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The Annual Governance Statement

Standards iStock 000000830416XSmall 146 x 219Dr Paul Feild outlines recent key changes to the Annual Governance Statement requirements and provides guidance on structure and content.

The Annual Governance Statement (AGS) requirements have changed recently; indeed the changes apply to the financial year 2016-17. This article sets out the background and guidance for local government lawyers on the key issues. In terms of the division of labour the AGS could either be done by finance professionals - normally the head of internal audit with the chief finance officer [1] - in conjunction with their work on the statement of accounts or by the Monitoring Officer. Indeed I would argue that the best outcome is that the AGS is a shared enterprise between the Monitoring Officer and S.151 LGA Officer as there is joint overlapping territory, and it provides a good opportunity for the Monitoring Officer  to get a sound understanding the performance management of the authority and how well the corporate governance is.

Background

Specified relevant local authorities [2] are required under the Local Audit and Accountability Act 2014 (the ‘2014 Act’) and the Accounts and Audit regulations 2015 (the ‘Accounts and Audit Regs’) to prepare an Annual Governance Statement.

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Governance is defined by CIPFA / SOLACE [3] as:

  • The arrangements put in place to ensure that the intended outcomes for stakeholders are defined and achieved.

    and

  • To deliver good governance in the public sector, both governing bodies and individuals working for public sector entities must try to achieve their entities objectives while acting in the public interest at all times. Acting in the public interest implies primary consideration of the benefits for society, which should result in positive outcomes for service users and other stakeholders.

Good Governance Framework
 
Last year CIPFA and SOLACE published a guidance framework document on governance entitled: Delivering Good Governance in Local Government Framework 2016 (2016 Guidance). This was a significantly revised version of the previous 2012 guidance. The new framework is taken from the International Framework: Good Governance in the Public Sector (CPIFA/IFAC 2014). The framework is illustrated below in Figure 1.

Figure 1:

AGS graphic

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The framework envisages it will be a continuous process of seven principles with a core of A and B being about the behaviours of integrity demonstrating a strong commitment to ethics and respecting the rule of law with practices being carried out in the spirit of openness and comprehensive stakeholder engagement.

While the 2016 Guidance is the product of two organisations, it in reality should be accorded the status of being as if it were issued statutory guidance; this is because Regulation 6(4) (b) requires the AGS to be prepared in accordance with proper practices in relation to accounts.

The seven principles being:

Principle A - Behaving with integrity, demonstrating strong commitment to ethical values, and respecting the rule of law.

Principle B - Ensuring openness and comprehensive stakeholder engagement.

Principle C - Defining outcomes in terms of sustainable economic, social, and environmental benefits.

Principle D - Determining the interventions necessary to optimise the achievement of the intended outcomes.

Principle E - Developing the Authorities’ capacity, including the capability of its leadership and the individuals within it.

Principle F - Managing risks and performance through robust internal control and strong public financial management.

Principle G - Implementing good practices in transparency, reporting, and audit to deliver effective accountability.

Local Code of Corporate Governance

In support of the governance objective the 2016 Guidance requires inter alia that authorities develop and maintain an up-to-date local code of governance. Existing local codes will need to be re-drafted because the new guidance revises the principles. Furthermore there is an expectation that the new local code of Corporate Governance has been drafted which takes into account the changes and revised principles for the 2016-17 financial year though that does present a tight timescale. After consultation one would expect the new revised local code to be referenced in the council's Constitution and inform the basis of the Annual Governance Statement going forward.

The Annual Governance Statement.

The 2016 guidance sets out the expected contents of an AGS being a five-part document structured as follows:

1. The introduction -  which sets out the scope of responsibility to ensure that there is a sound system of governance including the system of internal control and the authority’s local code of corporate governance;
2. Key elements of governance – this will describe and assesses the effectiveness of the key elements of the systems and processes that comprise the council’s governance arrangements;
3. An evidence based opinion -  of the level of assurance of the council governance arrangements and their effectiveness to be fit for purpose;
4. Significant governance issues -  a section which sets out any significant governance issues that need to be addressed and how any issues from the previous years governance statement have been resolved; and
5. The Conclusion – it will be signed off by the Leader and Chief Executive with a commitment to monitoring implementation for the next review.

So here is the suggest AGS content in more detail:

The Introduction

This will set the scene. It will identify the broad issue of governance and explain to the readership the nature of the process in which the authority complies with its codes of governance including components such as their internal audit and established processes and procedures. It should seek to do so in a readable way so that the public can grasp what the governance regime is about and how the authority is ensuring it is properly run. It should direct the reader to the authority’s local code of corporate governance and ideally contain links to the key documents.

The Key Elements

This part needs to describe in a coherent form the arrangements and then go on to evaluate the arrangements fitness for purpose. In a council it would be expected to describe the key strategic statements and documents such as the vision, the mission statement, the objectives and the underlying values. It should cover the Council Plan which while not strictly speaking a legal obligation it is as good as, because of the requirement to demonstrate best value. Key performance indicators and how there are measured on a corporate dashboard [4]. Set out the key political decision making and accountability process and how the chief officers get together to deliver the members decisions.

In addition cover the various services and scrutiny functions, the audit committee and how the organisation ensures continuous improvement [5]. The state of play in terms of the constitution should be detailed and the internal governance rules such as contracts and land management acquisition and disposal together with the internal and external audit arrangements including counter fraud measure. Risk management including contingencies is vital. Codes of conduct for members and officers including registers of interests need to be identified. Furthermore feed-back and learning points for improvement from trends in whistle-blowing and complaints are a vital part of the sound governance.

The authority needs to be acting as an organisation committed to self-improvement and development of member capabilities and leadership should be covered. While the AGS is about the organisation it must also look at its relations with outside bodies and so communication and engagement should be described and reviewed and it should identify the partnerships and their overall performance with the council over the year.

The opinion

First and foremost this must be based on an assessment of the qualitative and quantitative evidence about the financial year in question. Look for statistics, check key performance indicators and check with service directors. Face to face is best. People may tell you things they may not want to commit to writing. You will need to work closely with the audit team and monitor periodic reports to the chief officers and to members. Consult with the monitoring officer, the head of audit and the chief finance officer. Surveys and statements of assurance should be sent to all services and their feedback should be analysed to need for intervention or where a matter of concern appears to be widespread.

The external aspect of complaints, ombudsman and inspections such as OFSTED are essential in painting a picture of what’s going on as well as lawyerly preoccupations such as how well is the authority doing in the  courts. Clearly losing judicial reviews and major litigation against the authority may be signifiers of something needing intervention.

Issues to be addressed

There may not be any, but that would be complacent to assume nothing to report as best value is about improvement. So it is still worthwhile identifying where improvements or efficiencies can be made. If there are matters, then set out a description and a summary of the action plan together with a timescale and outcomes expected as measure of success.

The Conclusion

This will be signed off by the Leader and Chief Executive with a commitment to monitoring implementation for the next review. Of course this step will be done only after there has been wide consultation plus assurances that the AGS is consistent with the audit both internally and externally.

Dr. Paul Feild is Senior Governance Lawyer and Deputy Monitoring Officer at BDTLegal. He can be contacted This email address is being protected from spambots. You need JavaScript enabled to view it..

[1] Chief Finance Officer - often for shorthand referred to as the S.151 Officer Local Government Act 1972.

[2] See Section 2 and Schedule 2 of Accounts and Audit Regs.

[3] CIPFA SOLACE Delivering Good Governance in Local Government Framework 2016 Edition.

[4] This could be seen as a bit of jargon, but imagine a car's dials and warning lights - we don't ignore the fuel gauge for example.

[5] Under the Local Government Act 1999 the Secretary of State can intervene if there is not best value and that includes improvement. Recent examples are Tower Hamlets LBC and Rotherham BC.

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