Spending watchdog urges ministry to address weaknesses in local authority governance
The National Audit Office has sounded the alarm about local authority governance and audit for the second time in a week.
In its latest report, Local Authority Governance, the spending watchdog said the government should improve its oversight of the local governance system in the face of increasing financial pressures on councils.
It said councils’ responses to these pressures had “tested local governance arrangements”, as some had pursued large-scale transformations or potentially risky commercial investments that added complexity to governance arrangements.
But spending to support governance fell by 34% in real terms between 2010-11 and 2017-18.
The NAO said external auditors issued qualified conclusions for around 20% of unitary and county councils, and “several authorities did not take appropriate steps to address these issues”.
A NAO survey of auditors found 27% did not agree that their authority’s audit committees provided sufficient assurance about governance arrangements.
Some councils had questioned the contribution of external audit to providing assurance on their governance arrangements, with 51% of chief finance officers wanting to see changes, including a greater focus on the value for money element of the audit.
The NAO said the Ministry for Housing, Communities & Local Government (MHCLG) did not systematically collect data on governance, and so it could not assess whether issues that arose were isolated incidents or symptomatic of failings in aspects of the system.
Ministry intervention at councils was not always made public “meaning its scale and effectiveness is not open to scrutiny or challenge”, the watchdog said.
The report’s recommendations include that the MHCLG should work with local authorities and stakeholders to assess the implications of, and possible responses to, the various governance issues it had Identified.
This would include examining the status of section 151 officers and the efficacy of their statutory reporting arrangements, the effectiveness of audit committees, the effectiveness of overview and scrutiny functions, and the sustainability and future role of internal audit.
NAO head Amyas Morse said: “Poor governance can make the difference between local authorities coping and not coping. Given the significant challenges these bodies 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.”
Public Accounts Committee chair, Labour’s Meg Hillier MP, said: “It is worrying that one in five single tier local authorities and county councils do not have adequate arrangements in place to make sure taxpayers are getting value for money.”
She added: “Central government has got to start taking responsibility for ensuring governance is effective across local government and local bodies need to ensure that their governance arrangements are robust and transparent to citizens.”
The NAO last week raised concerns about the number of NHS and local government bodies with significant weaknesses in their arrangements for delivering value for money.
A spokesperson for the MHCLG said: “Local authorities are democratically-elected, independent bodies that are responsible for setting their own budgets and managing their resources.
“We are investing in Britain’s future by providing local authorities with £91.5 billion over the next two years to meet the needs of their residents.
“At Budget we announced more than £1 billion in extra funding for local government to help address pressures on services. On top of this, we’re giving councils the power to retain the growth in business rates income.”
Responding to the report, Helen McGrath, Head of Public Affairs for Lawyers in Local Government (LLG), said: “LLG have noted for some time that the risk profiles of local authorities have increased substantially over the last eight years and welcomes many of the key findings in the NAO’s report.
“We also recognise synergies with 151 officers reporting a reduced ability to deliver their role when they do not report directly to their Chief Executive Officer. Indeed, LLG have long argued that the increasing lower status of Heads of Legal in many local authorities affects their ability to bring influence to bear on material decisions and creates difficulties when acting as the Monitoring Officer.”
“Whilst LLG notes the LGA’s reported position that no evidence exists for this premise, LLG strongly advocates (based on continual member feedback and experience in the field), that such downgrading has and does materially impact on the role of the Monitoring Officer and governance across the board," McGrath added.
"LLG wants to see the status of MO’s and Heads of Legal included in the recommendation of the NAO to review the status of both MO’s and 151 Officers including the efficacy of their statutory reporting arrangements.”
Suki Binjal, President of LLG, suggested that there had been a missed opportunity with respect to strengthening the arm of the monitoring officer in local authority scrutiny and governance.
“To talk about s151 officers in isolation is missing a trick,” she argued. “The triangle of good governance; the CEO, the s151 Officer, and the Monitoring Officer all need to be at the heart of decision making and strengthened in its entirety rather than in part.”
Deborah Evans, CEO of LLG, added: “The role of the Monitoring Officer is not just restricted to unlawful decision making and maladministration as identified in the report. It also places responsibility for the conduct of councillors and crucially, the operation of a council’s constitution which goes to the very heart of governance. We will be liaising directly with the Ministry to push for a review of Monitoring Officer status alongside that of the 151 Officer and ensure that the role of the MO is properly understood.”
The Local Government and Social Care Ombudsman, Michael King, also welcomed the report. He said: “Failings in governance are intrinsically linked to some of the practical issues we see going wrong when major transformation takes place in local government.
“We urge councils to get ‘the basics’ right when undergoing change. In this climate the core principles of good administration are more important than ever. Having a mature attitude to complaints, and using the feedback to reflect on services provided, and as a tool for improvement, is a vital way of helping to ensure services meet local needs.”
The Local Government Association has been contacted for comment.
Mark Smulian
NAO recommendations
“As steward of the system the Department has a responsibility for assuring itself that there is an effective local governance system in place.
a The Department should work with local authorities and stakeholders to assess the implications of, and possible responses to, the various governance issues we have identified, including:
- the status of section 151 officers and the efficacy of their statutory reporting arrangements;
- the effectiveness of audit committees, and how to increase the use of independent members;
- the effectiveness of overview and scrutiny functions and ways to enhance their impact; and
- the sustainability and future role of internal audit.
b The Department should address the system-wide gaps in its evidence base on governance.
c The Department should set out its expectations of network partners and how they will work together to address the current weaknesses in local governance arrangements.
d The Department, working with relevant organisations and delegating where appropriate, should lead the sector in considering the issues and concerns raised about external audit in this report to establish whether concerns in certain parts of the sector over the contribution of audit genuinely relate to audit:
- Where concerns genuinely relate to audit the Department should work with bodies with responsibility for external audit within the governance framework, taking into account their ongoing or planned activity, to address any substantive issues.
- Where concerns do not in fact relate to audit the Department should work with local authorities and other bodies in the governance system to identify how these needs and requirements can be addressed.
e The Department should examine ways of introducing greater transparency and openness in relation to its formal and informal interventions in local authorities.
f The Department should adopt a stronger leadership role in relation to overseeing and coordinating the network of organisations managing key aspects of the governance framework."
