Joseph Holmes warns that, despite the creation of new oversight bodies, regulation in local government remains piecemeal. He suggests that one overall body should be the go-to place for both the public and the sector to access councils’ financial and governance information.
Regulation is not always the most talked about part of local government, often being synonymous with bonfires and red tape. Yet how we are regulated as a sector has never been more important. With the government sending in commissioners to a plethora of councils, ongoing best value inspections, and the appointment of CIPFA, Grant Thornton and the Good Governance Institute by the Department for Levelling Up, Housing and Communities (DLUHC) to undertake reviews of councils, these all highlight the growing level of oversight of the sector.
Trying to get a clear understanding of the regulatory regime in local government finance is difficult. At a recent Local Government Association (LGA) conference, the Financial Reporting Council’s (FRC’s) new “systems leader” (Neil Harris) did a fine job of explaining the situation in respect of local audit. But the FRC – as it transitions into the Audit, Reporting and Governance Authority (Arga) – remains a “shadow system leader” and this is just in respect of local audit.
Indeed, the expectations of the shadow system leader do not directly involve representation from a council on its liaison committee, and its remit is focused very much on the audit of financial statements rather than a wider view of what is happening in local councils.
The forward look at what councils are doing, or are proposing to do, is absent. Yes, most councils will produce a medium-term financial plan, and, yes, we all bemoan the lack of certainty around our future funding streams and the threat/opportunity (delete as appropriate) of a fair funding review and business rates baseline reset, but there is little consideration given to these or debate about what good looks like. The LGA peer review process is valuable, but, given it (entirely reasonably) only takes place every three or four years, it cannot pick everything up to reflect back to the organisation where greater or lesser focus needs to be.
Even the backward look with existing tools does not paint a particularly helpful position. DLUHC has recognised the difficulty in reserves reporting, with director of local government finance Nico Heslop stating “So, what is a ‘ring-fenced reserve’, what is a ‘non-ringfenced reserve’? How do you account for capital provisions?”
The forward look at what councils are doing, or are proposing to do, is absent. Even the backward look with existing tools does not paint a particularly helpful position.
Creation of Oflog
Clearly the existing collation of information is troublesome to the department that has oversight of the sector, and the creation of the Office for Local Government (Oflog) is an attempt to lead to improvements.
We already have the CIPFA Resilience Index and, though helpful, that is based on the same information that DLUHC is struggling with. We also have LG inform, which has some excellent comparative cost information, and we have the National Audit Office, which provides some very helpful reports. We may even, once accounts are audited, have some commentary from our own external auditors around value for money.
The problem we have as a sector is that if a member of the public wanted some information about a council and how it performs, how it compares, how well it is governed, then it is difficult to see any overall picture. That cannot be satisfactory at a time when good governance has never mattered more. In the absence of an overarching body like, say, the Audit Commission, the onus falls much more on individual councils and, especially, the statutory officers: the section 151 officer and the monitoring officer.
The problem we have as a sector is that if a member of the public wanted some information about a council and how it performs, how it compares, how well it is governed, then it is difficult to see any overall picture.
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No replacement for the Audit Commission
I have mentioned the Audit Commission already (declaration of interest – I used to work there), but since its abolition last decade no replacement has been put in place to provide an overview of individual councils. Moreover, the major deterioration in the audit firms’ ability to provide audit opinions in a timely manner has meant that there is no overview of a council’s financial or governance performance for a significant period of time.
West Berkshire Council is not alone in having no formal opinion on its 2020-21 and 2021-22 financial statements at a time when our members are being asked to approve the 2023-24 financial statements. This scenario does not seem to be one that is going to be fixed in the short term. As every month goes by with accounts remaining open, it gives even greater opportunity for auditors to keep looking back and adding more into previous years, while piling pressure on finance teams at a time of recruitment and retention concerns.
With years of audits outstanding, it means that already certified accounts are immediately containing uncorrected errors from previous year’s accounts that haven’t been signed off yet. So future audits become more complicated and time-consuming and deadlines are much more likely to be missed. Add onto this local government’s risk appetite as part of our governance arrangements, given that there have been a number of government interventions in recent months looking at governance and risk.
Perhaps we as a sector need to reflect more and articulate something back to government before it is too late.
What does good regulation look like?
I have mentioned above some of the organisations that have a view on our financial and governance performance, and you could add Ofsted and the Care Quality Commission to these. Yet within this, where is the voice of the sector itself?
Various external organisations are being created, such as Arga and Oflog, but how do we think that we should be governed? Perhaps we as a sector need to reflect more and articulate something back to government before it is too late and we end up with an ever more complicated regulatory framework for our financial and governance arrangements.
If ‘Audit Commission 2.0’ is off the table, at least having one body, with an overall remit that is a repository for all information and is the place to go for the public and the sector alike, would seem a good start. There is so much good practice and so many outstanding and dedicated members of staff across the sector, perhaps there is a need to look at how we can comprehensively collate and advocate for what good regulation looks like now?
Joseph Holmes is executive director for resources at West Berkshire Council.
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