1. 1 SCOTTISH POLICE AUTHORITY Finance Report for the 9 Month Period to 31 December 2013

2. 2 2013/14 Financial Plan and Budget  The SPA Board meeting of 28 March 2013 approved a provisional SPA revenue budget allocation of £1,062.449m. This budget allocation reflected in general terms an overall flat-cash funding settlement to the SPA, adjusted for the spending reduction targets anticipated from Police National Reform.  The SPA savings target for 2013/14 is £63.9m and in setting the budget an adjustment of £41.6m was initially made to devolved budgets against various operational lines.  At the end of December the remaining savings balance of £22.321m has been reduced to £2.260m. This represents a £0.612m improvement from the £2.872m reported at the end of November, and is detailed by Business Area on Page 12 of this report.  The Star Chamber forum continues to actively seek cost reductions in order to achieve the savings balance, and it is expected that the residual funding gap will be bridged by the end of the financial year resulting in a breakeven out-turn for 2013/14.  This is a summary report detailing actual SPA and Police Scotland expenditure at a Business Area level to the 31 st December 2013.

3. 3 Summary of Current Position  At 31 December 2013 the consolidated revenue position for the year to date is a surplus of £4.674m against a year to date budget of £800.043m.  The reported year to date surplus has increased by £1.537m from the November position and the forecast year end deficit has reduced by £0.612m.  Realignment of budgets from within Police Scotland of £0.721m reduced the outstanding ICT savings target to £0.839m.  The overspend of £0.286m within Forensic Services and £0.762m within ICT for the nine months is reflective of the forecast year end position which shows forecast deficits of £0.423m and £0.839m respectively. This is mainly due to unidentified savings in both Business Areas.  Within the Police Scotland Business Areas there is an underspend of £5.146m for the year to date. However, the majority of the savings from these Business Areas falls into quarter four and have not been fully identified resulting in the forecast year end shortfall.  Work continues to review the current budget position and forecast, to identify where and how areas of overspend can be brought back into balance during the remainder of the year. This will continue to be closely monitored over the remainder of the year.  Overall, as set out in the table, the combined position sets out an underspend for the reported period of £4.674m and a forecast year end overspend of £2.260m.

4. 4 Summary of Expenditure Trends Year to Date£000’s April / May 802 June 808 July 938 August 1,935 September2,933 October2,412 November3,137 December4,674 Year End Forecast£000’s April / May (19,503) June(6,162) July(5,911) August(4,001) September(2,958) October(2,958) November(2,872) December(2,260)

5. Financial Overview - Expenditure by Business Area 5 Note 1 - SPA Corporate Services  Corporate Services has moved from year to date underspend in period 8 of £210k to an underspend in period 9 of £162k. This is primarily associated with underspends on Employee Costs £375k as a result of staff vacancies and gapping and a review of other allowances, offset by an overspend on Administration Costs £117k as a result of increased legal costs, and supplies and services £63k. Note 2 - Forensic Services  The Forensic Services Business Area includes National Systems Support. The year to date overspend (£286k), is attributable to overspends on Supplies and Services £426k where the unidentified savings targets are being held, offset by underspends on Employee Costs £86k.

6. 6 Financial Overview Expenditure by Business Area Note 3 - Training  The Training Business Area cover the Scottish Police College at Tulliallan. The year to date underspend (£414k), is attributable to underspends in Employee Costs £230k as a result of short term gapping of a number of police and support posts, Administration Costs £89k as a result of budget profiling in library publications and general purchases and Other Supplies and Services £170k. These underspends are offset by overspends on Transport Costs £72k associated with increased casual car usage and public transport costs, and reduced income of £22k. The full year forecast outturn now stands at a £339k underspend, This improved position is due to increased gapping of posts. Note 4 - ICT  The ICT Business Area includes work previously undertaken as ICT Agency Agreement and the legacy forces local and national projects. The ICT year to date overspend (£762k), is primarily attributable to: ● £81k Employee Cost Overspend ● £145k Property Cost Overspend ● £521k Supplies and Services Overspend.  The unidentified savings target is held under Supplies and Services and the £762k overspend position at the end of December is in line with our expectations to achieve the forecast ICT overspend of £839k. Note 5 - DCC Local Policing  The net underspend of £1,026k mainly reflects an underspend on police staff salaries as a result of vacant posts. Note 6 - DCC Crime and Ops Support  The underspend of £1,699k is mainly as a result of a significant number of vacancies in the early part of the year within Crime Division. Note 7 - DCC Designate  The underspend to date of £2,421k represents savings associated with a reduction of police staff as a result of vacant posts and planned restructuring. This position also reflects a combination of a net overspend on pensions of £879k and an increase in income of £1,500k from the Open Golf and Commonwealth Games.

7. 7 Expenditure by Cost Type  The above table shows an analysis of expenditure by cost type for the 9 month period to 31 December 2013. Further analysis of each category is provided in the following section.

8. 8 Expenditure by Cost Type Police Officer Costs – Under £2.424 million (0.40%)  There is a requirement from the Scottish Government to maintain police officer numbers at a minimum of 17,234. On 1 April 2013 the numbers inherited by Police Scotland were above this base but have since moved closer to the budgeted level through robust management of the recruitment process resulting in an underspend of £2.0m. During December there were a total of 5 new recruits with a total of 44 police officers leaving the organisation.  The Police overtime budget is currently overspent by £0.770m, principally within Specialist Crime Division offset slightly by a combination of over and under spends across other operational departments.  Forensic Services and Training are underspent by £0.073m and £0.184m respectively as a result of establishment vacancies.  The remaining net underspend reflects an underspend on Rent Allowance as a result of officers who are in receipt of this allowance retiring (£0.519m) and an underspend on other allowances (£0.361m).

9. 9 Staff Employee Costs – Under £2.561 million (1.57%)  The main element of this underspend relates to budgeted vacancies within Police Scotland offset by specific overspends in the ICT business area (£0.218m). Prior to restructuring of business areas only business critical vacant posts are being considered for filling. From 1 April to 31 December there has been an overall reduction in the number of full-time employees of 230 not associated with VR/ER, giving rise to the current reported underspend.  The phasing of the salaries budget profiles savings anticipated from the VR/ER scheme. Members will be aware that there is a considerable delay between approval of an individual application for VR/ER and any resultant savings in salary costs etc.  The current budget strategy reflects the majority of the savings being delivered in the final quarter of 2013/14 with a small element from October 2013. There have been 531 VR/ER applications approved to date however 41 of these applicants have rejected their offer and there are 57 who have yet to accept. The estimated savings accrued in 2013/14 are £5.4m (£13.5m full year effect).  In addition, within the strategy, there is a second more significant area of VR/ER which reflects consideration of the formal restructuring of PSoS support functions. This process is underway and based on initial numbers/ timing was forecast to deliver circa £0.2m of savings in 2013/14. The delivery of these savings is dependent on completion of the formal process which given both the scale and timeframe is challenging and the ability to fully deliver expected savings is reflected in page 12.  In the short-term the current underspend on staff salaries will continue to increase as budgeted vacancies are maintained/ increased and contribute to the overall savings target from this budget line.  The year to date overspends within SPA Corporate Services £0.258m. Expenditure by Cost Type

10. Net Pensions Paid – Over £0.736 million (4.82%)  The Net pensions Paid position includes pension payments that remain the responsibility of Police Scotland. The budget for ill-health Capital Equivalent Charge (CEC) is £5.223m and the budget for on-going injury retirals is £6.653m i.e. a combined budget of £11.876m.  There is currently an overspend of £0.361m on injury pensions as a result of backdated injury awards to police officers which will require to be covered from within the overall budget. This overspend is expect to continue resulting in a full year overspend of £1.083m.  The Scottish Police Authority is responsible for approving ill-health retirals. As at 31 December there have been 55 ill-health retirals at a cost of £4.435m (average payment of £0.081m per retiral) resulting in an over spend of £0.518m.  The pattern of ill-health retirals is problematic with lower number of retirals in previous years but recently this has increased significantly. A further 23 cases are projected to be approved for retiral on the grounds of ill- health this financial year at an estimated cost of £1.863m i.e. a full year cost of £6.298m resulting in an overspend of £1.075m.  This position will continue to be monitored, however, indications are that the net pensions combined budget will be overspend by approximately £2.158m at the financial year end.  Based on the number of officers who are currently on long term sickness absence it has been estimated that the number of ill-health retirals could be as many as 91 in the next financial year resulting in a budget requirement of approximately £7.4m i.e. and additional budget pressure of £2.2m. Supplies and Services – Over £0.760 million (1.70%)  This overspend is primarily associated with Forensic Services and ICT where unidentified savings are held, and the position at the end of January is likely to continue resulting in a year end forecast overspend of £1.268m. The position with regards to ICT is likely to continue to the year end and will have to be absorbed within the current budget. 10

11. 11 Transport Related Costs – Over £0.467 million (3.78%)  This overspend relates to vehicle hires, fuel, public transport and mileage costs and reflects an increased requirement for travel across Police Scotland for both police officers and police staff undertaking wider geographical remits than previously. Income – Increased Income £1.480 million (3.33%)  As at December a total of £45.974m has been received against a year to date budget of £44.494m resulting in increased income of £1.480m. This is mainly as a result of the additional income received (£1.5m) in respect of the charges for services of police for the Open Golf Championship and income recovered in respect of the Commonwealth Games. Expenditure by Cost Type

12. 12 Financial Overview - Analysis of Savings  To date overall savings identified of £20.061m has reduced the balance of unidentified savings to £2.260m.  Work continues to review the current forecast overspend and identify how to bridge this potential funding gap by the 31 st March 2014.

13. 13 Capital Expenditure Summary  A Capital Plan for 2013/14 was approved by members on 26 June 2013.  Funds originally approved of £49.41m has been revised to reflect changes in the timing of expenditure on a number of legacy projects and the inclusion of the Portlethen Firing Range, for which approval was given on 28 October 2013. In total, this is an increase of £0.66m to £50.7m.  Business cases for Building Works Capital Programme, Fleet Capital Plan, i6 programme and Phase 1 of the ICT Infrastructure Investment Programme have been approved by Members.  To take account of non recoverable VAT, the total approved budget has been adjusted to £60.02m – the VAT will be recovered from the Reform Budget allocation.  Actual capital expenditure as at period 9 (31 st December 2013) totalled £20.1m (33.5%) with Legacy schemes accounting for £15.7m of actual expenditure.  To date, a total of 20 properties have been sold, with proceeds totalling £2.1m. A number of other property sales are nearing completion, however, two properties, which had been given dispensation to sell are not expected to realise a capital receipt in 2013/14 and therefore the forecast is a £0.6m shortfall in the budgeted receipts.  Vehicle disposals total £0.3m in respect of 115 vehicles to date and disposals will continue throughout the year via British Car Auctions.

14. 14 Update on Other Matters Reform Budget  The Scottish Government has allocated funding specifically intended to support the process of Police Reform. The allocation for 2013/14 is £59.74m, with indicative allocations for 2014/15 and 2015/16 of £70m each year.  This funding is intended to be used to meet specific costs of implementing change (such as the costs of voluntary redundancy and voluntary early retirement) or as transitional funding to support the revenue position until costs can be released (e.g. double running costs until buildings can be vacated).  The table shows how the 2013/14 allocation will be used. This was been agreed with Scottish Government colleagues at a meeting on 16 January 2014. Proposals for 2014/15 and 2015/16 are currently being developed as part of the overall Financial Strategy and will be firmed up in the coming weeks as the strategy is completed.

15. 15 Update on Other Matters Finance Reform Project  A report was prepared for the Finance and Investment Committee meeting on 3 October to provide members with an update on the significant progress made against issues raised in the independent reviews of the project carried out earlier this year. The independent review of progress against the original recommendations has been completed and was discussed at the Finance & Investment Committee meeting on 26 November 2013 and the Audit & Risk Committee on 3 December 2013. The report confirmed the status of the updates previously reported to the Committee and makes some recommendations where further work is required over the coming months. Commonwealth Games 2014  The Scottish Government delegated responsibility to the Chief Constable for delivering all Safety and Security aspects of the 2014 Commonwealth Games within a budget of £90 million. Additional expenditure incurred by Police Scotland such as specific posts for the Games will be recharged against this budget. At 31 December 2013 £750k and £330k has been incurred on staff costs and non-staff costs, respectively, for the Games. This specific expenditure is included within Police Scotland costs with a corresponding amount of income.