Underinvestment in council finance departments has impacted skills and capacity and led to “significant weaknesses” in succession planning and accounting knowledge, according to a new report From Grant Thornton.
Lessons from public interest reports and other interventions (part II) examines why an increasing number of councils have faced criticism for their financial management and governance arrangements. It looks at recent auditor public interest reports (PIRs), statutory recommendations and section 114 notices.
“There are now significant weaknesses in succession planning, in understanding the financial accounting implications of new and innovative schemes, and in the production of financial statements, the requirements for which have grown significantly more complex in recent years,” the report states.
It points out that reduced government funding has led councils to rely more on commercialisation through partnerships, joint ventures and trading companies. “The recent PIRs have shown that the failure of council-owned companies can have a significant financial and reputational impact on councils,” it adds.
Writing for Room151, Paul Dossett, Grant Thornton partner and head of local government, commented: “The decade of austerity has meant that a number of key governance controls, such as the finance function and internal audit, have been denuded by reductions in capacity. Lack of succession planning has also weakened the governance control framework.”
He suggested that local government needed a “governance reset” to restore confidence and integrity in politicians and public servants.
The report highlights that at some councils there has been a prevalence of interim and acting arrangements in finance roles, which has resulted in capacity challenges.
“These temporary arrangements have contributed to some confusion over key roles and responsibilities. Interim staff are not and should not be seen as a substitute for an internal, fully staffed and skilled finance team.”
It suggests that the lack of skills and capacity in finance departments has resulted in “poor quality financial statements, without sufficient and robust accompanying working papers”.
The report also notes that only 69% of councils in England submitted draft 2021/22 accounts to their auditors by the required deadline, which is down from the 77% recorded in the previous year.
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