Direct Payments: Cost-Effective Implementation

Copyright © 2007 Alastor Ltd, All Rights Reserved

Direct Payments:Direct Payments:Cost-Effective Cost-Effective

ImplementationImplementation

Commissioned for the Commissioned for the Department of Health by theDepartment of Health by the

Care Services Efficiency Delivery Programme Care Services Efficiency Delivery Programme (CSED)(CSED)

May 2007May 2007


ContentsContents

• Background, context and approachBackground, context and approach

• Summary of findingsSummary of findings

• The economic caseThe economic case

• Delivering best practiceDelivering best practice

• Benefit realisationBenefit realisation

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Copyright © 2007 Alastor Ltd, All Rights Reserved33

BackgroundBackground and Context and Context• There is a strong political drive towards self-directed support for social care, There is a strong political drive towards self-directed support for social care,

with individual budgets (IBs) due to become the normwith individual budgets (IBs) due to become the norm• Direct payments (DPs) are a recognised mechanism for getting money to Direct payments (DPs) are a recognised mechanism for getting money to

individual clients to access social care services and personal assistance as an individual clients to access social care services and personal assistance as an adjunct/alternative to those services provided by the Local Authority (LA)adjunct/alternative to those services provided by the Local Authority (LA)

• Although DPs have been available to LAs as a means of distributing funds Although DPs have been available to LAs as a means of distributing funds after assessment for ten years, uptake of DP has been variableafter assessment for ten years, uptake of DP has been variable

• DPs are expected increasingly to become the norm. LAs that have promoted DPs are expected increasingly to become the norm. LAs that have promoted DPs have demonstrated that it is a cost-effective approach as well as one that DPs have demonstrated that it is a cost-effective approach as well as one that supports better outcomes for the client in terms of a better and more flexible supports better outcomes for the client in terms of a better and more flexible way of life: “independence, social inclusion and enhanced self-esteem”way of life: “independence, social inclusion and enhanced self-esteem”

• According to the “Choosing Well” report by the Audit Commission, May 2006:According to the “Choosing Well” report by the Audit Commission, May 2006:– “ “Benefits for local authorities include lower administration costs…. and lower Benefits for local authorities include lower administration costs…. and lower

overall costs of provision”. But there is a “perception that LAs and the public would overall costs of provision”. But there is a “perception that LAs and the public would incur additional costs that made introducing choice less desirable”incur additional costs that made introducing choice less desirable”

• This paper focuses on:This paper focuses on:– A “best practice” process model based on LAs that have made DP work effectivelyA “best practice” process model based on LAs that have made DP work effectively– Key best practice elements to support the successKey best practice elements to support the success– Evidence that the adoption of DP can deliver financial as well as social benefitEvidence that the adoption of DP can deliver financial as well as social benefit


ApproachApproach

• Development of the case for DP has applied a Development of the case for DP has applied a Backcast PlanningBackcast Planning approach, working back from the implementation of DP to define approach, working back from the implementation of DP to define what needs to be in place, in terms of policy, organisation what needs to be in place, in terms of policy, organisation structure and processes to deliver DP efficiently and effectivelystructure and processes to deliver DP efficiently and effectively

• Backcast Planning Backcast Planning is therefore based on the future state, where DP is therefore based on the future state, where DP and IB are the norm, and where any redundant costs associated and IB are the norm, and where any redundant costs associated with reduced direct provision of services have been eliminatedwith reduced direct provision of services have been eliminated

• The economic case is therefore based on the IB and DP future The economic case is therefore based on the IB and DP future state, not on a series of incremental stepsstate, not on a series of incremental steps

• The benefit of the The benefit of the Backcast PlanningBackcast Planning approach is that it focuses on approach is that it focuses on the desired outcome (rather than the incremental steps)the desired outcome (rather than the incremental steps)

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SummarySummary

• The study has produced a validated DP process, in terms of what The study has produced a validated DP process, in terms of what needs to be done – leaving free the option of how (in-house or needs to be done – leaving free the option of how (in-house or outsourced, and, if in-house, by which operational function) it is outsourced, and, if in-house, by which operational function) it is donedone

• The study, both top-down and at the detail level, demonstrates The study, both top-down and at the detail level, demonstrates that a properly-implemented DP payment process should be at that a properly-implemented DP payment process should be at least cost neutral, and be potentially beneficial in terms of costleast cost neutral, and be potentially beneficial in terms of cost

• A critical component in achieving a cost neutral implementation of A critical component in achieving a cost neutral implementation of DP is recognition by the LA that DP is not an exception or DP is recognition by the LA that DP is not an exception or incremental process, but is a core component of the care processincremental process, but is a core component of the care process

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The Economic CaseThe Economic Case(DP Processes)(DP Processes)• Setting up the Direct Setting up the Direct

Payments Support Service Payments Support Service (DPSS) is an incremental cost(DPSS) is an incremental cost

• Once the DPSS and DP have Once the DPSS and DP have been implemented, this will been implemented, this will be offset by significant be offset by significant savings in the payment savings in the payment process and by elimination of process and by elimination of redundant costs in the direct redundant costs in the direct provision functionsprovision functions

• The detailed process model is The detailed process model is available separatelyavailable separately

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The Economic CaseThe Economic Case(DP Payments)(DP Payments)• Current (Direct Provision)Current (Direct Provision)

• Future (Direct Payments)Future (Direct Payments)

• The only incremental cost is related to any additional BACS The only incremental cost is related to any additional BACS payments to clients (over and above those paid to service payments to clients (over and above those paid to service providers), offset by savings in the PO/timesheet/invoice providers), offset by savings in the PO/timesheet/invoice reconciliation and payment processesreconciliation and payment processes

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Funder

(the LA)

ServiceProvider(a PA?)

Variable monthly paymentBased on PO, timesheet & invoice

Funder

(the LA)

ServiceProvider(a PA?)

Buyer

(the client)

Fixed monthly (orone-off) payment


The Economic CaseThe Economic Case(Transition to DP and IB)(Transition to DP and IB)• The way in which costs and The way in which costs and

savings accrue to the LA will savings accrue to the LA will depend on the migration depend on the migration sequence to a new operating sequence to a new operating systemsystem

• Prioritising IB (a) will set up Prioritising IB (a) will set up the appropriate infrastructure the appropriate infrastructure for managing DP paymentsfor managing DP payments

• Prioritising DP (b) will, by Prioritising DP (b) will, by implication, set up a implication, set up a significant component for significant component for future IB provisionfuture IB provision

1010

IBImplementation

DPImplementation

a

b


The Economic CaseThe Economic Case(Transition to DP)(Transition to DP)• It is recognised that in the transition process to DP there may be a It is recognised that in the transition process to DP there may be a

period when DP costs are incurred without commensurate savings period when DP costs are incurred without commensurate savings in direct provisionin direct provision

• It is critical that, once DP is established, redundant costs are taken It is critical that, once DP is established, redundant costs are taken out of direct provisionout of direct provision

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Total Costs

DP Implementation Timescale

Cost of direct provision

Cost of direct payments

Total cost (of payments)


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Policy Prerequisites for Best Policy Prerequisites for Best Practice Practice • Recognise that DPs and IBs are the way of the future and support the Recognise that DPs and IBs are the way of the future and support the

initiative:initiative:– ““Choosing Well” by the Audit Commission May 2006: “Benefits for local Choosing Well” by the Audit Commission May 2006: “Benefits for local

authorities include lower administration costs…. and lower overall costs of authorities include lower administration costs…. and lower overall costs of provision”provision”

• Consequently, treat DPs as the norm rather than as an exception. Consequently, treat DPs as the norm rather than as an exception. Exception management will always generate additional costs:Exception management will always generate additional costs:– ““Choosing Well” by the Audit Commission May 2006: “DP users bear a higher Choosing Well” by the Audit Commission May 2006: “DP users bear a higher

proportion of fixed and overhead costs compared with the much larger number proportion of fixed and overhead costs compared with the much larger number of domiciliary social care clients”of domiciliary social care clients”

• Actively seek to change the hearts and minds of practitioners and Actively seek to change the hearts and minds of practitioners and administrators, and provide effective training to support DP as “business administrators, and provide effective training to support DP as “business as usual”. Recognise that:as usual”. Recognise that:– The change to DPs does not change the provision of care and accountability for The change to DPs does not change the provision of care and accountability for

itit– Many of the activities carried out under a DP regime (e.g. interviewing and Many of the activities carried out under a DP regime (e.g. interviewing and

recruitment of PAs, requisition of services etc.) would also be carried out or paid recruitment of PAs, requisition of services etc.) would also be carried out or paid for in a direct provision environmentfor in a direct provision environment

– The focus on outcomes means that more is available than “care hour £”The focus on outcomes means that more is available than “care hour £”• Develop a pragmatic policy to simplify administration (contracts etc.) and Develop a pragmatic policy to simplify administration (contracts etc.) and

financial risk management processes (adopting new lighter touch CIPFA financial risk management processes (adopting new lighter touch CIPFA guidelines)guidelines)

• As the proportion of DPs and IBs increases, actively seek toAs the proportion of DPs and IBs increases, actively seek toredeploy administrative effort away from redundant redeploy administrative effort away from redundant procedures and processesprocedures and processes


Planning to Deliver Best Planning to Deliver Best PracticePractice• Create a Direct Payments Support Service (DPSS) function that helps clients Create a Direct Payments Support Service (DPSS) function that helps clients

(and, where appropriate, their PAs) to set up and administer funds under a DP (and, where appropriate, their PAs) to set up and administer funds under a DP regimeregime

• Make an initial investment to ensure that DPs are the normMake an initial investment to ensure that DPs are the norm• Provide effective training for relevant LA staff and practitioners Provide effective training for relevant LA staff and practitioners • Help clients to fulfil their statutory obligation to use a discrete bank account (or Help clients to fulfil their statutory obligation to use a discrete bank account (or

accepted alternative financial arrangement) to manage DPs when there are accepted alternative financial arrangement) to manage DPs when there are multiple paymentsmultiple payments

• Set up simplified and easily-understandable contracts for individual clients to Set up simplified and easily-understandable contracts for individual clients to use with service providersuse with service providers

• Where clients are less likely to be able to provide accurate information for Where clients are less likely to be able to provide accurate information for regular reviews, help them to use payroll services to guarantee that provisionregular reviews, help them to use payroll services to guarantee that provision

• During assessment and implementation, focus on outcomes, not care hour £ During assessment and implementation, focus on outcomes, not care hour £ equivalentsequivalents

• There is an upfront cost, but applying best practice is worth the investment. As There is an upfront cost, but applying best practice is worth the investment. As identified by the Audit Commission in “Choosing Well”, however, “when choice identified by the Audit Commission in “Choosing Well”, however, “when choice is introduced is introduced inefficientlyinefficiently, it can add to costs and reduce value for money”, it can add to costs and reduce value for money”


Delivering Best Practice Delivering Best Practice

• The rest of this presentation sets out best practice guidance for The rest of this presentation sets out best practice guidance for handling DPs, based on components of DP processes already handling DPs, based on components of DP processes already implemented by a number of LAs implemented by a number of LAs

• Implementing “best practice” guidance as set out in this Implementing “best practice” guidance as set out in this presentation will limit additional DP implementation costs incurred presentation will limit additional DP implementation costs incurred by LAsby LAs

• The model represents “what” needs to be done rather than “how”. The model represents “what” needs to be done rather than “how”. It is not proscriptive: LAs are free to implement alternative It is not proscriptive: LAs are free to implement alternative processes for managing DP payments, including the use of in-processes for managing DP payments, including the use of in-house and external resourceshouse and external resources

• If the LA proposed (alternative) method of payment for DP If the LA proposed (alternative) method of payment for DP imposes significant cost increases, particularly when compared to imposes significant cost increases, particularly when compared to the “best practice” guidance, the proposed DP payment method is the “best practice” guidance, the proposed DP payment method is inappropriateinappropriate

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Provide DP Support ServiceProvide DP Support Service

• The DP Support Service is a key element of effective service provision. It drives The DP Support Service is a key element of effective service provision. It drives and champions DP across the LA, with practitioners and with clientsand champions DP across the LA, with practitioners and with clients

• It offers, where appropriate:It offers, where appropriate:– Support to clients to set up bank accounts and payroll servicesSupport to clients to set up bank accounts and payroll services– Support to clients to procure services and recruit PAsSupport to clients to procure services and recruit PAs– Brokerage of information on service suppliersBrokerage of information on service suppliers

• As part of its core function, the DPSS also:As part of its core function, the DPSS also:– Sets up contracts with individual clientsSets up contracts with individual clients– Manages payment to clientsManages payment to clients– Manages financial reviews and (where appropriate) risk reviewsManages financial reviews and (where appropriate) risk reviews– Offers training to practitioners and administratorsOffers training to practitioners and administrators

• The LA may manage all of these in-house, but may also outsource service The LA may manage all of these in-house, but may also outsource service provision to a third party or set up a separate organisation internally and treat it provision to a third party or set up a separate organisation internally and treat it as a third partyas a third party

• The DPSS represents a management cost to the LA for the DP advocacy role, but The DPSS represents a management cost to the LA for the DP advocacy role, but all other incremental costs are offset by:all other incremental costs are offset by:– Improved/reduced processes and effort elsewhereImproved/reduced processes and effort elsewhere– Transition of effort from redundant activitiesTransition of effort from redundant activities


Process ModelProcess Model

The detaileddirect payments process model

is available separately


Key Process DifferencesKey Process DifferencesTraditional Direct Provision Direct Payments / IBs

May not always account for individual May not always account for individual client funding (though many have client funding (though many have reference)reference)

Funding is allocated to individual Funding is allocated to individual clientclient

Client does not manage finance or Client does not manage finance or need bank accountneed bank account

Client needs bank account (or Client needs bank account (or alternative)alternative)

Provision of care controlled and Provision of care controlled and prescriptiveprescriptive

Multiple options for service provisionMultiple options for service provision

Where PAs are used, the HR element Where PAs are used, the HR element of PA recruitment handled internally of PA recruitment handled internally or by outsourced supplieror by outsourced supplier

Where the client recruits a PA and the Where the client recruits a PA and the client so requests, DP Support Service client so requests, DP Support Service (DPSS) will help to advertise, (DPSS) will help to advertise, interview, CRB check etc.interview, CRB check etc.

Monthly, variable supplier payment by Monthly, variable supplier payment by LA based on match of purchase order, LA based on match of purchase order, supplier timesheet and invoicesupplier timesheet and invoice

Standard monthly BACS transfer to Standard monthly BACS transfer to client once the budget and financial client once the budget and financial arrangement have been set uparrangement have been set up

Review linked to payment matchingReview linked to payment matching Annual review (or sample)Annual review (or sample)

No (client) risk-based financial reviewNo (client) risk-based financial review Review after initial three months, Review after initial three months, additional reviews in line with (client) additional reviews in line with (client) risk profilerisk profile


Significant SavingsSignificant Savings• Implemented as a supplier payment process in Accounts Payable, DP Implemented as a supplier payment process in Accounts Payable, DP

payments by the LA should incur only additional BACS transaction costs…payments by the LA should incur only additional BACS transaction costs…

• ……while generating significant savings from the simplification of the payment while generating significant savings from the simplification of the payment processprocess

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Traditional Direct Provision

Set up payeeSet up budgetProcess requisitionProduce purchase orderReceive/process timesheetProcess invoiceMatch PO, timesheet & invoiceAuthorise paymentMake (variable) payment

Direct Payment

Set up payeeSet up support plan/fundingSet up monthly payment

Make (fixed) payment


Main DPSS Process ElementsInitiate DP

Process for Individual

Provide DPSupport Service

Service Delivery(meet Outcomes)

PaymentManagement

RiskManagement

Subsequent pages show how direct payments arenot only cost-neutral for

LAs in comparison todirect provision,

but can also demonstrate real savings


What is InvolvedWhat is Involved• Set up client details and budgetsSet up client details and budgets

• Complete contract for DPComplete contract for DP

• Make initial payment to fund DP Make initial payment to fund DP setupsetup

• Agree support planAgree support plan

Cost Cost neutralneutral vs. direct provision vs. direct provision• Many authorities already track Many authorities already track

individual clients for timesheet individual clients for timesheet cross-reference to supplier cross-reference to supplier invoicesinvoices

• Budgets are a prerequisite for Budgets are a prerequisite for IBsIBs

• Use of existing accounts payable Use of existing accounts payable procedures and systems procedures and systems minimises costminimises cost

Best Practice guidanceBest Practice guidance• Simple standardised contracts Simple standardised contracts

and terms for clientsand terms for clients

• Standardise initial paymentStandardise initial payment

• Treat each client as a “supplier” Treat each client as a “supplier” for payments by standard for payments by standard accounts payable procedures accounts payable procedures including payment authorisation including payment authorisation and budget trackingand budget tracking

Financial cost/benefitsFinancial cost/benefits• No effective changeNo effective change

Initiate DP Process for Initiate DP Process for IndividualIndividual


DP Support Service: Advisory DP Support Service: Advisory What is InvolvedWhat is Involved• Provide help and support to clients Provide help and support to clients

to set up and run DPsto set up and run DPs

• Also manage financial Also manage financial administration and risk reviewsadministration and risk reviews

Small Small extraextra cost vs. direct cost vs. direct provisionprovision

• The advisory element of the DPSS The advisory element of the DPSS represents an additional represents an additional management cost, offset by management cost, offset by process savings in other areasprocess savings in other areas

Best Practice guidanceBest Practice guidance• Regard DP as the normRegard DP as the norm

• Apply rigour and energy – develop Apply rigour and energy – develop procedures and apply themprocedures and apply them

• Do not double count cost – actively Do not double count cost – actively redeploy administrative resource redeploy administrative resource for direct provision as DP volume for direct provision as DP volume increasesincreases

• Effective advocacy through user-led Effective advocacy through user-led organisationsorganisations

Financial cost/benefitsFinancial cost/benefits• Small additional management Small additional management

overheadoverhead


What is InvolvedWhat is Involved• Provide help and support to Provide help and support to

minority of clients who do not minority of clients who do not have a discrete bank account have a discrete bank account and need to set one upand need to set one up

• Manage (or facilitate Manage (or facilitate management of) third party management of) third party supported account where supported account where appropriateappropriate

• Support alternative financial Support alternative financial arrangements where policy arrangements where policy dictatesdictates


• Additional management cost Additional management cost

• Only for the small proportion of Only for the small proportion of clients that require supportclients that require support

Best Practice guidanceBest Practice guidance• Several LAs outsource this Several LAs outsource this

process to third parties process to third parties effectivelyeffectively

Financial cost/benefitsFinancial cost/benefits• Small additional management Small additional management

overheadoverhead

DP Support Service: Bank DP Support Service: Bank Account Account


What is InvolvedWhat is Involved• Facilitate provision of payroll Facilitate provision of payroll

service for PAs and other service service for PAs and other service providers directly employed by providers directly employed by clientsclients

• Statistics show that while many Statistics show that while many clients do provide accurate and clients do provide accurate and timely information, it is more timely information, it is more consistently provided for clients consistently provided for clients using a payroll serviceusing a payroll service


• Additional management cost if Additional management cost if not recharged to clientsnot recharged to clients

• Only for a proportion of Only for a proportion of providers:providers:

– Not self-employed staff, agency Not self-employed staff, agency staff, or support organisationsstaff, or support organisations

• Only for those clients requiring Only for those clients requiring support support

• For both DP and direct provision, For both DP and direct provision, PAs and service providers have PAs and service providers have to be paidto be paid

Best Practice guidanceBest Practice guidance• Actively seek accurate and Actively seek accurate and

timely financial information, and timely financial information, and encourage use of payroll service encourage use of payroll service where there is a risk this will not where there is a risk this will not be providedbe provided

• Manage through third party Manage through third party suppliersupplier

• Optionally charge the clientOptionally charge the client

Financial cost/benefitsFinancial cost/benefits• Additional overhead for setting Additional overhead for setting

up and managing serviceup and managing service

• Broadly cost-neutral (as PAs Broadly cost-neutral (as PAs have to be paid in both have to be paid in both scenarios) scenarios)

• Some LAs cross-charge Some LAs cross-charge additional payroll costs to the additional payroll costs to the clientclient

DP Support Service: Payroll DP Support Service: Payroll ServiceService


What is InvolvedWhat is Involved• Help clients to find suitable Help clients to find suitable

service providers, including service providers, including agency suppliers and support agency suppliers and support organisationsorganisations

• Where the service is provided by Where the service is provided by a directly-employed PA, or where a directly-employed PA, or where help with interviewing individuals help with interviewing individuals is required, HR support is is required, HR support is available via the DPSS (see next available via the DPSS (see next page)page)


• Additional cost for “helpdesk” Additional cost for “helpdesk” functionfunction

• Minimal requirement for Minimal requirement for providers identified via relatives providers identified via relatives and friendsand friends

• For both DP and direct provision For both DP and direct provision there is a sourcing requirementthere is a sourcing requirement

Best Practice guidanceBest Practice guidance• LAs may wish to continue to LAs may wish to continue to

negotiate with agency, support negotiate with agency, support organisation and other providers organisation and other providers to achieve economies of scaleto achieve economies of scale

• There is an option to outsource There is an option to outsource sourcing advice to a third party sourcing advice to a third party

Financial cost/benefitsFinancial cost/benefits• Small additional overhead for Small additional overhead for

setting up support functionsetting up support function

• Broadly cost-neutral (as services Broadly cost-neutral (as services have to be sourced in both have to be sourced in both scenarios) scenarios)

DP Support Service: Sourcing DP Support Service: Sourcing AdviceAdvice


What is InvolvedWhat is Involved• Manage recruitment of a PA Manage recruitment of a PA

(self-employed or agency), (self-employed or agency), including help where appropriate including help where appropriate with job description, with job description, interviewing, CRB check, interviewing, CRB check, contract, liability insurance, contract, liability insurance, holiday cover etc.holiday cover etc.

Cost Cost neutralneutral vs. direct provision vs. direct provision• All components required only All components required only

when requested by client directly when requested by client directly recruiting and employing staffrecruiting and employing staff

• Interview help may be needed Interview help may be needed with agency or support with agency or support organisationorganisation

• For both DP and direct provision For both DP and direct provision there is a recruitment process, there is a recruitment process, either by in-house staff or paid either by in-house staff or paid for as part of an outsourced for as part of an outsourced serviceservice



• There is an option to outsource There is an option to outsource HR and recruitment advice to a HR and recruitment advice to a third party third party

Financial cost/benefitsFinancial cost/benefits• Cost-neutralCost-neutral

DP Support Service: DP Support Service: HR/RecruitmentHR/Recruitment


What is InvolvedWhat is Involved• Maintain an overview of supplier Maintain an overview of supplier

(agency) costs and capabilities(agency) costs and capabilities

• Act as a broker to provide this Act as a broker to provide this information to clients where information to clients where appropriate, thus providing appropriate, thus providing additional benefit and managing additional benefit and managing cost basecost base

Cost Cost neutralneutral vs. direct provision vs. direct provision• Minimal effort, more than offset Minimal effort, more than offset

by reduced cost of procurement by reduced cost of procurement of direct provisionof direct provision

• The LA role is the provision of The LA role is the provision of information, not the information, not the procurement process (on behalf procurement process (on behalf of the client)of the client)



• There is an option to outsource There is an option to outsource HR and recruitment advice to a HR and recruitment advice to a third party third party

Financial cost/benefitsFinancial cost/benefits• No effective changeNo effective change

DP Support Service: BrokerageDP Support Service: Brokerage


DP Support Service: TrainingDP Support Service: TrainingWhat is InvolvedWhat is Involved• Provide training to practitioners, Provide training to practitioners,

administrators and (where administrators and (where appropriate) clientsappropriate) clients

• Critical for a smooth process and Critical for a smooth process and “buy in” to DP“buy in” to DP

Cost Cost neutralneutral vs. direct provision vs. direct provision• Initially seen by LAs as a cost Initially seen by LAs as a cost

because it is a new processbecause it is a new process

• Once DP is incorporated into Once DP is incorporated into normal training cycles it will be normal training cycles it will be cost neutralcost neutral

Best Practice guidanceBest Practice guidance• Introduce as part of normal Introduce as part of normal

training cycle with ad hoc training cycle with ad hoc support availablesupport available

Financial cost/benefitsFinancial cost/benefits• Cost-neutral after initial Cost-neutral after initial

training/conversiontraining/conversion


Service Delivery (out of scope)Service Delivery (out of scope)What is InvolvedWhat is Involved• Focus on outcomes, so many Focus on outcomes, so many

potential approachespotential approaches

• Delivery of a creative range of Delivery of a creative range of services (not just domiciliary or services (not just domiciliary or day centre care)day centre care)

• No reduction in quality to clientNo reduction in quality to client

Cost Cost savingssavings vs. direct provision vs. direct provision• ““Benefits for local authorities Benefits for local authorities

include lower administration include lower administration costs…. and lower overall costs costs…. and lower overall costs of provision” (Audit Commission of provision” (Audit Commission May 2006):May 2006):

– For most authorities, hourly cost For most authorities, hourly cost of care is less when directly of care is less when directly contracted, even when compared contracted, even when compared to block contractsto block contracts

– Reduced volume of Reduced volume of commissioning and supplier commissioning and supplier tender managementtender management

Best Practice guidanceBest Practice guidance• Use third party to manage Use third party to manage

payroll services (with client payroll services (with client agreement)agreement)

• Continue to review supplier Continue to review supplier costs, and broker information costs, and broker information accordinglyaccordingly

• LAs may still be able to exploit LAs may still be able to exploit volume discounts on behalf of volume discounts on behalf of clientsclients

Financial cost/benefitsFinancial cost/benefits• Ability to redeploy resources Ability to redeploy resources

associated with administration of associated with administration of traditional direct provision as traditional direct provision as volumes decreasevolumes decrease


Payment ManagementPayment ManagementWhat is InvolvedWhat is Involved• Once direct payment has been Once direct payment has been

set up, a BACS payment is made set up, a BACS payment is made monthly to the client’s bank monthly to the client’s bank account (or alternative)account (or alternative)

Cost Cost savingssavings vs. direct provision vs. direct provision• Simple BACS payment replaces Simple BACS payment replaces

significant financial processing significant financial processing for direct provisionfor direct provision

• Direct provision usually requires Direct provision usually requires monthly reconciliation of monthly reconciliation of variable supplier payments variable supplier payments based on the match of purchase based on the match of purchase order, timesheet and invoiceorder, timesheet and invoice

Best Practice guidanceBest Practice guidance• Treat each client individually as Treat each client individually as

a “supplier” for payments by a “supplier” for payments by standard accounts payable standard accounts payable procedures including payment procedures including payment authorisation and budget authorisation and budget trackingtracking

Financial cost/benefitsFinancial cost/benefits• Significant savings of Significant savings of

administrative process by administrative process by reducing three-way reducing three-way reconciliation and variable reconciliation and variable supplier paymentssupplier payments


Risk ManagementRisk ManagementWhat is InvolvedWhat is Involved• Regular financial (and care) Regular financial (and care)

reviewsreviews

• CIPFA recommends “light touch”:CIPFA recommends “light touch”:– Minimum requirement: three Minimum requirement: three

months after programme starts; months after programme starts; annual check of bank account annual check of bank account and paperworkand paperwork

– Additional quarterly or ad hoc Additional quarterly or ad hoc review as required based on risk review as required based on risk or requestor request

• Potential for claw back of unused Potential for claw back of unused funds (where and when funds (where and when appropriate)appropriate)

Cost Cost savingssavings vs. direct provision vs. direct provision• Annual reviews of client bank Annual reviews of client bank

statements/paperwork equate to statements/paperwork equate to monthly accounts payable monthly accounts payable reconciliations to vendor reconciliations to vendor statementsstatements

• Risk-led or requested financial Risk-led or requested financial reviews are an extra, but by reviews are an extra, but by exceptionexception

• Still need care reviews– no Still need care reviews– no changechange

Best Practice guidanceBest Practice guidance• Balance light touch and Balance light touch and

appropriate diligence, in line with appropriate diligence, in line with new CIPFA guidelinesnew CIPFA guidelines

• Only carry out more frequent Only carry out more frequent reviews where justified by the reviews where justified by the risk reduction or benefits (e.g. risk reduction or benefits (e.g. claw back)claw back)

Financial cost/benefitsFinancial cost/benefits• Light touch minimises additional Light touch minimises additional

costcost

• Overall cost reduction when Overall cost reduction when compared to monthly three way compared to monthly three way matching and payment matching and payment authorisation (see Payment authorisation (see Payment Management)Management)


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Benefit RealisationBenefit Realisation• DP implementation will be recognisably successful when the following DP implementation will be recognisably successful when the following

Recognition EventsRecognition Events TM TM occur: occur:– DP is a standard payment procedure within the LADP is a standard payment procedure within the LA– The deployment of DP is a standard component of all LA sourcing strategiesThe deployment of DP is a standard component of all LA sourcing strategies– DPs (including charging, paying, monitoring, review and claw back) are routine DPs (including charging, paying, monitoring, review and claw back) are routine

Accounts Payable activitiesAccounts Payable activities– The only direct, additional cost that DPs incur are direct BACS transaction costsThe only direct, additional cost that DPs incur are direct BACS transaction costs– Redundant costs (management and administration) of direct provision have been Redundant costs (management and administration) of direct provision have been

eliminatedeliminated– DP training is provided to all relevant council staff, partner agency staff, information DP training is provided to all relevant council staff, partner agency staff, information

providers and DP recipientsproviders and DP recipients– All eligible clients are offered the DP option (at initial contact, assessment and review)All eligible clients are offered the DP option (at initial contact, assessment and review)– Support for people about to, and using, DP is readily availableSupport for people about to, and using, DP is readily available– DP is promoted by, and to, staff as a standard optionDP is promoted by, and to, staff as a standard option

• A number of these components have also been included in A number of these components have also been included in the self assessment tool the self assessment tool

Documents

Direct Payments: Cost-Effective Implementation