The many common “causes, symptoms and consequences” of financial failure at local governments can be identified and used to help prevent future problems, according to a new report from Grant Thornton.
Noting that the specific circumstances at struggling authorities have been “unique”, the professional services firm said that repeated causes of failure include poor decisions, often accompanied by a lack of transparency; risky investments made without the necessary commercial skills and knowledge; the lack of an effective top team; over-reliance on interims in key roles; and the failure of members to ask the right questions.
The report’s authors, Paul Dossett and Guy Clifton, warned: “The extreme nature of some recent failures may create a risk of complacency in other councils, and a sense ‘it couldn’t happen here’. However, many failures have developed incrementally over several years, rather than being the immediate result of a few recent, ill-advised decisions creating the need for remedial actions, such as issuing a s114 or s5 notice to address the consequences of the mistakes of previous incumbents.
“Experience of failures indicates it could happen anywhere. Many local authorities are only two or three poor decisions away from a serious risk of failure. Some local authorities do share learning from failures elsewhere with their officers and members, to raise awareness of the risks they also face and all would be wise to do the same.”
The internal and external factors which have played a part in recent significant failures are analysed in the report – which can be read here – across structures, systems and behaviours.
Shared strength
Assessing possibilities for preventing future financial failure, the Grant Thornton report also pointed out a lack of coordination and visibility within the “chain of safeguards protecting the interests of citizens and the stewardship of public money”.
This chain includes local government, central government, regulatory bodies, professional bodies and advocacy organisations, it said.
“Each political, regulatory, professional and advocacy body operates in its own sphere with only limited shared learning from individual and collective failures. There’s evidence in each case of serious financial and governance failure that one or more links in the chain has been weak or altogether broken. There are opportunities here to strengthen the chain by strengthening any weak link,” the report’s authors said.
“Everyone whose expertise, powers and duties form part of the chain of safeguards should consider what they need to do to strengthen their ability to prevent failure. It’s important that this is done collectively, as well as individually.”
Grant Thornton called for “strong collective leadership” to “recast the relationships between central and local government, and all the organisations which form part of the local government family”.
Although a “daunting task”, the report authors said the consequences of failing to tackle it will be “further failure and a consequent focus on regulatory provisions”.
The report was produced in partnership with Lawyers in Local Government, the Association of Local Authority Treasurers Societies, SOLACE and CIPFA. Grant Thornton said a second report would be published in early 2024 with further consideration of actions councils can take to prevent failure, including case studies.
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