is how do we know it is getting better,
how can we be sure that customers are feeling more happy with
the service than they were in the past? Clearly graph 9 on page
20 shows that over time people get more accustomed to and more
happy with shared services. I accept it could be simply the passage
of time that makes people happier, but I guess we would also point
out that we now have a large number of reference clients. These
are people who are willing to receive visits from potential customers
to vouch for the quality of service. We have now got over 22 reference
sites out of the 89 customers, which is nearly 20%. The second
factor is that the business is still growing and people are coming
across. The word-of-mouth message in the NHS is very powerful.
If we were not really paying attention to quality and standards
then we would always be pushing a snowball up a hill.
Q103 Phil Wilson: Thank you for that.
I have three or four questions for Alexis Cleveland. The Cabinet
Office estimates that there is scope to reduce the cost, this
£1.4 billion figure. Is there a timeline over a period of
time for how you are going to achieve that and how long it is
going to take you to recoup that?
Ms Cleveland: We do not have a
complete roadmap for the transition of every department onto that
but within a particular programme from start-up it usually gets
to the point where you have paid back your initial investment
on a four or five-year timeline and after that you are in profit.
However, to take that across every department and put them on
to a shared service is going to take some time.
Q104 Phil Wilson: It is just the
point about this £7 billion. This £1.4 billion is 20%
of that, which is mentioned in the Report, but we do not know
how we got to the £7 billion figure. Once we work out what
that figure is, the £1.4 billion might be less than 20% or
it could be more than 20%.
Ms Cleveland: What we are quite
confident about is that there is at least a 20% saving.
Q105 Phil Wilson: But we do not know
if there is actually going to be £1.4billion so we are not
too sure about whether it is actually £7 billion?
Ms Cleveland: That is the arithmetic,
yes.
Q106 Phil Wilson: I have another
couple of questions. Only the Cabinet Office and the Department
for Children, Schools and Families have committed to buying their
corporate functions from one of the designated selling departments.
If that is the case, do you think you have largely failed to persuade
departments to take on board the strategy?
Ms Cleveland: It is largely to
do with the speed at which the selling departments can actually
move from being a service that provides something within their
own department to meeting some of the different requirements of
other parts of the business, so within the Cabinet Office for
example we are moving to the DWP shared service system. As far
as possible we are going to take exactly their business processes,
whether they are HR processes or whether they are financial processes,
because they are pretty vanilla for the Oracle platform, but we
do have some requirements that are different. For example, the
security on the desktops in the Cabinet Office given the nature
of the work we do is a different standard to those in DWP, so
they are going to have to make some adjustments to their service
in order to be able to supply us with that service.
Q107 Phil Wilson: According to the
Report there is an on-going issue around VAT as well.
Ms Cleveland: I think VAT is a
matter for the Chancellor. I would be very reluctant to say too
much about it with the Treasury Officer of Accounts in the room.
Q108 Phil Wilson: You are obviously
in liaison with Treasury officials about it?
Ms Cleveland: We are indeed. This
really is not an issue for most parts of local government and
many central government departments because VAT is recoverable.
It seems to be an issue in some of the NDPBs.
Q109 Phil Wilson: It seems to me
that if we could resolve this issue it would take the lid off
all the things that you would want to do and you could expand
the service and recoup some of the savings basically?
Ms Cleveland: Indeed, and that
is why we have identified it as one of the barriers and we have
made this known to Treasury colleagues.
Q110 Phil Wilson: One last point,
the Report is peppered with remarks, on page 23 for example, "Performance
lags behind leading practice comparators but there is a focus
on continuous improvement" and there is an issue in here
for example around invoices that are less than £100 where
in the private sector they are just paid and in the public sector
they are not. I know it is taxpayers' money but something needs
to be resolved there. Also on page 9, paragraph 14 where it mentions:
"Organisations receiving these shared services reported early
problems. This is a common experience with large transformation
programmes." Ultimately in the process that you are going
through at the moment, do you see cultural change within the Civil
Service as the one part of it that you are finding difficulty
coming to terms with as an organisation?
Ms Cleveland: If I talk about
the Cabinet Office there, because I think it is probably quite
a good example of a new department moving on to this system, I
have seen the challenges coming as to do with compliance with
the process. I see this as a huge advantage because it will help
us make sure that we have consistent processes across the whole
of the business because there will only be one way you can do
it. Where you have paper processes, custom and practice varies
in some areas, so I think there are some big advantages in making
those sorts of changes, but some of those are cultural changes.
I think it is also the fact that because we want to take systems
that are as vanilla and as unbespoke as possible so that it makes
the on-going maintenance charges lower as we go forward, they
are not necessarily the prettiest systems for people to use, and
we expect some pushback from staff to do it. It also means that
line managers have to take accountability for management and that
is going to be important for us as well.
Q111 Phil Wilson: Would that be the
same for the Prison Service and the NHS as well? Mr Wheatley,
you can speak for the Prison Service and Mr Coates for the NHS.
Mr Wheatley: We think that we
are reasonably well down the road of the shared service centre.
We are determined to reduce the cost of transactions and I have
already said that. We know we need to make changes and we think
now we have got the system up and running we are in a position
to move forward and do that. The crucial thing is to make it work.
It does have the advantage of making sure that people have to
follow the systems. It is much more difficult to cheat with an
IT system, cut corners, introduce a slightly different system
that is more complicated and more expensive but somebody feels
happier with, and for me it means that we end up doing a more
effective job at a lower price. I am sold on this as an approach
and want to exploit it.
Mr Coates: It is a big cultural
change going essentially from a paper-based system to a screen-based
system. We have had to tackle several problems. The best example
of cultural change I have got is it used to be the case that FDs
in the NHS were paid based on the number of staff they had. Clearly
one thing about shared services is that you destaff at a local
level and it is a perverse incentive there if you think you are
going to cut your own pay by reducing staff numbers, but that
has changed now.
Chairman: I think Mr Bacon has one supplementary.
Q112 Mr Bacon: I did have one, I
now have two actually, Mr Coates, because you have just reminded
me that you are a financial director, and I always like to ask
financial directors if they have a financial qualification.
Mr Coates: Yes, I am a qualified
accountant.
Q113 Mr Bacon: Good, that is marvellous.
So you are one of Ms Diggle's 91% rather than the 9% who do not?
Mr Coates: I presume so, yes.
Ms Diggle: It is actually 93%,
Mr Bacon.
Q114 Mr Bacon: 93%? Even better,
which makes the absence of the Ministry of Defence from that list
even more worrying.
Ms Diggle: I am afraid so.
Q115 Mr Bacon: I would like to you
ask you, Ms Diggle, about the VAT issue because Ms Cleveland pointed
out that local authorities and central government departments
were not affected and indeed it explains why in paragraph 4.6
where it says that as a result of measures introduced in the past
to remove disincentives to outsourcing or to ensure that VAT is
not a cost on local taxation—local authorities I presume—they
can reclaim VAT, but of course non-departmental public bodies
and higher and further education bodies cannot. The Treasury has
been looking at this for a year and a half, since May 2006. When
is the Treasury going to come to a conclusion about what to do
about it?
Ms Diggle: It is not easy, Mr
Bacon. This is a policy matter for the Chancellor first of all
but secondly we have to keep within the European Directives which
do limit what we can do.
Q116 Mr Bacon: In Italy they would
just have reclassified education bodies as local authorities or
something like that and got the job done. Is the Treasury serious
about this policy of encouraging shared services?
Ms Diggle: Certainly.
Q117 Mr Bacon: It is a massive inhibition
Ms Diggle: We are doing it ourselves.
Q118 Chairman: Yes you are, but you
are doing it with your own shared service centre; you are not
outsourcing it, are you?
Ms Diggle: No, we are doing it
ourselves internally, for the moment.
Q119 Mr Bacon: But it is a massive
inhibition to outsourcing for people out there?
Ms Diggle: You are right, it is
certainly a problem for some bodies and we would like to help
solve it.
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