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MIDDLESBROUGH COUNCIL Youth Employment Initiative (YEI) Appendix 1 (LMT) Risk assessment 1. KEY BACKGROUND INFORMATION 1.1 There will be a dedicated YEI Project Team recruited who will be accountable for the overall contractual compliance of the programmes. 1.2 In Middlesbrough the project management will be incorporated into the structure of the Middlesbrough Community Learning service (MCL) who have just completed a very similar project and have the staffing resource to coordinate this type of activity. MCL are one of the larger delivery partners in Middlesbrough and have a vested interest in ensuring that the outputs for the town are met. 1.3 Service level agreements will be compiled for each delivery partner to effectively manage their finances, maintaining evidence and ensuring robust control systems. The project outputs and performance will be reported through the Learning and Skills department with updates to the Executive members for Education and skills and Communities and Public Health. 2. YEI FINANCE 2.1 The YEI is not payment-on-results but instead a ‘payment on actual expenditure incurred’, with the Managing Authority providing funding in arrears on a quarterly basis. This payment method will be mirrored to Delivery Partners and outlined within their Service Level Agreements (SLA) which reduces the financial risk on the five Local Authorities. Evidence will be required for all expenditure incurred before it is claimed and payments will only be made to partners when the funding is received by Hartlepool Borough Council. 2.2 DWP will also retain 10% of the grant funding until the project closes and all evidence is verified which will reduce the risk of future claw-back. 2.3 It is worth noting that all Delivery Partners have confirmed that they: Have the financial capability to deliver their activities prior to being paid in arrears. Have the full match contribution. 2.4 Hartlepool Borough Council has completed due diligence checks on all Delivery Partners and will feedback to each Local Authority if any concerns arise. 2.5 In relation to the YEI Project Team, each of the Local Authorities have committed £40k of match funding for the Contract Officer and Admin Assistants posts with: 1 2.6 Darlington, Redcar and Stockton each employing 1 X Contract Officer and 1 X Admin Assistant. Hartlepool employing 2 X Contract Officers and 2 x Admin Assistants (with Middlesbrough having requested that Hartlepool employ their posts). Each of the Local Authorities are fully aware that redundancy costs cannot be charged against the YEI Project and that these costs will be met from their own budgets. Match Funding Contributions 2.7 The project delivery allocation for Middlesbrough is £4,523,143.00. This means that with a 25% match commitment the joint town partnership would need a match contribution of £1.2m either in cash or in-kind staff time. Each of the providers in paragraph 8.8 have agreed their 25% match funding commitment. 2.8 Middlesbrough Council’s match contribution of £362,659 is being fully met from the following existing service budgets: Stronger Families are providing in-kind staffing match of £293,547 and a cash match of £30,000. Middlesbrough Community Learning is providing a cash match of £39,112 to pay 25% of salaries for Middlesbrough Contract Officer and Admin assistant. 3. RISK ASSESSMENT 3.1 The current draft Risk Sharing agreement is attached as an annex 1 to this report. All the Tees Valley legal teams are currently working on the final detailed aspect of the agreements. 3.2 Hartlepool Borough Council; as Lead Accountable Body, will be required to sign the Offer Letter/Contract for the project. The standard Offer Letter/Contract will contain clawback conditions and DWP may require repayment of any grant funding already drawn down by the Council if, in the opinion of the Managing Authority, Hartlepool Borough Council has failed to comply with the terms and conditions of the Offer Letter/Contract. The primary risks are the inability of delivery partners to meet their outcome targets and clawback due to non compliance. 3.3 In the first instance, where clawback does arise, Hartlepool Borough Council will then seek to clawback the grant funding from the relevant Delivery Partner(s). 3.4 However, if Hartlepool Borough Council is unable to clawback funding from the relevant partner(s) then the five Tees Valley Local Authorities benefitting from YEI have agreed to share the risk. It should be noted that the maximum clawback from the ESF Train to Gain project was just over 2%. In the most recent Workskills project there has been no clawback to date and this project is very similar to the YEI. 2 3.5 Prior to signing the contract from DWP, Hartlepool Borough Council will ensure that each Local Authority has signed a Risk Sharing Agreement which will outline their full financial responsibility in relation to the YEI project. This agreement is has been developed from a meeting attended by all LA finance reps and is currently with the legal team at Hartlepool. 4. 4.1 RISKS (MIDDLESBROUGH) The proposal in this report seeks to develop a partnership of skills providers who are able to provide relevant skills/mentoring support for young people in the area. In paragraph 8.4 the overall project value for Middlesbrough is £5,684m. This is the project value which has to be earned on a payment by expenditure model which is a low risk approach to earning the full contract value. However, there remain some risks to the success of the project, which are highlighted below. a) Financial – Paragraph 10 highlights the financial risk in the form of match funding. The council would be committed to provide £362,659 of match funding over the lifetime of the project. £69k is a cash contribution with the remainder as staff time contributions. Paragraph 10 indicates a risk involving the 2 staff attached to Middlesbrough in that they would have project close down costs. b) ESF Clawback from the DWP due to non compliance. Based on the Train to Gain project Clawback a 2% impact would equate to £443k for the whole partnership and £88,600 for Middlesbrough. c) Outcome management – the risk of not achieving partnership outcomes. The robust project management and previous history with similar projects does negate this risk. In the previous 2 ESF projects it was common for partners to over deliver on outputs. The project steering group will re-direct resources if needed to meet the overall YEI outputs. Within this risk is the very real issue of potential non compliance and therefore withheld payments. This has been addressed with a rigorous approach to project management and regular audit checks. d) Partnership management – This is a multi partner project and as such has a risk against the councils reputation if the partnership was to fail. The staff involved in this project are very experienced at managing multi faceted partnerships for European outcomes and have been very successful on previous occasions. e) Political – Not supporting this project could very well damage the council’s reputation with the neighbouring authorities as they are all dependant on each other supporting the project. In summary the realistic overall financial risk of delivering this project will be in the region of £0 - £450k. This figure includes the commitment for match funding, Clawback and 6k redundancy estimate. 4.2 Delivery Risks to the Community Learning Service The two primary risks are not achieving the KPI’s and the potential of clawback due to non compliance. If the Service didn’t achieve its KPI’s it would not get paid for the activity. The Service has considerable experience in this type of project and ESF management. This will mitigate the likelihood of clawback to a minimum. The Service will maintain 10% income contingency fund for the duration of the project. 3