CIPFA has amended its draft Financial Management Code for local authorities to give commercial activity greater prominence.
The body has amended the proposals to recognise the importance of commercial activity in response to consultation concerns made by members.
Joanne Pitt, CIPFA’s local government policy manager, said it was obvious from consultation responses that commercial activity should be written in to the code’s narrative sections.
“What we would say now is that the long-term vision should also reflect commercial activity undertaken by an organisation and should be guided by the Prudential Code and relevant guidance.”
Commercial activity was a concern during consultation on two counts, Pitt said – when CIPFA asked if the draft code reflected the diversity of council activity, and when the association asked how the code could support leadership teams in maintaining financial stability.
A consultation on the proposed new code was launched in March, driven by concerns raised by the crisis at Northamptonshire County Council last year, when financial commissioners took over running the authority following the chief financial officer’s decision to issue a section 114 notice.
The code forms the first ever attempt to set standards for financial management at local authorities.
Standards included in the code ask local authority leaders to “demonstrate” that services provide value for money; that a council complies with the CIPFA statement on the role of the CFO; that leaders take responsibility for governance and internal control and that financial management “supports financial sustainability” and has a “long term financial strategy”.
At the time of the consultation launch Margaret Lee, executive director of corporate services at Essex County Council, said the code came in the context of cuts to council budgets and “growing pressure on public services”.
“Stronger financial management is essential within the sector, particularly where budgets show a consistent use of unplanned reserves, a growth in overspending and a lack of medium- and long-term planning,” she said.
Following the consultation CIPFA will also revisit parts of the document that deal with who holds responsibility for compliance with the new code.
Respondents “expressed caution” that the code could be seen as the responsibility of the CFO only.
Pitt said areas of the code have been amended to indicate responsibility should be wider.
She said the code had been “strengthened” to reflect that the code “needs to be the responsibility of the whole organisation to have maximum impact.”
Long-term planning also emerged as a concern during consultation with those who worried how an imperative to plan far into the future could sit with the short-term cycle for central government funding.
Pitt said the concern had been recognised and would be addressed in guidance to accompany the code.
“We’ve taken that on board,” said Pitt. “But we do still stand by the fact that, from an aspirational point of view, it is important that there is a longer-term vision.”
Finance teams can also expect a softening on the implementation deadline. The original consultation suggested the code would need to be applied from April 2020.
The next draft is expected to say authorities should be “working towards” implementation from next year. A hard deadline for implementation remains under discussion.
Pitt said the code was an “iterative process” and some details remain under discussion with finance chiefs.
