Select Committee on Environment, Transport and Regional Affairs Memoranda


Memorandum by the Audit Commission (LAG 38)

INTRODUCTION

  1.  The Commission, its appointed auditors and inspectors all have an interest in corporate governance arrangements in local government. The Commission is therefore pleased to have this opportunity to submit evidence to the Committee's inquiry into local authority governance.

  2.  The Audit Commission has for several years been concerned with the aspects of the working of local government, which are now subject to the changes in the Local Government Acts 1999 and 2000. Management papers that we published during the 1990s refer to the different roles that councillors perform and the need for council processes to be developed to support the more effective discharge of those roles. These included:

    —  We Can't Go On Meeting Like This: The Changing Role of Local Authority Members (1990), in which the Commission drew attention to the "board member" and the "representative" roles of councillors, very similar to the roles intended to be performed in overview and scrutiny committees and executives defined in the 2000 Act;

    —  Representing the People: The Role of Councillors (1997), in which the Commission drew attention to various components of the representative role and the barriers to its being carried out effectively by the demands of, and preoccupation with, the committee system; and

    —  Listen Up!: Effective Community Consultation (1999) and A Fruitful Partnership: Effective Partnership Working (1998), in which the Commission emphasised the need for more effective community consultation and partnership working, both important features of the new legislative regime.

  Those papers were set in a context of encouraging change from within local authorities, while recognising the possibility that if authorities did not make changes to their political processes, legislative action might follow.

  3.  As part of its future work programme the Commission will be looking at the development of the scrutiny role, as well as carrying out further work generally on the new structures.

  4.  The Commission, together with the LGA, has supported a joint working group established by CIPFA and SOLACE, which is seeking to define the principles and elements of corporate governance in local authorities. Under the proposals authorities will be encouraged to draw up local codes of corporate governance in accordance with the framework developed by the working group. They will also be asked to review and report annually in their financial statements and best value performance plans on the adequacy of their corporate governance arrangements, and compliance with their locally adopted code.

  5.  Under the Commission's Code of Audit Practice, which was approved by Parliament in March 2000, the Commission's appointed auditors are required to understand the state of audited bodies' corporate governance arrangements as part of their assessment of audit risks. This informs their audit plan and the nature and extent of their audit work at individual authorities. Auditors also have a specific responsibility to review and, where appropriate, report on the financial aspects of corporate governance.

  6.  Inspectors also have an interest in authorities' corporate governance arrangements. Following the setting up of the Best Value Inspection Service under the 1999 Act, the Commission has developed a capacity to inspect an authority's corporate governance arrangements, on the basis of a range of indicators of effective corporate governance, building on the proposed CIPFA/SOLACE framework.

GENERAL CONTEXT

  7.  This inquiry takes place before there is any practical experience and, therefore, local evidence of the impact of the Act, indeed before any authority has introduced new arrangements under Part 2, although some authorities have established executives under the current pre-2000 Act procedures. It is therefore hard to make definitive comments about the impact that the new Act will have and our comments are necessarily general and theoretical. However, before considering the specific issues raised in the terms of reference to the inquiry, there are a number of broad observations we would wish to emphasise.

  8.  The changes in Part 2 of the 2000 Act are not a "quick-fix" solution for local government, but involve laying the foundation for long-term benefit in the government of local communities. For instance, the opportunities for more visible leadership, which is what Part 2 of the Act offers, will not achieve that benefit if members holding leadership positions do not have the appropriate skills and expertise to provide leadership within both the council and local communities. However, the Act as a whole offers the prospect of local government becoming more confident and self-reliant, which over time might encourage more individuals with the necessary leadership qualities to put themselves forward for election.

  9.  Although, the new arrangements cannot by themselves achieve increased efficiency, transparency and accountability in decision-making, they do provide a context where this can be achieved. It is probably true that in any deliberative body it is impossible to define processes and standing orders that do not to some extent depend on the good sense of the members of the body concerned. This is certainly true of Part 2 of the Local Government Act 2000. For instance, section 21(3) of the Act (the "call-in" provision) is capable of being used in respect of every single decision taken by an executive and, given the notice requirements for the calling of meetings, very considerable delay could arise. In practice therefore the success or otherwise of the new arrangements will depend on the way they are operated and the behaviour of the members of the authority concerned. The Commission therefore believes that for the new legislation to be successful it is essential for members to be trained and supported, and to share a commitment to make local government more effective than previously. The Commission's experience, where things have gone wrong in authorities, highlights the fundamental and indispensable nature of the role of members.

  10.  Although the terms of reference of the inquiry specifically indicate that the Committee is concerned with Part 2 of the Act, it is not possible to assess the likely impact of that Part without taking account also of Parts 1 and 3 as well as the 1999 Act (which introduced best value). One of the reasons for the Part 2 changes is to produce a more effective vehicle for performing the general leadership role conferred on authorities by Part 1 of the Act and pursuing the drive for continuous improvement which is the statutory duty related to Best Value. These two Acts have set major new challenges for all authorities and the question must be whether authorities would be as well fitted to perform these roles without the changes in Part 2. These changes will need to be viewed over time in this broader context.

  11.  Part 3 of the Act emphasises the importance of the ethical dimension to good governance, particularly in the context where a large proportion of the powers of authorities are being vested in single or small numbers of members, and such is an essential element in the modernised governance arrangements. We have some concern that authorities that have piloted new arrangements may have given this aspect less attention. The link between standards committees and accountable and transparent local governance should be clearly articulated. Also, it is important that the Government makes the link between new management structures and new ethical frameworks in secondary legislation, to ensure that all elements of the new arrangements are introduced together and that important linkages (eg the position of standards committees in the new constitutions) are not missed.

ARE CHANGES IN POLITICAL MANAGEMENT STRUCTURES LIKELY TO CONTRIBUTE TO GREATER EFFICIENCY, TRANSPARENCY AND ACCOUNTABILITY IN LOCAL GOVERNMENT?

  12.  Initial best value inspections confirm that strong member involvement and good links with the community are essential to improved accountability and transparency. But maintaining an effective scrutiny function will be important. Without this, the new arrangements can concentrate more power in the hands of fewer individuals with no effective counterbalance. Much of traditional process has comprised a variety of checks and balances which will now cease to exist, and which need to be replaced, albeit in new forms. However, a balance does have to be struck, as a scrutiny function that is over-zealous or bureaucratic will impede efficient decision-making.

  13.  For the arrangements to be successful in terms of accountability, schemes of delegation need to be sound. What evidence the Commission has so far suggests that, at least prior to the publication of the modular constitutions, development is patchy.

  14.  To achieve efficiency, accountability and transparency requires good information systems, and members will need to have ready access to information about matters being considered by executives through well-developed IT arrangements.

  15.  Some evidence is emerging that the portfolio approach within cabinets has improved accountability both within authorities and in relationships with external agencies. In many authorities this approach has also encouraged a stronger focus on cross-cutting issues, such as crime and disorder and regeneration, than was common under traditional committee structures.

THE IMPACT OF THE NEW ARRANGEMENTS ON (A) THE ROLE OF COUNCILLORS (B) THE ROLE OF LOCAL AUTHORITY OFFICERS (C) THE LOCAL ELECTORATE

(a)  Councillors

  16.  The impact of the new arrangements on non-executive members, who may feel disenfranchised, has been well documented elsewhere. Although there have been many efforts to "sell" the importance of membership of full council and of scrutiny committees, and of the community representative role, many members have yet to adjust to, and to value, the new roles. However, we are also aware that there are some authorities where members have found that the scrutiny role does give them greater influence than they had previously, because they can:

    —  contribute to agenda setting; and

    —  work in a wider field, less constrained by group politics and pressures.

  17.  The level of involvement is also more suitable for some non-executive members who cannot find the time for executive responsibilities. On the other hand, members of executives are generally finding that the demands on their time have increased substantially—whether this will prove to be a disincentive for able people to offer themselves for local government membership in the longer term remains to be seen.

  18.  The Commission welcomes the opportunity for the representative role to be undertaken more fully. We stated in Representing the People, a view widely held by long serving councillors, that "a pre-requisite for reversing the decline is for councillors to develop a stronger voice on behalf of their local communities".[23] We have also found the significance of this in our work on best value. However, as in the case of other new roles for members, this will not be performed well unless members are offered appropriate support and training.

  19.  There are a number of new challenges for executive members, particularly where, with the portfolio approach, many executive members have to familiarise themselves with new areas of specialist knowledge. There is also a need for members to concentrate on the policy and strategic aspects of their work, and not simply to deal with management issues with which officers should be dealing. There are new relationships to be forged, with officers and with partner bodies, and perhaps also with political groups.

  20.  A major role requiring careful consideration is councillors' involvement in partnership settings. Authorities are involved in partnerships relating to a wide range of issues, and members representing their authorities in such settings will inevitably carry some of their new roles with them. The Commission has reported on a range of partnership issues in recent years, and will certainly wish to look at changes in these relationships, which are brought about by the new roles under the Act.

  21.  An overall issue relating to members is whether candidates for election—representing the community more fully and having the qualities required for the various roles—will more readily come forward. This will depend both on the satisfaction offered in the various roles, and on councils conducting their affairs in a way that is family—and other interests—friendly.

(b)  Officers

  22.  A particular challenge for officers will be to hold the different elements of a local authority together. This has traditionally been a role performed by officers, not least in "hung" councils. However, there are new institutional pressures, particularly arising from the division between the executive and the rest of the council, which will bring new problems. Traditionally, the council itself has been the paramount decision-making body and, no matter how difficult and tortuous the earlier stages of the decision-making process might have been, a council decision unmistakably determines the matter for officers. This will no longer be the case, and the responsibility on the monitoring officer to decide whether a decision is one for the executive or for the council will give him/her the decisive role, with no doubt many attendant pressures.

  23.  It is essential if scrutiny arrangements are to work effectively that members have proper access to appropriate officer support and information. This may create conflicts of interest for officers in some places, where attention is focused primarily on the wishes of the executive.

  24.  Authorities appear to be reacting differently in terms of the role and profile of their chief executive. Although the Head of Paid Service role will continue and the DETR guidance emphasises the importance of the chief executive's role under the new arrangements, there is some evidence that some authorities are seeing a greater involvement of members in management issues. The fundamental point is that good quality community leadership and good quality services need strong political leadership working with strong corporate management and strong service management, in a context where these different forms of leadership are not pursued at the expense of each other but are exercised in a complementary way.

(c)  The Electorate

  25.  Traditionally councillors have been elected to take decisions, and councillors and the public alike have shared this expectation. Now most councillors will not be elected to take decisions, but to hold to account those who do have decision-making responsibilities. The expectations of councillors , held both by the public as well as by councillors themselves, will only change over a considerable period of time. In practice the "community representative" role offers councillors the opportunity to make just as important and valuable a contribution to the local community they serve, but there will need to be a process of education for both the electorate and members themselves to understand and relate to the new roles.

LOCAL AUTHORITIES' EXPERIENCE OF SETTING UP OVERVIEW AND SCRUTINY COMMITTEES AND THE ROLE OF AREA COMMITTEES OR OTHER DEVOLVED ARRANGEMENTS

  26.  A particular issue for the Commission in relation to overview and scrutiny committees is the extent to which they can be relied on as part of the new package of "checks and balances" within authorities. Our concern at this stage is that it is by no means certain that they will, at least in any systematic way. To provide effective safeguards, overview and scrutiny committees will need to be purposefully managed with strong, and as far as possible independent, officer support.

  27.  In this context, the Commission's view remains that every authority should have an audit committee, with a clear remit to provide an objective review of financial systems and compliance with law, guidance and codes of conduct, oversight of the internal audit service and clear member-level links with external audit. In our annual report last year we expressed our disappointment that barely half of local authorities had established an audit committee, and urged the remainder to do so as a matter of priority. This is more, not less, important under the new arrangements.

  28.  Authorities will need to come to terms with the breadth of the intended role for scrutiny committees, particularly avoiding concentration on the review of decisions taken at the expense of policy development work. The effectiveness of scrutiny committees requires a complete cultural change within authorities and this will obviously take some time to occur. The need for scrutiny to be less dominated by party politics, which was foreseen in the guidance, may prove difficult to achieve in practice. The importance of consultation and involvement with outside bodies is also stressed in the guidance relating to scrutiny, but we are not aware of much evidence of such involvement to date.

  29.  Experience so far of establishing links between best value and scrutiny is also mixed. The guidance is very flexible on this point, which the Commission welcomes, but that does not mean that best value is an optional adjunct to the main processes of the authority. On the contrary, best value is central to the entire workings of an authority, and in those authorities which appear to have set up scrutiny committees to operate completely independently of best value work, it seems improbable that either best value or scrutiny can be undertaken successfully. The Commission's inspectors will be seeking to promote, as part of effective best value inspection, rigorous scrutiny and review arrangements within authorities. In A Step in the Right Direction: Lessons from Best Value Performance Plans (2000) the Commission emphasises that members' involvement in best value is vital to its success, and that members should be involved in monitoring, scrutinising and challenging performance.

  We also highlighted the need to link best value with the implementation of Part 2 of the 2000 Act and the requirement to introduce community planning.

  30.  Chairs of scrutiny committees will be exercising a major new role, demanding considerable ability and understanding, and new skills for which training may be required.

DIFFICULTIES AUTHORITIES HAVE EXPERIENCED IN IMPLEMENTING THE PROVISIONS OF THE LOCAL GOVERNMENT ACT 2000 PART 2 AND VIEWS ON THE ADEQUACY OF THE GUIDANCE AND HOW IT MIGHT BE IMPROVED

  31.  We have been particularly concerned about the new arrangements for decision-making, especially where a decision can be made by an individual councillor. It is not clear in all cases at which point a decision can be said to have been made and, because of the call-in arrangements, it is not always clear when a decision is final. This could be a particular area of concern where a third party changes his/her position on the basis of a decision that proves not to be final.

THE EXTENT TO WHICH LOCAL AUTHORITIES ARE OPTING FOR THE DIRECTLY ELECTED MAYOR MODEL AND THE ADVANTAGES AND DISADVANTAGES OF SUCH A MODEL

  32.  We have no evidence at this stage on the popularity of this option. However, we are firmly of the view that the principles and elements of effective corporate governance are "structure neutral", ie equally applicable in each authority regardless of the particular form of executive adopted.

CONCLUSION

  33.  The proposals in Part 2 of the 2000 Act oblige authorities to change procedures and practices of which the Commission has been critical over several years. There is obviously much at stake during the transition period and it is important that the focus on procedures and structures, which is now required, is completed quickly. Members' attention can then be focused on the real business of community leadership and modernising the procurement and delivery of services in accordance with best value principles.

  34.  Whatever arrangements are chosen, it is essential that these are underpinned by good corporate governance arrangements, but the changes introduced by the Act do offer significant opportunities for:

    —  better attention to user and community perspectives;

    —  better handling of cross-cutting agendas;

    —  better, more transparent, accountability of principal decision-makers; and a reduction in the enormous burden of cost and attention involved in traditional committee working.

  35.  The success of the new Act will depend crucially on the willingness of authorities and members, working with officers, to embrace those opportunities, using the new constitutional arrangements as the means to effective local government rather than an end in themselves.

February 2001


23   Audit Commission Representing the People: The Role of Councillors (1997)-page 5. Back


 
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