Scottish Government

Chapter Eight Cost of Service Provision

Introduction

8.1 In analysing the cost of the IAS in Scotland, this section will first consider the overall costs of the service, including a more detailed examination of premises costs and the contribution made to the IAS Head Office. It will then consider the funding arrangements for IAS in Scotland, and will provide a breakdown of revenues across services. Finally, it will consider the challenges faced by IAS in recovering its costs.

IAS Costs

Overall costs

8.2 An analysis of total costs of IAS in Scotland is provided in Figure 8.1 below.

8.3 It should be noted that the costs shown exclude disbursements directly recoverable from the Scottish Legal Aid Board, such as interpreters, translation services and medical reports, as these costs have a net zero impact on the overall budget.

8.4 From Figure 8.1, it can be seen that the largest component of the 2006/07 budget is salaries and pensions, accounting for £461,000, or 69% of total budgeted expenditure. The contribution to Head Office costs is the second largest component (16% of the total) while the other cost categories each account for less than 5% of the total budget.

8.5 Figure 8.1 shows that budgeted costs have increased by 10% over actual 2005/06 expenditure. This increase can be broken down as follows:

• 15% increase in costs (11% for salaries, and 2% each for other staff and office costs), offset by
• 5% reduction in costs (4% for Head Office costs, and 1% for premises)

Figure 8.1 Breakdown of IAS Scotland Actual Expenditure 2005/06 and Budget Expenditure 2006/07

Notes to Figure
Other staff costs include external training and development, and travel and subsistence.

i. Office costs include communication, printing and stationery, revenue equipment (under £500) purchase and maintenance, Law Society subscriptions and office consumables.

ii. Administration costs consist of cost draftsman and professional indemnity insurance required for legal aid work

iii. Premises costs and Head Office support costs are considered separately below

Source: IAS Finance Department

Premises Costs

8.6 An examination of budgeted and actual expenditure reveals that the premises costs exclude the Bath Street office, which is owned outright. As a result, the true cost of the IAS service in Scotland is understated as it is benefiting from a "free" asset. This would have implications if the service were to be purchased from an alternative supplier in the future, as additional budget for office accommodation would be needed.

8.7 In order to estimate the true accommodation charge for the Bath Street office, a comparison with the St Vincent Street Office can be made to give an indication of the cost of renting the office if it were not owned. Applying the annual rental cost per square foot for the St Vincent Street office to the larger Bath Street office would produce an annual rent of over £12,000 ⁷⁸. It should be noted that this value is an estimate only. In reality, differences between the two offices (for example, Bath Street occupies the ground floor, while St Vincent Street is on the second floor) might impact the actual rental charge.

Head Office Costs

8.8 A breakdown from the 2006/07 budget of the contribution that IAS in Scotland makes to Head Office costs is shown in Table 8.1.

Table 8.1 Breakdown of Contribution to Head Office costs, 2006/07 budget

Notes to Table
Source: IAS Finance Department

8.9 From the table, it can be seen that Head Office costs account for 16% of the total 2006/07 budget for IAS in Scotland (excluding Scottish Legal Aid Board disbursements).

8.10 A closer examination of the Head Office costs reveals that almost two-thirds of these costs relate to the provision of in-house services provided IAS in Glasgow:

• Human Resources and training
• ICT (servers, network, IT support)
• Finance (payroll, payments, financial management)
• Research and information
• Legal affairs and publications

8.11 If these services were not provided in-house, they would need to be purchased elsewhere. The IAS Head Office continues to review the cost effectiveness of the support services, including considering potential options for outsourcing.

8.12 Approximately 10% of Head Office costs relate to external services purchased by the Head Office on behalf of the whole IAS organisation, which are then recharged to the different offices (primarily on the basis of headcount). These include:

• External audit and accountancy
• Insurance - public liability, employer, and professional indemnity insurance for trustees
• Banking
• Professional fees for external lawyers providing property and employment advice

8.13 If the Glasgow IAS were its own entity, independent of the UK-wide IAS, it would need to purchase these services directly

8.14 Finally, a quarter of the Head Office costs relate to Head Office management overheads, including governance and strategy, policy, premises, and a small amount for trustee expenses. This expenditure relates to the Glasgow IAS's share of overall strategy and governance costs, and helps pay for the contribution made by the IAS organisation as a whole to Scotland, both directly (for example, attendance at some of the Scottish Advisory Council meetings) and indirectly (for example, the role of IAS as a key immigration and asylum stakeholder that provides expertise in a UK-wide context).

8.15 The Head Office management overhead costs include £16,000 for premises. In reality, a considerable proportion of this expenditure relates to the accommodation required for the in-house support services outlined above, such as HR, training, and finance. It is not currently possible to apportion the accommodation costs over the various Head Office components. If it were possible, the costs of the internal support services costs would increase slightly, while the management overhead cost category would reduce.

8.16 During 2006, the Head Office of IAS underwent a major restructuring, resulting in the removal of one management layer and the creation of a more streamlined senior management team. This restructuring is reflected in the budget for 2006/07, which includes Head Office savings of £9,000 over 2005/06 costs.

IAS Revenues

Overview of Funding

8.17 IAS receives funding from two main sources - a grant from the Scottish Executive, and income from the Scottish Legal Aid Board for legal aid work undertaken.

8.18 The Scottish Executive grant pays for the salaries of the Office Manager, casework assistants, 2 advisors, one counsellor, and 2 solicitors (originally, the grant was for one solicitor but this has now been increased to 2 since the IAS exceeded its targets for 2005/06). It also includes the management and supervision time of the Director of Regional Services and Director Scotland, the Principal Solicitor and the Supervising Solicitor.

8.19 In addition to direct staff costs, the Scottish Executive grant pays for a proportion of premises and office costs. It also makes a contribution to Head Office costs.

8.20 Scottish legal aid work is billed using set rates for activities performed - for example writing a letter, attending a hearing, or spending time in meetings. The Legal Aid Board also reimburses IAS for expenditure incurred on behalf of clients, such as interpreter fees, translation costs, medical report costs. (These disbursements are excluded from the analysis, as their net impact on the IAS bottom-line is zero.)

8.21 Legal Aid fees for meetings for both Advice & Assistance and Assistance By Way of Representation ( ABWOR) equal £51 per hour. For internal reporting purposes, IAS Head Office converts SLAB income into an equivalent number of hours by dividing the income generated by £51.

Breakdown of Revenue Streams across costs and activities

8.22 A breakdown of revenue streams across IAS costs and activities is provided in
Figure 8.2.

8.23 From Figure 8.2, it can be seen that Scottish Executive grant income accounts for 66% of the total, while legal aid income (excluding disbursements) accounts for 34%. The Scottish Executive income can be further apportioned between Advice (one-third) and casework (two-thirds), based on an analysis of Scottish Executive hours worked between April and September 2006 ⁸.

8.24 In most cases, non-salary running costs are apportioned between SE and SLAB on a 60:40 basis. Some running costs are specific to the Scottish Legal Aid Board, however, and so are allocated directly to the SLAB budget - for example Law Society membership fees, cost draftsman, and professional indemnity insurance.

8.25 The Glasgow IAS budget for 2006/07 does not include any income for training. Actual training income for 2005/06 was £1,066. This figure will be higher for 2006/07, since training income from April to August 2006 alone was £5,325.

Figure 8.2 Breakdown of IAS Glasgow revenue streams by cost and activity - Budgeted Expenditure 2006/07

Notes to Figure
Source: IAS Glasgow Budget 2006/07

Cost Recovery Challenges

8.26 The IAS in Scotland faces a constant challenge balancing Scottish Executive and legal aid work. While the Scottish Executive grant is fixed, legal aid income depends on the level of legal aid activity undertaken, which is totally demand-driven.

8.27 During the first six months of 2006/07, the number of new asylum cases fell while Glasgow City Council was renegotiating its NASS accommodation contract with the Home Office. This had an impact on legal aid income earned by IAS. The staffing shortfall in the first half of the year may also have had an impact on income, since IAS did not have any spare capacity for additional outreach activities to help generate new legal aid work.

8.28 According to the 2006/07 budget, total income to be recovered from SLAB (excluding disbursements) is £231,000, which equates to 4,530 legal aid hours, using the IAS Head Office assumption of £51 per hour. (This is a notional figure based on the fee for an hour-long meeting. Since SLAB fees are based on a mixture of outputs, actual hours worked by IAS solicitors may differ to the notional level.)

8.29 During the first half of 2006/07, IAS in Glasgow worked approximately 1,000 legal aid "hours" (i.e. total SLAB income of £51,000 divided by £51). This was far short of the budgeted total needed for full cost recovery. Each legal aid "hour" worked contributes to both direct costs (employee's salary and pension) and indirect costs (running costs). Assuming annual targeted hours of 1100 per solicitor, approximately 45% (£23) of the hourly income is used to recover direct salary costs, while 55% (£28) contributes towards the recovery of indirect costs.

8.30 An examination of the 6-month accounts to 30 ^th September 2006 shows that IAS in Scotland under-recovered its costs by £3,600. This under-recovery, though, is significantly less than that expected as a result of the fall in legal aid income. Staffing levels were down for the first half of 2006/07, thereby lowering expenditure on salaries compared to the original budget. Expenditure on other costs - especially office and administration costs - was also less than the half-year budget. (This may be due, though, to the timing of expenditure rather than any real savings.)

8.31 Moving forward, it will be critical to closely monitor legal aid income to ensure that it contributes to both direct and indirect costs. This is especially important since two new solicitors were hired in October 2006, thereby increasing salary costs for the second half of the year.

Summary

8.32 This chapter analysed the costs of provision. Its main findings were:

• The overall IAS budget for 2006/07 is £666,000. Salaries and pensions (69%) form the largest component
• Accommodation costs of the Bath Street office (estimated to be approximately £12,000) are not included in the IAS annual accounts as the building is owned outright. As a result, the true cost of providing the service in Scotland is understated
• A contribution to Head Office costs of £109,000 accounts for 16% of the overall 2006/07 budget. An examination of Head Office costs, however, shows that 73% relate to services purchased or provided by IAS Head Office on behalf of IAS in Glasgow
• A quarter of the Head Office contribution (27%) relates to strategy, governance and overheads. This expenditure helps fund the role undertaken by IAS senior management on behalf of the whole organisation - such as input to the immigration debate at the UK level - from which Scotland benefits
• IAS in Scotland faces a constant challenge balancing Scottish Executive and legal aid work. While the Scottish Executive grant is fixed, legal aid income depends on the level of legal aid activity undertaken, which is demand-driven. The 6-month accounts to 30 ^th September 2006 show that IAS approximately broke-even. Moving forward, it will be critical to closely monitor legal aid income to ensure the organisation achieves full cost recovery.

8.33 Having considered the costs of IAS, the next chapter evaluates the service that IAS provides.