The Chartered Institute of Public Finance and Accountancy (CIPFA) has launched two consultations covering its Prudential Code for Capital Finance in Local Authorities and the Treasury Management Code. The move reflects the increasing commercialisation of local authorities and a recognition that risk management and investment activity in the treasury function have evolved considerably in recent years.
The last time the codes were reviewed was in 2011, when the landscape of local authority finance looked very different.
Mandy Bretherton, technical manager at CIPFA, told Room151: “Unlike the accounting code, we do not review the prudential and treasury management codes every year.
“However, they are reviewed whenever something significant happens in the sector that might affect their applicability.
“Now is an appropriate time given the extended period of austerity, increasing commercialisation, and changes to structures through things like combined authorities.”
The consultation on the prudential code is seeking ideas from local authorities on how the document can be strengthened to encompass the risks associated with increased commercialisation.
It said: “Increasingly local authorities are focusing on commercials, including increasing the number of services which are commissioned, maximising the commercial value of contracts and developing local markets.
“This new approach brings the need to consider new and different risks for local authorities. It is essential that such risks are managed in an open and transparent way and views are sought on how the prudential code can be strengthened to encompass these risks.”
In addition, CIPFA is proposing to extend the prudential code to cover mayoral combined authorities and to require specific indicators for separate combined authority funds.
The consultation asks for views on extending the code to cover group entities and how it can incorporate the concept of the liability benchmarking.
The prudential code was introduced in 2004 and local authorities are required to “have regard” to it when developing their capital investment plans.
The treasury management code consultation has no solid proposals but seeks views from local authorities on improvements.
Speaking this week, Sean Nolan, CIPFA’s local government director, said that it was in the interest of local authorities to comply with the code.
He told delegates at the CIPFA Treasury Management Network Annual Conference: “What is running like letters through rock (in this consultation) is the commercial agenda.
“Local authorities face new risk boundaries — and we have got to make sure that organisations are absolutely complying with all the codes.
“In this new world things will go wrong. If the decision is to purchase some properties because they yield 8%, you want to make sure that is ramped up in terms of compliance.
“The more commercial you are, the more savvy your due diligence should be.”
The consultation is open until April, and final proposal for any revisions are due to be published in the summer, and CIPFA is hoping to have the final version in place by the end of this year.
Last year, the National Audit Office recommended that CIPFA should consider the long-term implications of decision-making in its planned review of the prudential code.