Since 1906, council chief financial officers have had a duty to act in the taxpayer's interest. Today, shared services and outsourcing make following the public pound ever more challenging
CIPFA has two consultations under way that have led to a lot of discussion, both internally and with key stakeholders, about the unique fiduciary duty of the chief finance officer in local government and the importance of accountability to the taxpayer.
The duty was established in law under Attorney General v De Winton 1906, when the judge determined that the treasurer of a local authority held a fiduciary duty to the local taxpayer. It was strengthened by subsequent acts of parliament but remains at the core of the chief finance officer's role.
The debate about fiduciary duty has been prompted by the project to simplify local authority accounts and a review of CIPFA’s Statement on the Role of the Chief Financial Officer in Local Government. The accounts project started as a straightforward exercise in cutting clutter and reducing unnecessary detail to improve understanding. CIPFA/LASAAC quickly began to ask if a more fundamental review could aid better accountability, an issue also taken up by CIPFA’s local authority accounting and local government policy panels.
There is an innate tension between the need to ensure proper and sound financial reporting and accounting policies, and to have an audited accountability report to the taxpayer and other key stakeholders. CIPFA firmly believes that both are important as stakeholders need to be made aware clearly and concisely of future liabilities that are building up. With this in mind, the consultation invites respondents to give more fundamental thought to both the segmental reporting element of the Comprehensive Income and Expenditure Statement and more widely the Movement in Reserves Statement.
While not underestimating the challenge presented, a successful outcome would be a set of accounts that clearly demonstrate a year's expenditure and funding along with a clear statement of the impact on reserves and future liabilities. If you add this to effective narrative reporting which ties in performance, governance and sustainability, you gain a true ‘statement of accountability’ that remains subject to audit and the assurance that that brings.
This local accountability is made more difficult by the increasingly complex nature of local government service delivery. With the increase in partnerships, shared services and outsourcing to the private and third sectors, following the public pound is becoming more challenging.
The review of the Statement on the Role of the Chief Financial Officer in Local Government aims to bring clarity to the responsibilities of the CFO for the financial aspect of services provided through third parties. Where does their responsibility to the taxpayer begin and end, and what is reasonable in terms of their oversight of money spent by others? Increasingly, probity of public money is determined not by direct control but by methods such as open-book accounting, rights of audit access and market testing. The challenge is to ensure that these measures are sufficiently robust to provide the assurance needed.
At the same time, CFOs are being asked to get their support from similar organisations. The data they rely upon for financial and performance monitoring is increasingly provided by third parties. These require effective partnerships to ensure they have the information and support needed to carry out their roles. This tension has been particularly apparent within the police service where the recent reorganisation set up separate corporate identities for both the Police and Crime Commissioner and the Chief Constable, each with their own CFO but a single charge to the taxpayer.
Local government has always had a reputation for strong probity and effective financial management. It is vital that we continue to work to retain strong accountability against the background of ever more complex delivery and financial arrangements. We need to avoid the token accountability provided by the publication of ever more data and ensure that our key accountability mechanisms provide a complete and concise picture of the performance of local authorities.
Real accountability comes from the understanding that all of the council’s resources are being properly managed, not that the expenditure on biscuits for committee meetings has been reduced. These two consultations provide a unique opportunity to focus on the former and maybe move public debate away from the latter.
Alison Scott is assistant director, policy and technical, at CIPFA. Both consultations can be found at www.cipfa.org
This opinion piece was first published in the September edition of Public Finance magazine
