Getting to grips with governance

Poor governance can make the difference between local authorities coping and not coping. Aileen Murphie explores what national government should be doing to help section 151 officers carry out their duties more effectively.

We all know that local authorities have faced significant challenges since 2010-11, as funding has reduced while demand for key services has grown.

For example, councils have seen a real-terms reduction in spending power of 29% and a 15% increase in the number of children in care.

These pressures raise the risk of authorities’ failing to remain financially sustainable and deliver services, increasing the importance of having good governance arrangements.

So why does good governance matter?

Because the way authorities have responded to the financial and demand challenges have tested local governance.

Many authorities have pursued large-scale transformations or commercial investments that carry a risk of failure or under-performance and add greater complexity to governance arrangements.

Spending by authorities on resources to support governance also fell by 34% in real terms between 2010-11 and 2017-18, potentially increasing the risks faced by local bodies.

So, governance arrangements have to be effective in today’s riskier, more time-pressured and less well-resourced context.

Thus, following our reports on the financial sustainability of local authorities, we decided to examine whether local governance arrangements are providing local taxpayers and Parliament with assurance that local authority spending achieves value for money and that authorities are financially sustainable.

As Amyas Morse, the head of the NAO, has said: “Poor governance can make the difference between local authorities coping and not coping.”

Local authorities are accountable to their communities for how they spend their money and for value for money.

Local politicians and officers operate within local governance frameworks of checks and balances to ensure that their decision-making is lawful, supported by objective advice and is transparent and consultative.

Good governance means that proper arrangements are in place to ensure that an authority’s intended objectives are achieved.

The governance framework is complex and multi-layered so we concentrated on how key parts of the system are working: how the statutory roles are operating, how internal checks and balances are working, including risk management, internal audit and whistleblowing and lastly external checks like external audit.

Officials in statutory roles have special employment protection to enable them to “speak truth to power”.

Our survey of section 151 officers showed that the great majority of respondents felt they were able to discharge their responsibilities effectively.

For instance, 98% agreed or strongly agreed they felt able to share challenging information with elected members.

However, the survey also showed that where s151 officers do not report to the chief executive and have a lower status they are less positive across a range of measures.

Each year, external auditors publish a conclusion on an authority’s arrangements to secure value for money, and can highlight weaknesses by ‘qualifying’ their conclusion.

In 2017-18, auditors issued qualified conclusions for around one in five single tier and county councils. A survey, carried out by the NAO, of external auditors indicates that several authorities did not take appropriate steps to address these issues.

Some external auditors have raised concerns about the effectiveness of the internal checks and balances at the local authorities they audit, such as risk management, internal audit and scrutiny and overview.

For example, 27% of auditors surveyed by the NAO do not agree that their authority’s audit committees provided sufficient assurance.

Auditors felt that almost a third of authorities are struggling in more than one aspect of governance, demonstrating the stress on governance at a local level.

Some authorities have begun to question the contribution of external audit to governance.

Around 51% of section 151 officers responding to our survey indicated aspects of external audit they would like to change.

This includes a greater focus on the value for money element of the audit (26%).

The Ministry of Housing, Communities and Local Government is responsible for ensuring that the local governance framework contains the right checks and balances, that it works, and for changing the system if necessary.

However, the department does not systematically collect data on governance, meaning it can’t rigorously assess whether issues are isolated incidents or symptomatic of failings in aspects of the system.

We think that the department should work with local authorities and other stakeholders to assess the implications of the various governance issues we have identified.

It should examine ways of introducing greater transparency and openness to its engagement with local authorities and should adopt a stronger leadership role in overseeing the network of organisations managing key aspects of the governance framework.

Amyas Morse’s view overall is that given the significant challenges local authorities face, the government needs to take the lead in addressing weaknesses in the local governance system to ensure that local arrangements function as intended and support local decision-making.

Aileen Murphie, is director for DCLG and local government value for money at the National Audit Office