29 July 2005
A new report has found local authorities wanting in their financial management and governance. But the figures do not tell the whole story, and there are solid foundations on which to build improvement
The Audit Commission's 2004 Stewardship and governance report has prompted strong criticism from several commentators on the quality of financial reporting, governance and financial management in councils. CIPFA is committed to promoting continuous improvement in these areas and has a particular interest in and responsibility for accounting standards in local government.
So what conclusions, positive or otherwise, can we draw from the detailed published results?
There are approximately 450 principal local authorities in England (including fire and police but excluding waste disposal and passenger transport).
Of these, just under 430 met the 2004 deadline of August 31 for approving their accounts. (This was the first year of the phased move to bring back the deadline for accounts closure from September to June by 2005/06.)
More than 200 of the authorities had approved their accounts by July 31, two months ahead of the 2003 deadline. Some 435 received an unqualified audit opinion on their financial statements. Just over 440 produced a statement on internal control or an interim statement under the transitional arrangements operating for the first year of the statement.
In terms of auditors' judgements, Comprehensive Performance Assessment results for upper tier and district councils showed around 90% of authorities were judged 'good' or 'adequate' on their financial statements, financial standing and standards of financial conduct.
Of the 450 authorities, nine exceeded their revenue budgets by more than 10%, with the clear majority (80%) spending at or below budget (while precise figures are not given, the graphics indicate that 55% spent less than their revenue budgets).
Some 26% had to resubmit their accounts after auditors identified material errors, a 7% increase on the previous year. Part of that increase related to errors connected with the introduction of the complex financial reporting standard 17. In 2003/04, principal authorities were the first economically significant entities in the UK public and private sectors to fully implement FRS 17. Some 45 authorities experienced problems in complying with it.
In total, across 450 authorities, auditors identified 230 departures from the Statement of Recommended Practice across eight categories.
Auditors reported no significant concerns over the work of internal audit at 80% of authorities, but noted that in 40% of cases internal audit had no remit over partnership arrangements. Just over 60% of authorities had no comprehensive agreements in place for any of their partnerships.
Recognising the need for continuous improvement, CIPFA has published or is working on several relevant projects. In 2004, it launched its Financial Management Model, a self-assessment tool that helps public service organisations review the systems and practices that promote good financial management. Currently in progress is a project on financial forecasting and budgeting.
In January 2005, the Independent Commission on Good Governance in Public Services, supported by CIPFA and the Office for Public Management, published the Good Governance Standard for Public Services. This aims to put governance issues, including partnerships, centre stage for public service organisations.
Later this year, CIPFA will be reviewing, with the Society of Local Authority Chief Executives and Senior Managers, its publication Corporate governance in local government – A keystone for community governance, first published in 2001.
CIPFA will also issue guidance for local authorities this autumn on the establishment and operation of audit committees, having published the principles that should underpin such committees earlier in the year.
Projects to be completed in 2005/06 include a discussion paper on the public services application of the Accounting Standards Board's Reporting Standard 1: The Operating and Financial Review; a project on balance sheet management; and work on a simplified presentation of local authority accounts.
To spread best practice, CIPFA will continue with its highly valued Leaders in Finance programme, which brings together finance directors from all parts of the public services. In partnership with Warwick Business School, the programme focuses finance directors on three key themes of public service improvement, namely leadership, excellence and delivery.
Overall, the commission's report clearly signals a need and scope for further improvement, but authorities are starting from a strong base of good performance in many areas.
While there is no room for complacency, there are solid foundations on which further improvements can be built.
Vernon Soare is CIPFA's policy and technical director