MHCLG must have better oversight of local authority governance, says NAO

15 Jan 19

The government must improve its oversight of governance in local authorities as they struggle with increased financial and demand pressure, England’s spending watchdog has urged.

The Ministry of Housing, Communities and Local Government must also be more transparent in its engagement with local authorities - both formal and informal – a National Audit Office report, released today, has said.  

As the department does not collect data on governance “it lacks the evidence base to assess rigorously whether governance issues are system-wide and this reduces the level of confidence it can have in the operation of the system,” the NAO warned.

The NAO said the department should “examine ways of introducing greater transparency and openness to its formal and informal interventions in local authorities and should adopt a stronger leadership role in overseeing the network of organisations managing key aspects of the governance framework.”

Amyas Morse, head of the NAO, said: “Poor governance can make the difference between local authorities coping and not coping. Given the significant challenges these bodies face, the government needs to take the lead in addressing weaknesses in the local governance system to ensure that local arrangements function as intended and support local decision-making.”

The report pointed out there has been a 28.6% real-terms reduction in local authorities’ spending power between 2010-11 and 2017-18.

To try and manage this financial strain councils have pursued “large-scale transformations or commercial investments that carry a risk of failure or under-performance and add greater complexity to governance arrangements,” the watchdog said.

There was a £2.5bn increase in local authority spending on acquiring land and existing buildings from 2015-16 to 2017-18, much of which is for commercial investment purposes, according to the NAO.

Concerns have been raised over councils increased commercial activity. CIPFA announced in October last year it would work on fresh guidance to warn councils not to borrow “more than or in advance of their needs” to try and profit from investing in property.

Rob Whiteman, chief executive of CIPFA, said: “Good governance is integral to improving overall resilience, financial management, and ensuring the long term sustainability of local government.

“Given the significant financial and delivery challenges authorities face, no authority should be complacent about the adequacy of its governance.

Paul Dossett, head of local government at Grant Thornton, said: “Given the cost pressures and the need to raise additional income, sometimes by unorthodox means, we will continue to see both Section 151 officers and auditors concerned about the efficacy of decision making and the stewardship of public funds.”

The report also found Section 151 officers who reported directly to their chief executive felt more able (87%) to provide advice to the senior leadership team rather than those who did not have that reporting line (52%), according to the report.

Whiteman said: “CIPFA has repeatedly called on Section 151 officers to be placed in a position where they can directly communicate any concerns they may have to the chief executive and to others on the senior leadership team.”

The NAO also found that nearly half (48%) of external auditors surveyed agreed or strongly agreed that audit committee members in their authority were appropriately trained to deliver their role.

An MHCLG spokesperson said: “Local authorities are democratically-elected, independent bodies that are responsible for setting their own budgets and managing their resources.

“At Budget we announced more than £1bn in extra funding for local government over the next two years to meet the needs of their residents.”

Last week, the NAO revealed the number of qualified audit opinions on local bodies had risen in the last year. 

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