The responses to the questions raised at Audit Committee Meeting SCC from Mr Nigel Behan of UNITE.


The Audit Committee is responsible for reviewing risk management, governance and internal audit arrangements of the council and reports from external audit and inspection agencies.

the Audit Committee held in the Luttrell Room, County Hall, Taunton on Thursday 26 September 2013

Q.1 The most recent accounts available for Southwest One state:

“…the directors are aware that at the end of the contract life, the company is due to settle its inter-company loan balance with IBM, which at 31 December 2012 was £47.9 million (2011 £38.2 million). Currently it is felt there are insufficient cash flows to be generated in the remainder of the contract to settle this loan balance. Accordingly, the directors are in preliminary discussions with IBM to consider the possible options available including potential restructuring of the amounts due.”

a)  What impact will this have (including liabilities) on SCC and the respective partners in the Joint Venture?

1a)       Although this question is not related to SCC’s accounts or the items on the Audit Committee’s agenda, it would be helpful to state that this matter is one between SWO and IBM to resolve. SCC and the other partners do not consider the outstanding losses to be an issue for them.

b)  What steps and measures are being taken to minimise any increased risks?

1b)       The three partners are liaising regularly at SRO level to discuss SWO accounts, performance and continue to take steps to minimise risk to SCC.  Hence, the recent renegotiation of the contract.

c)  As a “partner” in the JVC what practical steps can SCC take to influence the potential restructuring?

1c)       None, nor would SCC want to.  This is primarily about IBM charging SWO for their time, and SWO owing IBM the majority of £47.9m

d)  How will service provision and business continuity be affected?

1d)       It will only be affected if the parent company, IBM, call in their loan and make SWO insolvent.  This is considered unlikely, though not impossible, since they have supported the JVCo so far.


Q.2 Staff were recently advised that “IBM has made a strategic business decision to sell part of its worldwide business that runs customer care business process outsourcing services. We are currently working through exactly what this might mean for Southwest One.”

a)  What impact will this have on SCC and the joint venture partners, service delivery, business processes and the potential restructuring mentioned in Q1?

2a)       SCC does not know.  We have pressed SWO for an answer and frankly they don’t know either yet.

b)  It is rumoured that IBM will retain the IT element of the SWO contract. Is it possible that the existing contract(s) will become more complex and consequently there may fewer resources available to direct to service delivery?

2b)       IBM is most probably going to retain the IT part of the contract.  Concentrix do not run IT services as far as our limited company searches have indicated.

c)  What record has Synnux/Concentrix in providing/supporting public services in local authorities and the police?

2c)       This has not been investigated in any depth and SCC awaits SWO’ reports and due diligence on this before SCC and partners engage in our own due diligence.

d)  When will a review of SWO take place as a consequence of IBM selling part of its services?

2d)       SCC is awaiting a formal approach from SWO regarding the Concentrix deal.

Q.3 In June (Q.3 a) i)) we asked whether the Council would obtain Value for Money from its reviewed arrangements with SWO. Can you provide an update to this question?

3)         Value for Money is difficult to measure.  Everyone’s support service needs are different, so comparing this range of services to other Councils has not been easy over the years.  I would simply answer by saying we will get more VFM from our reviewed arrangements.  The services will cost less and performance will improve.

Q.4 Can assurances be provided that SCC will not contribute (financially or by redirecting resources and/or reserves) to the settlement of the (SWO-IBM) inter-company loan (mentioned in Q.1) or that the unitary charge will not be affected?

4)         SCC will not be contributing to the settlement of the inter-company loan and we will not pay any Unitary Charge increase in respect of this.

Q.5 Will there be a “Lessons Learnt Log” (based on the experiences of SWO) for commissioning managers/directors across SCC?

5)         Lead Directors from SCC have shared their experiences of the SWO contract with the key commissioners within the Authority in a constructive way so that lessons are learnt.

Q.6 (Item 6.The Audit Findings for SomersetCounty Council – Grant Thornton)

a)  The Risk Identified (p 20): Will there be an update and subsequent revised risk assessment following the issues identified (see Q.1) in the SWO company accounts and IBM selling part of its business?

6a)       There will be, once we know more about any potential impacts.

b)  The Action plan (p 27): SAP review. What methods will be used to monitor the “necessary assurance around database controls” (management response)?

6b)       The three partner organisations will work on this collectively to ensure we receive the assurance around controls from SWO. Our external and internal auditors will help advise us all when the level of control is at an acceptable level.

Q.7 Paper B Item No 6 Approval of Accounts 2012/13

In Paragraph 5.3 it is noted that there is an increase in non current assets of £2.941m (and the same amount of increase in the revaluation reserve). Will this have an impact on the future of children’s and learning disability centres?

7)         No

Q.8 Relates to Item 11 and 12 Southwest One update:

a)  What information is public and what is commercially confidential?

8a)       Relating to items 11 and 12 on the Audit Committee agenda, these were to be held in confidential session so members, especially new members on the committee, can discuss freely any issues they wish to raise.

b)  Are the issues discussed in Q.1 and Q.2 above being discussed?

8b)       The session can cover such issues but it is entirely up to Committee Members as to content raised.

c)  What organisation(s) requested that these items are heard in private session?

8c)       Members themselves wanted it confidential.

d)  When will information about SWO (contract monitoring etc) and SCC’s financial and operational relationship with SWO be made available?

8d)       One of the items to be discussed is how reporting will be presented to members on a regular basis and to which members.

Q.9 Relates to the Report of Internal Audit Activity-Item 8.

The “Report on Significant Findings” (p2) notes:

“Appendix A is a summary of the Annual Plan for 2012/13 – I have highlighted those reviews that have progressed since my last report. There are nine reports at draft report and with the client with one in progress. The one in progress and six of the draft reports are IT related. This matter has been escalated to Senior Management who are prompting the necessary response from SWOne. I will continue to update the Committee on these reviews through to completion.”

a)  Can copies of the outstanding reports be supplied?

The Internal Audit report going to the Audit Committee on 21st November contains an update on the reports in question (Agenda Item 9) for the Committee to consider.

b)  What progress is being taken to address the ICT, Financial controls issues identified in the report?

In terms of responses to audits, the process has not changed. For any audit where SWAP can only provided “Partial” or “No” assurance, there is automatically a follow-up audit within 6 months, to determine the progress by management against the audit findings.

The Audit Committee retains the right (as set out in the covering report) to require managers to appear at a future Audit Committee meeting to explain their actions. This is set out in the covering report for this agenda item.




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