Financial Memorandum for the Office for Legal Complaints

Financial Memorandum for the
Office for Legal Complaints

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Financial Memorandum for the Office for Legal Complaints (OLC)
Contents

I. Introduction
3

II. Principles
3

III. Income and expenditure – general
4

IV. Income
7

V. Expenditure on staff
8

VI. Non-staff expenditure
9
VII. Management and disposal of fixed assets
13
VIII. Budgeting procedures
13

IX. Banking
14

X. Compliance with instructions and guidance
15

XI. Review of financial memorandum
16

Annex A
17

Annex B
18

Annex C
19
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Financial Memorandum for the Office for Legal Complaints (OLC)
I. Introduction

1. This financial memorandum, between the Ministry of Justice (MoJ) and
the Office of Legal Complaints (OLC), forms part of the Management
Statement, and sets out in greater detail the financial framework within
which the OLC is required to operate. Throughout this document references
to the MoJ refer to the Sponsor Team as the first point of contact.

2. OLC shall satisfy the terms and conditions set out in the combined
document, together with such other conditions, guidelines and directions as
the MoJ may from time to time require after consultation with the OLC, in
order that the MoJ Departmental Accounting Officer (DAO) may fulfil his
responsibilities.

3. This document will be jointly reviewed by the MoJ and OLC prior to the
OLC becoming ful y operational and thereafter it will be reviewed at least at
regular three year intervals. The OLC will consult the LSB during its review
of this document.
II. Principles

4. The Legal Services Act 2007 provides that the establishment and operations
of the OLC, the Ombudsman Scheme (and the LSB) should be ful y funded
by the legal profession, by a combination of levy and case fees and at no net
cost to the public purse.

5. The LSB is responsible for the approval of the OLC’s expenditure budget as
well as the preparation of its own expenditure budgets and will involve the
MoJ at an early stage to enable the formal mandatory delegation process
to be completed. The OLC and the LSB will further agree with the MoJ an
amount of levy and case fees which are appropriate for the recovery of the
costs of the OLC.

6. It is understood that timing differences may arise between the cost of
establishment and /or operations and the amount of levy or case fees
collectible in any one year, however once ful y operational, the income and
expenditures of these activities should be balanced over the medium term and
in practice the operating expenses of the OLC (and the LSB) should be equal
to the sum of the levy and case fees raised over a rolling three year period.

7. The mechanism by which this funding and any timing differences is operated
provides that expenditures of the OLC and the LSB are directly funded by
grant-in-aid provided through the MoJ and ring-fenced against amounts
collected by the OLC and LSB in the forms of levies and case fees paid
directly into the Consolidated Fund.

8. Any surplus or deficit in operating (or set-up) expenditures as compared
to receipts will be dealt with by amendments to future receipts or
expenditures, necessary to meet the statutory objectives of the OLC and
LSB. Any surplus which may arise in any given period will be recognised by
the Consolidated Fund /MoJ as being funds of the legal profession until such
time as the appropriate adjustments to income or expenditures have been
made through the business planning process.
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Financial Memorandum for the Office for Legal Complaints (OLC)

9. Although not directly funded by government, the OLC recognises that
the mechanism described above cal s for the funds to be treated as
Public Expenditure and it wil therefore ensure that it ful y complies
with the principles of Managing Public Money. It recognises the MoJ’s
responsibilities, as the sponsoring department to ensure that such
compliance is carried out.
10. The OLC will be responsible for the establishment of the processes,
procedures, reports and management controls that are considered
necessary to ensure that it meets its statutory obligations and to comply
with the principles laid down in Managing Public Money.

11. As described in relation to performance information in the management
statement, there wil be, as far as is possible, a single information framework
on financial management designed to meet the needs of the OLC Board,
the MoJ and the LSB.
12. The MoJ will be responsible for assuring itself that the appropriate
processes, procedures and management controls have been put in place
and will rely on such controls to ensure that its own obligations as to the
stewardship of the funds which pass through it are met.
13. This Financial Memorandum recognises the role that the MoJ has in
ensuring that the OLC acts with propriety in the use of these public monies
and should help ensure that such proprietary is assured without restricting
or fettering the OLC in carrying out its statutory responsibilities.
III. Income and expenditure – general
14. The Departmental Expenditure Limit (DEL)
The OLC’s current and capital expenditure form part of the Ministry
of Justice (MoJ) Resource DEL and Capital DEL respectively. General
Guidance on the interpretation of Resource Accounting and budgeting
rules is contained within Managing Public Money.
• All resource is provided by the MoJ directly to the OLC in the form
of Grant in Aid.
• All levy income from approved regulators will be collected, on behalf
of the OLC, by the Legal Services Board (LSB), and surrendered to the
Consolidated Fund by the LSB. All case fee income will be collected,
by the OLC and surrendered to the Consolidated Fund.
• Under the Legal Services Act 2007, the LSB approve the OLC budget, and
will then recommend said budget to the MoJ. Once the budget is agreed,
the MoJ will formal y delegate a resource budget to the OLC.
15. Expenditure not proposed in the budget
The OLC shall not, unless provided for elsewhere in this financial
memorandum or without prior written approval, of both the LSB and the
MoJ, enter into any undertaking to incur any expenditure which fal s outside
the OLC delegations or which is not provided for in the OLC annual budget
as approved by the LSB and the MoJ, subject to the LSB and OLC agreeing
to vary that budget under Schedule 15 paragraph 23 (2) of the Legal
Services Act 2007.
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Financial Memorandum for the Office for Legal Complaints (OLC)
16. Procurement
The OLC shal :
• ensure its procurement policies are consistent with the Office of
Government Procurement (OGC), Government (Annex 4.4 of Managing
Public Money) and MoJ procurement guidelines and policies;
• comply with all legal obligations including those under the European
Communities’ Procurement rules and other international agreements;
• ensure that its staff are ful y aware of relevant Procurement, policies,
guidance, and, in particular, relevant delegations;
• put in place a procurement framework which sets out its procurement
structure, organisation, processes and control mechanisms. The MoJ
wil provide OLC with a statement of delegated authority for general
procurement; and
• periodical y and wherever practicable undertake benchmarking against
best practice elsewhere;
The NAO and the Internal Auditors will carry out procurement audit and
inspection. The Internal Auditors will have recourse to MoJ procurement
as required to properly fulfil their functions on behalf of OLC.

17. Competition
Goods and services, including works, should be acquired by competition
unless there are compel ing reasons to the contrary.
Proposals to let single-tender or restricted contracts shall be subject to
the overarching procurement delegation as specified by the MoJ and
the OLC shall keep a record of those which are let.
18. Value for money
Procurement by the OLC of goods and services, including works, is to be
based on value for money, having due regard to propriety and regularity.
Value for money is the optimum combination of whole-life cost and quality
(or fitness for purpose) to meet the user’s requirement.
Where appropriate, a full investment option appraisal shall be carried out
and procurement strategy produced before procurement decisions are taken.
As a general principle, al Investment schemes must be supported by
an approved business case.
Capital projects outside of the delegated authority limits will be subject
to MoJ investment programme governance.
Progress on capital expenditure must be monitored by OLC and reported
to MoJ within its resource reporting mechanism.
19. Separation of duties
The OLC shall ensure that the roles and responsibilities of staff with respect to
procurement are clearly defined and that there is adequate separation of duties.
There should be separation of financial authority and purchasing authority.
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Financial Memorandum for the Office for Legal Complaints (OLC)
20. Timeliness in paying bills
The OLC shall collect receipts and pay all matured and properly authorised
invoices in accordance with the terms of contracts or within 30 days, as
provided for in Annex 4.6 of Managing Public Money and, as far as possible,
with the target set by BIS for payments to small and medium sized entities
(currently 10 days).
The OLC shall comply with the British Standard for Achieving Good Payment
Performance in Commercial Transactions (BS 7890), and with the Late
Payment of Commercial Debts (Interest) Act 1998 as amended. The 1998
Act al ows creditors to claim statutory interest and compensation on late
payment of commercial debts.
21. Novel, contentious or repercussive proposals
The OLC shall obtain the approval of the MoJ and, where appropriate
OLC will have the right of appeal to HM Treasury via the MoJ, before:
• incurring any expenditure, for any purpose which is or might be
considered novel or contentious;
• making any significant change in the scale of operation or funding of any
initiative or particular scheme which is subject to specific approval or
funding by the MoJ;
• making any change of policy or practice which has wider financial
implications (eg. because it might prove repercussive among other public
sector bodies);
• making any change of policy or practice which may result in significant
future funding requirements beyond that which is provided for within the
indicative DEL al ocations.
22. Risk management
The OLC shal :
• ensure that the risks, which it faces are dealt with in an appropriate
manner, in accordance with relevant aspects of best practice in corporate
governance, and shall develop a risk management strategy, in accordance
with the HM Treasury guidance Management of Risk: A Strategic
Overview and the MoJ Guide: Risk Management;
• adopt and implement policies and practices to safeguard itself against
fraud and theft, in line with the Treasury’s guide Managing the Risk of
Fraud and the MoJ’s fraud guidance and practice;
• take all reasonable steps to appraise the financial standing of any firm
or other body with which it intends to enter into a contract;
• provide the MoJ copies of its risk register on a quarterly basis (the MoJ
will inform the OLC of any risks which feature in the MoJ’s risk log).
23. Wider markets
Wider markets policy seeks to maximise receipts from new business
activity from non-Exchequer sources; for the purposes of this Financial
Memorandum, wider markets excludes income from the OLC’s core activity
such as training, seminars, publications and incidentals services in line with
Fees and Charges Guide.
The OLC must assure itself that any wider markets activity not directly related
with the OLC core activity is intra-vires and should seek MoJ approval.
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Financial Memorandum for the Office for Legal Complaints (OLC)
IV. Income
24. Grant-in-aid
Grant-in-aid will normal y be paid to the OLC in monthly instalments, on
the basis of a written application from the OLC, showing evidence of need
and supported by a cash flow forecast. The application shall certify that the
conditions applying to the use of grant-in-aid have been observed to date
and that further grant-in-aid is now required for purposes appropriate to
the OLC functions and be authorised by the Finance Director OLC.
The OLC should have regard to the general principle enshrined in Annex 5.1
of Managing Public Money that it should seek grant-in-aid according to need.
Cash balances accumulated during the course of the year from grant in-aid
or other Exchequer funds shall be kept at the minimum level consistent with
the efficient operation of the OLC.
Grant-in-aid not drawn down by the end of the year shall lapse. However,
where draw-down of grant-in-aid is delayed to avoid excess cash balances at
year-end, the MoJ will make available in the next financial year – subject to
approval by Parliament of the relevant Estimates provision – any such grant-in-
aid which is required to meet any liabilities at year end, such as creditors.
25. End-year flexibility
As set out in PES (2000) 25, the MoJ will aim to set firm multi-year plans
and cascade end-year flexibility (EYF) on budgets where possible. EYF for
individual Arms Length Bodies is not automatic; however, the MoJ will aim
to apply the following principles:
• ahead of the year in question, a rolling three-year budget, fixed for at least
the first year and with indicative amounts for subsequent years, will be
delegated by the MoJ to the OLC, fol owing agreement with the LSB
(Legal Services Act Schedule 15 paragraph 23) and their recommendation
to, and approval by, the MoJ;
• make adjustments to the MoJ parliamentary Estimates and the OLC
budget delegation, as necessary, during the year to take account of
fluctuations, given that receipts surrendered to the Consolidated Fund
and resource requirements will be subject to timing differences.
26. Receipts from sale of goods or services
Such receipts are classified as negative public expenditure providing
additional DEL. The OLC, or the LSB on its behalf, will surrender al
receipts described under section 175 of the Legal Services Act 2007 to
the Consolidated Fund, and they are classified as a tax within public sector
classification. If there is any doubt about the correct classification of a
receipt the OLC shall consult the MoJ, who will provide guidance.
27. Fees and charges
Fees (or charges) for any services supplied by the OLC shall be determined
in accordance with the Fees and Charges Guide, and with the Freedom of
Information Act 2000.
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Financial Memorandum for the Office for Legal Complaints (OLC)
28. Interest earned
Under the HM Treasury Consolidated Budgeting Guidance, the cost of
capital charge on most DEL financed assets score as resource DEL. Any
interest earned on cash balances arising from grant-in-aid or other Exchequer
funds shall be treated as a receipt, arising from a non-business activity. Such
interest will be used to benefit the legal profession by reducing the funding
requirements (described at paragraph 6 above).
29. Gifts and bequests received
The OLC is free, subject to MoJ approval, to retain any gifts, bequests or
similar donations which shall be treated as receipts.
Donated assets do not attract a cost of capital charge, and a release from
the donated assets reserve should offset depreciation in the operating cost
statement. Before proceeding in this way the OLC shall consider if there
are any associated costs in doing so or any conflicts of interests arising.
The OLC shall keep a written record of any such gifts, bequests and
donations and of their estimated value and whether they are disposed
of or retained.
Any gifts including hospitality to OLC Board members or staff must be
recorded and are subject to the requirements of Annex 4.10 of Managing
Public Money.
30. Receipts from the EU
Receipts from the European Union (if retained) do not provide additional DEL
spending power for the OLC. Such receipts benefit the ‘EU net payments’
line in the MoJ’s accounts.
31. Reserves
OLC may hold reserves for such purposes as may be required by its Board,
for example, a pensions reserve. Funds in any reserve may be a factor for
consideration when grant-in-aid is determined.
V. Expenditure on staff
32. Staff costs
The OLC will operate under a single running cost regime.
33. Chair, members and senior staff
The OLC Chair is appointed with Ministerial approval and the Chair and the
Board are remunerated by the LSB. The salary of any member of staff who
it is proposed to pay a package greater than that paid to the Chief Executive
(the definition of the Chief Executive includes the Chief Ombudsman or
Accounting Officer where these appointments are not the Chief Executive)
will require explicit justification.
34. Pay and conditions of service – other staff
The Board of OLC will determine the pay and grading structure and
terms and conditions of service for other staff employed by the OLC.
The Pay Strategy will be determined by OLC and benchmarked against
appropriate, similar organisations including relevant public sector
organisations.
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Financial Memorandum for the Office for Legal Complaints (OLC)
The initial terms and conditions will be the subject of a Pay Remit (in line
with HM Treasury guidance) and, once approved by MoJ, future annual pay
uplifts and other changes to terms and conditions will be determined by
OLC, subject to the resulting financial commitments being met from OLC
available resources.
The OLC may introduce a performance-related pay scheme in line with HM
Treasury Guidance, within their Pay Strategy or within their future annual pay
remits and this shall form part of the annual aggregate pay budget approved
by the MoJ.
The OLC shall comply with the EU directive on contract workers [“Fixed
Term Employees Regulations (Prevention of Less Favourable Treatment”)].
35. Pensions; redundancy/compensation
The OLC’s staff, shall be eligible for membership of any pension
arrangements OLC may make as part of their pay strategy. Proposals to
pay compensation for loss of office are treated as novel and contentious.
Proposals on severance payments, which are defined as any payment
beyond the OLC’s contractual obligation, must comply with Annex 4.13
in Managing Public Money and require prior MoJ and Treasury approval.
VI. Non-staff expenditure
36. Capital expenditure
Subject to being above an agreed capitalisation threshold, all expenditure on
the acquisition or creation of fixed assets shal be capitalised on an accruals
basis. Expenditure to be capitalised shall include:
• acquisition, reclamation or buying out of land;
• acquisition, construction, preparation or replacement of buildings and
other structures or their associated fixtures and fittings; and
• acquisition, instal ation or replacement of movable or fixed plant,
machinery, vehicles and vessels.
In acquiring an interest or disposing of an interest in land during the initial
five year period the OLC require the approval of the Lord Chancel or
(Legal Services Act 2007 section 24).
Proposals for individual capital projects or acquisitions will normal y be
approved by the OLC Board and managed within OLC’s business planning
process. The OLC will manage projects within its delegated limits. For
projects outside of the OLC delegated authority limits formal investment
appraisal in accordance with HM Treasury guidance will be undertaken and
considered by the OLC Board prior to consideration by the MoJ (Access to
Justice) Investment Committee.
37. Property
By virtue of the Legal Services Act 2007, the OLC is initial y classified
as a non-Crown Public Body and has its own landholding powers. Any
property held by the OLC will therefore normal y be owned or leased by it.
In acquiring property due recognition should be taken of the MoJ Estates
Strategy 2009.
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Financial Memorandum for the Office for Legal Complaints (OLC)
38. Transfer of funds within budgets
Unless financial provision is subject to specific controls (e.g., where
provision is ring-fenced for specific purposes), the following applies:
• transfers between budgets within the total capital budget, or between
budgets within the total revenue budget, do not need MoJ approval;
• transfers from resource to capital may be al owed subject to approval
by the Board and MoJ;
• transfers from capital to resource budgets are not al owed.
Note: any such movements should be notified to both update the MoJ’s
records (ARAMIS) and the HM Treasury database.
39. Lending, guarantees, leases and charges, guarantees, Indemnities;
contingent liabilities; letters of comfort
Except as provided within approved terms and conditions of service for staff
(e.g. season ticket loans) or in accordance with currently agreed operational
policy (staff advances, credit cards etc), OLC shall not, without the MoJ prior
written consent, have a bank overdraft, lend or borrow money, enter into
any property or finance lease transactions, charge any asset or security, give
any guarantees and indemnities or letters of comfort (as defined in Chapter
5 and Annex 5.5 of Managing Public Money), whether or not in a legal y
binding form.
The OLC wil , notify MoJ of any contingent liabilities when they
become apparent.
Before entering into any operating lease OLC shall demonstrate that
the lease offers better value for money than purchase.
Any financial guarantees and indemnities given by the OLC must be
adequately covered against undrawn resources.
The OLC shall keep a record of all losses and special payments, whether
within delegated powers or not, and al losses sustained or special payments
made shall be suitably recorded in the statement of accounts for each
financial year.
40. Grant or loan schemes
Unless covered by a delegated authority, all proposals to make a grant or loan
to a third party, whether one-off or under a scheme, shall be subject to prior
approval by the MoJ. Approval of the terms and conditions will be required
and such terms shall include a requirement on the receiving organisation to
prepare accounts and to ensure that its books and records of both parties in
relation to the grant or loan are readily available for inspection by the OLC,
MoJ and the Comptroller and Auditor General.
41. Gifts made, write-offs, losses and other special payment
Proposals for making gifts or other special payments (including write-offs)
outside the delegated limits set out in Appendix A to this document must
have the prior approval of the MoJ.
Gifts made by management to staff are subject to the requirements of
Cabinet Office and MoJ guidance on non-pay rewards.
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