Improving public reporting in local government

Paul Hughes is Director and Public Sector Governance Lead at Grant Thornton

It is a commonly held view that public sector accounts should be more relevant and accessible to the general public, rather than a purely professional or technical audience.

However, the statutory requirements for local government accounts to include, for example, statements on the collection fund and housing revenue account makes this difficult in practice. The application of International Financial Reporting Standards (IFRS) to local government is regarded by many as making council accounts even more unintelligible. The primary focus is on financial stewardship not public accountability. Somewhat understandably, a number of finance directors hold the view that the annual accounts are produced for auditors, analysts and students rather than the public. Our recently published research shows that a third of senior officers and elected members don’t find the accounts useful.

In the absence of any planned fundamental change to the local government accounting framework, there are steps that councils can take to improve their annual accounts including grouping and presenting information differently, cutting the clutter and performing an independent ‘user perspective’ review of the accounts.

However, it is perhaps a little idealistic to think that improvements to the presentation of the accounts will give rise to a groundswell of public interest. Many in local government believe that there are few out there who will ever have an interest in the accounts, referring to no more than a handful of requests for copies each year. Councils will also point to the numerous alternative ways in which they engage with the public through, for example, elected members, council and local public meetings, consultations and publishing large amounts of information on the website.

So, should councils give up on trying to make accounts more user friendly? We think not. As well as the current government’s focus on encouraging citizens to take a greater interest in what councils are doing, research shows that complaints and Freedom of Information requests are rising sharply (up 20% last year). This suggests that, particularly in these difficult times, demand for information on how councils are spending taxpayers money is on the increase.

However, if there is only so much that councils can do with their accounts what else can they be doing? We suggest that councils should focus on improving two areas within their annual accounts, the explanatory foreword and the annual governance statement (AGS). The explanatory foreword introduces the financial statements that follow, telling the story behind the numbers as well as providing a picture of the financial health of the council and its future prospects. The AGS provides the narrative around the governance and controls to manage the risks of failure to achieve strategic objectives. Taken together, these two statements can provide a useful summary to the public of what is being spent and how public funds are safeguarded. Our research shows that many councils are not grasping this opportunity and much can be done to improve these important statements.

At Grant Thornton we are currently working with a number of s151 officers to take a fresh look at the AGS in order to come up with good practice examples for the sector. Importantly, we are looking at how the AGS can be used more intelligently to help councils to better engage their audit committees in planning and managing how they will receive the assurances required to meet their responsibilities.

Additionally, as a sector, local government is unusual in that it does not have to produce annual reports. Annual reports, containing key financial, performance and other relevant information, were encouraged by the Audit Commission as a key public accountability mechanism, through its use of resources assessment regime. However, when the assessment ended the number of councils producing annual reports has fallen dramatically.

The decline is regrettable as producing an annual report is the key way for councils to show their commitment to making all relevant information publicly available in the most accessible way. Produced by 30 September each year, they would include audited summary financial information, summarised information from the explanatory foreword and AGS, key performance indicators, significant risks and how they are managed, environmental matters and any other information that the council believes stakeholders should see.

With the pressure on council funding and resources it would be difficult to argue a case for expensive glossy reports. The International Integrated Reporting Committee (IIRC) is developing a new framework for international corporate reporting and CIPFA is considering its applicability to the public sector. One of the IIRC’s points is around a “technology enabled” annual report. We see this as applicable to local government, having an annual report, prominently displayed on the website with concise, user friendly information and links to other areas on the site where the public can find out more.

There need not be significant additional cost in producing a web-based council annual report and it could be argued that it could prevent a certain number of other time consuming ad hoc requests for information, including under the Freedom of Information Act.

Above all, a well-executed annual report will demonstrate that the council is doing all it can to be accountable to the public by providing a user friendly annual summary of service and financial performance, how it is safeguarding and making the best use of public money and what its plans are for the future.

Since the publication of our review of governance in local government a small number of councils have expressed an interest in understanding how a modern council annual report might look. We will be working with them over the coming months to explore the possibilities for setting a new good practice standard in this area.

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Grant Thornton has recently published its review of governance in the local government sector.

In these challenging times, effective governance is essential to help local authorities work their way through the complex and competing challenges facing them. This is at a time when, those processes that ensure good governance are at risk from the conflicting demands for reduced spending and a re-prioritisation of resources.

It is against this background that the Grant Thornton review, based on survey responses from over 100 senior council officers and members, and a desktop review of 200 UK councils’ 2010/11 Annual Governance Statements (AGS) and explanatory forewords, evaluates the soundness of existing systems for operating in this high pressure environment. Its aim is to provide councils with a better understanding of where they stand in relation to their peers in terms of quality of reporting, enabling them to see what they do well and where they can improve.

The research indicates that local authorities have well established governance systems and processes that have developed over the last 10 years, but need to have more transparent and accessible public reporting, particularly in the AGS and explanatory foreword to the accounts.

The report provides realistic and practical guidance on how local council governance can be made stronger and more effective, and help establish a direction of travel towards best practice.