1. TRANSPARENCY IN LEASEHOLDERS SERVICE CHARGE Presented By: Anita Shields Anita Shields K & A Management Services Ltd Tel. 01604-401656, Email: anitaroussillon@aol.com

2. WHY DID SOUTHWARK APPROACH ME? Audit Commission recommendation Audit Commission recommendation Similar experiences with other London Boroughs Similar experiences with other London Boroughs Easier to “Control” individual? Easier to “Control” individual?

3. WHY ANOTHER AUDIT? LEASEHOLDERS UNSATISFIED BY PREVIOUS AUDIT REPORT AND LACK OF TRANSPARENCY LEASEHOLDERS UNSATISFIED BY PREVIOUS AUDIT REPORT AND LACK OF TRANSPARENCY

4. Leaseholder Council Term of Reference TR1-Traceability of Records TR1-Traceability of Records TR2-Accuracy of Order, Cost codes, Cost centre TR2-Accuracy of Order, Cost codes, Cost centre TR3-Existence of Schedule of Rates TR3-Existence of Schedule of Rates TR4-Existence of Contract Register TR4-Existence of Contract Register TR5-Method of measurement to calculate Ground Maintenance TR5-Method of measurement to calculate Ground Maintenance TR6-Frequency of monitoring Account TR6-Frequency of monitoring Account TR7-Explanation for District heating and Lift charge TR7-Explanation for District heating and Lift charge

5. ELEMENTS OF SERVICE CHARGE TO REVIEW Cost on window cleaning, responsive repairs, etc.. Elements example: 1. Block Cleaning; 2. Estates 3. Refuse 4. Ground Maintenance 5. Etc…

6. Rationale for split on shared areas-Ground Maintenance HRA Grass & Beds Grass & Beds On Housing Estates On Housing Estates Split: 87% (based on land- mass, Type of work i.e. Man hours Split: 87% (based on land- mass, Type of work i.e. Man hours No review No review GENERAL FUND Park & Space outside estates (Common land) Park & Space outside estates (Common land) Split: 13% Split: 13% No review No review

7. WHY THE RESENTMENT AGAINST EXTERNAL AUDIT? The Council Executive Officers resented being pressured by a lobby group i.e. Leaseholders Council to appoint their own “External Independent Auditor” The Council Executive Officers resented being pressured by a lobby group i.e. Leaseholders Council to appoint their own “External Independent Auditor”

8. WHAT WAS THE DECISIONS FOR NOT CHOOSING PwC Conflict of Independence and interest. Conflict of Independence and interest. PwC could not act as External Auditor as they were already contracted as Internal Auditors. PwC could not act as External Auditor as they were already contracted as Internal Auditors. Their Terms of Reference did not address issues Their Terms of Reference did not address issues Level of Fee Level of Fee

9. REASONS FOR THE DIRECT APPROACH v TENDERING Conditions for appointment: Security, Re-assurance. Recommended by Audit Commission Security, Re-assurance. Recommended by Audit Commission Contract had to be a maximum of £50k (No tendering requirement up to that level) Contract had to be a maximum of £50k (No tendering requirement up to that level) Maximum duration 4 months Maximum duration 4 months

10. TYPES OF PROBLEMS ENCOUNTERED Delays in providing working papers for 05/06 year by Executives! Delays in providing working papers for 05/06 year by Executives! Deliberate obstruction in auditing process Deliberate obstruction in auditing process Filtering of information by the Internal Audit Filtering of information by the Internal Audit No authorisation signature for cleaners productive hours or any reconciliation to Agency Time sheet No authorisation signature for cleaners productive hours or any reconciliation to Agency Time sheet Recharging cost not transparent or equitable Recharging cost not transparent or equitable

11. HOW TO RECHARGE COST FAIRLY?

12. ACCOUNTING METHODS COMPARISON POOLE BUDGET A pro-rata basis for recharging cost A pro-rata basis for recharging cost Example: Example: 1 Block= 3 flats= 90 Leaseholders Calculation Fee P.A.: 1000 Cleaners hrs @ £6.50=£6,500/3 £2,167/40=£54.17 per Leaseholder 1000 Cleaners hrs @ £6.50=£6,500/3 £2,167/40=£54.17 per Leaseholder RESOURCE ACCOUNTING Allocate the “whole” cost into a unique cost centre Allocate the “whole” cost into a unique cost centre Cleaners Hours: Block1-Flat40= Block1-Flat40= 4 hrs@£6.50=£26 Block2-Flat126= Block2-Flat126= 10hrs@ £6.50=£65

13. POOLE BUDGET BENEFIT ADVANTAGE Speed and simplicity Speed and simplicity Only require a pro-rata calculation Only require a pro-rata calculation i.e. useful for Rent i.e. useful for Rent DISADVANTAGE: Does not recharge the “Whole” cost Does not recharge the “Whole” cost

14. RESOURCE ACCOUNTING (Accrual) BENEFITS ADVANTAGEProvides: Accountability Accountability Transparency and Transparency and Traceability Traceability DISADVANTAGE: Require structure Require structure Skills Skills Staffs training Staffs training

15. WHICH METHOD WAS ADOPTED AND WHY? (What do you think?…)

16. THE EASIEST METHOD Yes…The Poole Budget…. Yes…The Poole Budget….

17. WHAT NEXT?

18. WHAT CONCLUSIONS CAN BE DRAWN? Some examples for transparency: 1. Management of the site transferred to the Leaseholders 2. Financial Management elected by Leaseholders 3. Leaseholders control all expenditure on their block, Estate, Flat

19. MAKE YOURSELVES HEARD Challenge the way Service charge is accounted for Challenge the way Service charge is accounted for Ask for transparency Ask for transparency Provide Seminars and workshop for re-addressing accountability issues Provide Seminars and workshop for re-addressing accountability issues

20. Q & A Now you know the fact, can I be of assistance?...It is up to you… Now you know the fact, can I be of assistance?...It is up to you… Contact Details: K & A MANAGEMENT SERVICES LTD Tel. 01604-401656 Email: anitaroussillon@aol. com