Chief finance officers (CFOs) must be at the “top table” of local authority decision-making to prevent budgetary failure, according to a draft Financial Management Code published by the Chartered Institute of Public Finance and Accountancy (CIPFA).
The new code, out for consultation, aims to help council CFOs demonstrate they are meeting their statutory duty for sound financial administration.
The code said that responsibility for financial management does not rest with the CFO alone, but with the actions of all within the leadership team.
It says: “A situation in which the CFO is forced to act in isolation is characteristic of authorities in which financial management had failed and financial sustainability is threatened.”
The code is clear that local authority financial management “is not just about accountants keeping track of income and expenditure”.
The leadership team, it says, must have a “culture of collective responsibility” for financial matters.
In a veiled reference to the financial problems at Northamptonshire County Council, the code says: “A symptom of financial weakness is significant break down in the existing system of budgetary control (for example, illustrated by poorly understood or unchallenged variances), its replacement by expenditure freezes and other crude ad hoc systems and in extremis the issuing of a section 114 notice.”
Don Peebles, head of CIPFA UK policy & technical, told Room151: “In some circumstances at some councils which have problems, the finger gets pointed at the director of finance, when in reality they might be part of the solution, rather than part of the problem.”
Councils must ensure that CFOs are properly represented in the team at the top of local authorities, the code says.
This status must not simply be a theoretical status based on a position in the organisation, it says.
It says: “This increases awareness of the importance of financial planning and closely aligns financial and wider business planning.”
CFOs should also play a key role in demonstrating the opportunities presented by service delivery in partnership with other organisations, according to the consultation document.
The relevant section says that “public service outcomes will not and cannot be achieved by any single body, sector or government”.
However, it accepts that some forms of partnership delivery may be unpalatable to elected members of the leadership team and other politicians.
“The CFO and other advisors on the leadership team therefore have an important responsibility to ensure that the costs and benefits of the elected members’ preferred options are assessed against the other possibilities available,” it says.
The 50-page long code also covers CFO responsibilities, governance and management style, long- to medium-term financial management, performance monitoring and external financial monitoring.
Councils should demonstrate how they are complying with the standards outlined in the code, it says.
However, Peebles said that CIPFA is open to suggestions on how this should be achieved.
He said: “The one issue that could probably do with further consideration is how an organisation demonstrates compliance with the code.
“We are trying not to add another layer and another report, which is why we are keen to hear from the sector about what they think is the best way forward.”
Responding to the draft code, Margaret Lee, executive director of corporate and customer services at Essex County Council, said: “Local government has faced funding reductions since 2010 and growing pressures on public services, both of which are challenging the financial sustainability of local authorities.
“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.”
Carol Culley, deputy chief executive and city treasurer at Manchester City Council, said: “I would strongly urge people to respond to the consultation.
“The feedback will help shape this into a strong code that provides a proportionate and effective response to the significant challenges being faced by local authorities.”
