Weakness in council cultures and governance “common factor” leading to recent auditor interventions: Grant Thornton

October 10, 2022

A common factor in recent auditor interventions has been weaknesses in council cultures (for example, poor behaviours, a lack of transparency) and weaknesses in governance (for example, a circumvention of governance procedures, poor quality review and decision-making), Grant Thornton has said.

In an update report, Lessons from recent Public Interest Reports, the auditing firm noted that more public interest reports (PIRs) had come out since its earlier 2021 report, Learn more lessons from PIRs.

The firm also highlighted how the use of other auditor powers had also increased: for example statutory recommendations and related actions, such as section 114 powers.

“While this still affects a minority of councils, the growing trend is a concern, and serves as a reminder that things can go wrong anywhere – with potentially significant risks, including government intervention,” Grant Thornton said.

The firm said its findings highlighted that not all councils:

exercise appropriate care with public money
exercise appropriate governance
have the capability to manage risk in both the short and long term
remove optimum bias in their medium-term plans.

Grant Thornton said: “Over a decade of reduced funding from central government has seen councils become increasingly reliant on generating additional income to support frontline services. This has led to a number of local councils expanding commercialisation and developing different vehicles to facilitate this, including joint ventures and local authority trading companies. Some PIRs have shown that the failure of council-owned companies can have a significant financial and reputational impact on those councils.”

In addition to cultural and governance issues, the report considers:

failure to understand and manage the risks associated with external companies
failure to address and resolve relationship difficulties between senior officers and members
financial capability and capacity
audit committee effectiveness.

Commenting on the “common factor” of weaknesses in council cultures and governance, the firm said: “Sometimes this occurred where a small group of politicians decided what would happen and chose to stifle the opportunity of statutory officers to raise concerns, or actually encroached on the roles and independence of officers. Sometimes the environment at a council meant officers were excluded from the conversation. Equally, there have been instances where statutory officers were not all comfortable in making agreed challenges in the context of their statutory roles. It is clear from these failings that statutory officers need to work together to form a corporate view.

“Equally there have been times when it was the statutory and other senior officers who wanted something to happen and members were not properly sighted, as officers did not want to face barriers. Public discussion was discouraged, which meant members were excluded from or not sighted on decision making.”

Grant Thornton said that with both members and officers it had seen strong personalities pushing an agenda. “Organisations have been let down by people wanting a particular outcome or by not wanting to expose members or the council to embarrassment by rowing back or performing a “U turn” on a project. Protecting reputations and opting to cover things up rather than identify risks, accept challenge and address problems has ultimately led to more damage, both financial and reputational."

Failure to adequately support whistle-blowers also suggests a council that is not open to challenge, it argued.

The report suggested that in some councils, this had led to an intimidating culture, a culture of secrecy and in some cases, an overuse of confidential or delegated action reports, which reduced openness and trust in leadership and the corporate culture.

“Intimidation was also seen at councils where little instruction or direction was committed to writing. Instructions were given to undertake specific elements of a task to ensure that the total picture was not evident to those carrying out the task.”

Grant Thornton also highlighted cases where both members and officers had a limited understanding of declarations of interest and of gift and hospitality registers. These were not monitored, were often incorrect and rarely updated, the report suggested.

“We have also seen a lack of appreciation of the Nolan principles and the requirements of the Members Code of Conduct,” the auditing firm said.

“Linked to this there has been a lack of understanding in how complaints against Members should be handled. Complaints were either not validated or considered appropriate for further formal action by the Monitoring Officer.

“And a subset of this culture issue is denial. In cases there has been poor decision making and poor governance, but there has also been evidence of denial. Both a denial that there is a problem and a denial of responsibility for that problem.”

Grant Thornton said there needed to be a recognition of the need to respect the advice of statutory officers and the findings of internal and external audit. “Too often challenge by auditors is felt to be ‘nit-picking’ or ‘missing the strategic picture’.”

The governance around significant decisions is not always adhering to the key starting point of the Nolan Principles – the importance of “selflessness in public office”, the report added.

“A culture of transparency should be prioritised, where staff are actively encouraged to flag concerns. All councils should assess their cultures against the lessons learned from this latest tranche of interventions. Even if at present a council does not face financial risks, that assessment is still valid and should be done with an open approach to considering the new risks which might emerge. Councils should consider whether their existing corporate culture could withstand these risks, or whether they could fall into the trap of secrecy and a lack of transparency.”

Grant Thornton meanwhile said those providing scrutiny should undergo impartial and independent training to enable scrutiny and audit committees to fully consider key decisions. “

Good practice would consider an annual, independent review of officer/member grievances, to be assessed by the chief executive, monitoring officer and group leaders, with the purpose of making recommendations to minimise further occurrences of dispute.

The report makes the following recommendations in relation to culture and governance:

Cultivate an open and transparent culture
The views of statutory officers must be given appropriate regard and these statutory officers need to act in accordance with their statutory responsibilities
Review and ensure delegations are appropriate and properly applied
Ensure staff can raise concerns/whistle blow, ensure this is encouraged and ensure this is independently investigated. Formal channels must be in place for the involvement of both the s151 and Monitoring Officers
Embed an active review of all complaints and a zero tolerance approach to inappropriate behaviours
Undertake regular training to ensure members and officers are aware of the code of conduct and ensure that members understand their roles
Ensure members listen to challenge and take action to tackle long standing issues
If not already in place, councils should consider the introduction of regular reviews of key governance policies such as their Constitution, whistleblowing and confidential reporting, fraud prevention and anti-corruption policies

Source: Lessons from recent Public Interest Reports, Grant Thornton, 2022.