The Public Accounts Committee (PAC) says the government has not done enough to ensure local authorities adopt proper governance arrangements over their increasing commercial ventures.
In a report released this week the PAC says that local governance arrangements have come under pressure as local authorities have taken on more risks in the search for innovative funding solutions.
At the same time, there has been a significant reduction in the resources available to fund corporate activities like governance.
In general, local authorities’ governance arrangements are, the committee believes, robust.
However, there are councils where the report says audit committees fail to provide sufficient oversight, where internal audit is ineffective, and where there is weak risk management of commercial investments.
The committee said: “This is not acceptable in the more risky, complex and fast-moving environment in which local authorities now operate.”
The report said of the Ministry of Housing, Communities and Local Government that: “The department’s oversight of local authority governance has been reactive and ill-informed, but it has now recognised the lack of leadership needed to drive improvement.”
The PAC believes the ministry should not simply sit back and wait for things to go wrong before intervening, but needs to ensure that the whole system is working effectively.
Its report pointed to the ministry’s failure to systematically collect data on how well local governance is working as a notable weakness.
The committee urged the ministry to ensure its recognition of the need for improvement does lead to prompt and effective action.
Commenting on the report, the committee’s chair Meg Hillier MP said: “The government needs to recognise the extra pressure that squeezed budgets and increased commercial risks are having on local government and make sure it is monitoring the risks effectively so that it can be alert to the impact of changes on local government.”
Christian Wall, director at PFM Advisors UK, said: “A key to the findings of today’s PAC report is the role of the audit process in local authorities, specifically on the part of external auditors.
“Simply put, MHCLG, councillors and residents must be able to rely on the proactive judgement of auditors and it is clear that there are systemic audit failings that must be rectified in order to ensure that the recommendations of this report are addressed.”
He said that in many cases, auditors fall short of the required level of rigour and diligence, directly impacting local authorities and putting them on the back foot.
“Whilst external auditors have a vital role to play in local government, the bar must simply be set higher before some key failings can be rectified.” he said.
“If audit fees must be increased in some cases, so be it.”
This week, Sir Amyas Morse, outgoing comptroller and auditor general of the National Audit Office, revealed that the watchdog has launched a probe into council commercialisation.
