Auditors have issued guidance to Scotland’s councils on the use of arm’s-length external organisations to provide services and capital projects.
The advice, prepared on
behalf of the Accounts Commission by Audit Scotland, follows a row over
payments to Glasgow councillors for serving on boards of the arm’s length
bodies, or Aleos. Later this month, Edinburgh City Council is also due to
debate pulling the plug on the controversial Aleo set up to provide its
ill-fated trams network.The guidance notes that Aleos are an established part of the public sector landscape and can have attractions over in-house provision when budgets are tight. But it also warns that their remote nature raises issues of financial control and governance.
The main recommendations are that councils should: use Aleos only after a rigorous assessment of the business case against other options; ensure strong and effective governance from the outset, including clarity over the roles and responsibilities of councillors serving on Aleo boards; and introduce risk-based and appropriate monitoring of Aleos’ performance.
The report recounts examples of councillors on Aleo boards failing to advise the council promptly of problems; of councils relying too heavily on appointed board members to raise issues with Aleos; and of a council continuing to fund an Aleo that was in financial difficulty, even though another partner had suspended funding.
It provides local authorities with detailed checklists for monitoring the activities of Aleos;, measuring their performance and progress towards declared objectives; ensuring their continued financial stability; measuring and containing the risk to which their work exposes the council; and putting effective exit clauses into contracts.
Most of Scotland’s 32 unitary authorities operate Aleos, the report says, and it is aware of around 130 currently in existence.
Accounts Commission chair John Baillie said: ‘Councils should ensure they are clear about their expectations of Aleos and that they have good systems in place to monitor performance and flag up significant financial and service risks on a continuing basis.’
He added: ‘Everyone
involved in Aleos has respective roles and responsibilities, which need to be
well understood. It is common practice for councillors and officers to be on
the board of Aleos and they can have an important role in governance.
'But councils need to assess the advantages and possible risks. It is crucial that individuals are supported in these roles, so that they are fully aware of their responsibilities to the council and the Aleo and know how and when to seek advice if any potential conflicts of interest arise.’
The report urges councils to review whether their Aleos have achieved their intended benefits, such as cash savings or improved customer satisfaction, and to assess whether overall they can demonstrate value for money.
