A new report from the Accounts Commission has warned that the weakening of internal controls, such as measures to reduce exposure to fraud, could have serious consequences for local authorities.
“There are signs from councils’ internal auditors and the work of councils’ external auditors that standards of internal controls may be strained,” it said.
“Some recurring weaknesses are becoming apparent among councils and the consequences could be serious, including the loss of significant amounts of public money, impacts on services and reputational damage.”
External auditors found recurrent weaknesses were becoming apparent within certain kinds of controls, particularly information processing, performance reviews and the segregation of employees’ duties to prevent fraud.
One reason was the trend in reduction of finance staff at a time when the need for robust scrutiny of financial management was more important than ever, it said.
The complexity of Scotland’s public sector landscape with the integration of health and social care and the expansion of arms’ length bodies and City Deals made effective risk management and internal controls especially critical.
The report found that if Scotland’s 32 councils, which had a combined spend of £12.4bn in 2017-18, saved 1 per cent by improving their financial and risk management and internal controls, an additional £124m would be freed up for the delivery of public services.
Graham Sharp, chair of the Accounts Commission, said robust management and scrutiny of council finances was more important than ever before, with local authorities facing complex and challenging financial pressures, as well as rising demand for services.
“At the same time, budgets are tightening and there is significant uncertainty from factors such as the UK's withdrawal from the EU,” he said.
“There are many examples that the systems for managing finances in Scotland's councils are working effectively.
“However, councillors are ultimately responsible for scrutinising a council's use of public money, and they should seek assurances from council officers that rigorous systems and processes are in place to safeguard finances.”
Alison Evison, president of the Convention of Scottish Local Authorities, said that councils to date had carried out their scrutiny duties well, despite facing increasing demand and reducing resources.
“Scotland’s councillors appreciate their role and duty in safeguarding public money and take it seriously,” she said.
The scrutiny skills of elected members were supported through the continuous professional development framework provided by the Improvement Service, Evison added.
“COSLA and our colleagues in the Improvement Service will continue to support our member councils [to] look at ways to strengthen our joint work in this vital area even further,” she said.
