Memorandum by the Audit Commission (LAG
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
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
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.
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.
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
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.
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 substantiallywhether 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".
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 electionrepresenting the community
more fully and having the qualities required for the various roleswill
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 familyand other interestsfriendly.
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
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
(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.
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.
ACT 2000 PART
2 AND VIEWS
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.
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.
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
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
better attention to user and community
better handling of cross-cutting
better, more transparent, accountability
of principal decision-makers; and a reduction in the enormous
burden of cost and attention involved in traditional committee
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.
23 Audit Commission Representing the People: The
Role of Councillors (1997)-page 5. Back