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Approach to Business Risk, Branch Audit and Accountancy Support for
Operators
Background
Network Operations have produced a proposal which delivers cost reduction
benefits for 16/17 from within the training and audit function; this is based on
reduced activity in the field. Using these new 16/17 projections the original audit
proposal, which was borne out of 14/15 baseline, cannot be funded. Additionally
the reduction also brings into question the ability to introduce the “Learning
Academy” ownership of the delivery of training.
For clarity this paper addresses only the audit proposal.
Context of proposal to reduce resource and costs
¢ Audit and business losses
At a time of increased new agent debt and increased average audit loss it may
feel counterintuitive to be reducing the level of physical audit resource available
in the field. One of the proposals produced by Network Operations wherein there
is a small central intelligence function established may mitigate some of the risk
but this has yet to be proven. Work also needs to be undertaken to establish
how this interacts with the existing fraud risk team.
Losses at Audit*
period Audit loss identified Total value Average loss
(number)
Apr - Dec 2014 309 £1,327,903 £4,297
Apr - Dec 2015 225 £1,620,947 £7,204
* Supplied by Colette McAteer, Fraud Analysis Team Leader
Former Agents New Debt#
period I 2008-09 2009-10 2010-11 2011-12 2012-13
total £7,100,000 I £4,116,000 I £2,642,000 I £2,221,000 I £2,670,000
period 2013-14 2014-15 2015-16 p9
total £1,271,358 I £1,598,724 I £2,199,874
# Supplied by Alison Bolsover, Senior Debt Recovery Manager
¢ On-going claims from operators that Horizon is the cause of
losses
Project Sparrow related claims continue to be made by agents, despite the
closure of the mediation scheme. A number of the experts from the investigation
phase of Sparrow have returned to the generalist field team role and will be
subject to reduced use of their expertise. Sparrow remains an on-going risk with
media and political interest.
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The risk continues of our not getting our approach to supporting agents right: -
legal liability; reputational damage; inability to recover debt; loss of control of
compliance and conformance within network. This risk is real and we have seen
it over the last few years. We continue to be accused of not getting our support
for agents’ right when they have accounting difficulties. Part of the Sparrow
conclusions, and recommendation, is that changes should be made to the
business as usual structure so that any such claims are addressed in a
professional and timely manner and that losses are able to be monitored and
mitigated before they escalate. The optic of a recommendation that reduces
audit and intervention resource without evidence that it will not adversely impact
our operational performance and the support we give our agents is not an
attractive one.
The proposal
The importance of repairing the trust and confidence in our network and
demonstrating an operational commitment to support our agents should be
paramount. To this end the table 1 below lays out the activity that we believe
should be designed into any audit related field structure with any reduction in
these levels only coming about after, and if, proper impact assessment and
mitigation can be demonstrated. Table 2 expands explanation.
Ownership of losses would be within the Network Services Area as the levers to
influence these losses would be wholly owned in this area.
Proposed baseline activity
Table 1
petit Ave time toI proposed I Timein I 22, I en I eq I en I cota leoas
wy do (hrs) I baseline I hours ‘otal IFSA's reqi
FOF Service intervention 700 300 2100 7 200 [0 I 2100 I 16
Telephone intervention 100 300 300 1 300 ~I 0 300 02
Finandal Asset Aut 9.00 340 7560 2 7120 I 0 I 16120 I 147
[Compliance Fisk Audit 100 460 460 1 460 I 0 460 04
(Grown Audit FAA® Comp 10.00 100 1000 4 woo [0 4000 I 3a
WHS FAA & Compliance 9.00 40 360 3 7080 I 0 1080 I 08
[Burgary/Robbery Audit 9.00 % Ga 3 2025 I 0 I 2025 I 16
Random Audit 7.00 100 700 2 1400 [0 1400 I 11
206
Table 2
F2F Service intervention - not reduced and no assumption as to a shift to
phone - still need to be seen as available for those who need help. Have not
classed as training as want to maintain accountancy expertise.
Telephone Intervention — not reduced as increased level of analysis should
lead to greater rate of proactive calls - also will function as tier 2 expert domain
for accountancy escalations.
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Financial Risk Asset Audit - 50 type 110 audits per month (600p.a.); 40 type
175 p.a. (suspension follow up and a requirement to visibly demonstrate that
follow-up, including at some non -suspended branches that do not appear high
on risk register).200 type 200 special requests p.a. but not high on risk. All
requests from all sources enter process through central intelligence team.
Compliance Risk Audit - Sue Richardson Included as proportion of FAA audits
as add on, and at all random. Risk (360), Random (100)
Crown Audit FAA & Comp - continue activity as service to crown network if
required
WHS FAA & Compliance — continue service to WHS network if required
Burglary/Robbery Audit - Sue based on current YTD run rate of 6.25 per
period and maintain, however review means of delivery
Random Audit - External audit requirement but review when risk analysis
proves robust
Further, the resource required to deliver the field activity and the desk
intervention should be detached from the multi skilled training and audit team to
form a specialist team led by personnel with the investigative skills and
experience from the Sparrow project, and incorporating HORIce analysis skills
which will form a tier two expert domain for all reactive accounting escalations
NBSC tier one are unable to resolve.
Cost of Resource Required v that in a 14/15 baseline
Total cost per role supplied by finance to Sue Richardson (Inc. pay, T&S, bonus,
lease)
Had this field resource continued to be provided from a 14/15 baseline it would
have been: - FSA £36.7k x 20.6 = £756k and FTL £47.7k x 2 £95.4k = £851.4k
In addition a 3a manager saving has been made from Network Operations
template through temporary secondment to Sparrow which will need to return to
Network Operations and either be accounted for or consulted upon to remove
and VR paid. There is a second 3a role which can return to a temporarily
covered post, therefore 1 x 3a
£66.7k
Budget that would have been available if used 14/15 baseline: - £918.1k
The coast of the proposed structure working within a reporting line Network
Services:-2 x 3a posts from Sparrow = £133.4k and 20.6 x FSA roles @ £36.7k
=£756k. Cost of delivering the proposal: - £889.4k
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saving of £28.7k
p.a.
Further opportunities exist 1:-
As an expert domain for accounting escalations there will be an opportunity to
rationalise that function currently provided within FSC product and branch
accounting where these enquiries land, as this central team team will have the
access and expertise.
Estimated potential further saving from within FSC £49.5k
Further opportunities exist 2:-
As users of the same information the fraud risk and analysis team who approach
the issue from a business risk reduction and investigative perspective could also
be incorporated into the new structure. It is important the two elements remain
a degree of autonomy of operation as a “cry for help” should not be met with a
fraud investigation, but equally it must be recognised that there will be synergies
of operation and savings opportunity
To summarise the commercial security and team of 11 is headed by a
3a and has 2x2a’s and on template 8xPO’s (one of which is listed as
vacant)
Baseline actual cost and activities would need to be quantified but a target of a
20% budget reduction from template by bring team under same umbrella and
rationalising activity to avoid double handling/duplication should not be an
unreasonable objective.