Agenda item

The Committee received a report looking at the lessons learnt from other Local Authorities who had experienced financial management and governance arrangements difficulties over the last 3-4 years.  These included looking at the experiences of Northamptonshire County Council (March 2018), to the most recent section 114 notice issued by Slough Borough Council, which followed closely behind the critical 2018/19 audit by Grant Thornton.

There were several factors that have had an impact on local authorities in recent years.  After years of reduced government funding, local authority business models have become increasingly reliant on generating additional income to support frontline services. This has led to a number of local authorities increasing commercialisation and develop different vehicles to facilitate this, including partnership ventures, joint ventures, limited companies and Teckal companies.  The recent Public Interest reports had shown that the failure of council owned companies can have a devastating effect.

Grant Thornton had summarised the key issues arising out of the recent Public Interest and Best Value reports (Appendix 1) into 5 main areas:

-          Financial Management.

-          External Companies.

-          Organisational Culture.

-          Risk Management, Assurance and Audit.

-          Relationships and Decision Making.

From a political and governance perspective, the key issues identified related to Member conduct and behaviour, Legal capacity, confusion of roles and delegations, and poor scrutiny arrangements.  In addition, the Department for Levelling Up, Housing and Communities (DLUHC) had produced its own lessons learned document: ‘Addressing cultural and governance failings in local authorities: lessons from recent interventions’ which sought to provide guidance on recognising poor culture and weak governance.

DLUHC did not consider the following list definitive but had identified the following issues in various inspections undertaken:

-          lack of effective political and/or corporate leadership, including an overreliance on interim statutory officers.

-          a lack of corporate capacity, resulting in a lack of strategic vision and direction, and inadequate internal processes.

-          poor and inappropriate councillor conduct.

-          conflict and distrust among and between councillors and senior officers.

-          the absence of effective scrutiny, transparency, and public consultation, including inadequate protections for whistle-blowers.

-          a lack of awareness and acceptance of the need for improvement; and insufficient capacity to achieve the change required.

CIPFA identify that there are some common issues among councils holding companies and these were generally linked to organisational governance, leadership, capacity, financial stability and culture.  Building on the 2019 financial management code, CIPFA was planning to extend its financial sustainability work by developing additional guidance on council-owned companies.

Despite all the lessons learnt and signs identified through inspections and by CIPFA, there were no clear or unequivocal quantitative measures to assess whether a council had a poor culture.  Weak governance could be less tangible and visible from the outside.  In some instances, peer challenge/reviews could provide insight into some of these issues.

The Committee report provided some analysis of the new Buckinghamshire Council, stating that it could boast of having very strong political and corporate leadership, with a clear strategic vision and direction.  There were detailed internal processes for decision making and a good understanding by officers of those processes, good report writing and professional advice.  Whilst there were some incidents of inappropriate Councillor conduct, there were robust mechanisms in place to address these and, generally, conduct was of a very high standard with a comprehensive complaints procedure and training on the Code of Conduct in place for all Councillors.  Regular advice and assistance to Members is provided by the Monitoring Officer.

Information was provided:

-          that Members were well aware of the role of Officers, and there are detailed constitutional provisions regarding their respective and different roles. In the main, relationships of trust were maintained.

-          That since the election in May 2021, Scrutiny/Select Committees had been formed with independently minded Chairmen and detailed work plans.  Regular meetings of Scrutiny Chairmen and Cabinet members were organised and constructive challenge and detailed reviews of council business was welcomed.

-          That similarly Audit and Standards Committees played an important role in overseeing risk and governance issues, together with a regular review of the constitution.

-          that the Constitution set out a detailed set of delegations both to the various Committees but also officers, and individual Directorate have schemes of delegation in place.

Members were informed that a lack of prudent level of reserves was one of the key themes that emerged from the ‘lessons learnt’ reports and was an issue that could significantly reduce a council’s ability to respond to financial pressures that may emerge.  It was generally accepted by external auditors that councils should hold at least 5% of net operating expenditure in General Fund reserves (including earmarked reserves).  Buckinghamshire had a healthy reserves position, and in the budget setting in February 2021 it had been reported that the Council had c£47m in unallocated General Fund reserves (excluding earmarked reserves) that was approximately 10% of the Council’s net operating budget.

Information was also provided on how the Buckinghamshire Council addressed the following issues:

-          Ensuring there was not a general misuse of capitalisation of revenue or the use of the capitalisation that failed to deliver the intended benefits.  There was a thorough review of charges to the capital programme each year to ensure that all costs are genuinely capital.  The external auditor also tended to take a keen interest in testing to ensure the capitalisation regulations had been appropriately applied.

-          Ensuring the Council was setting aside a prudent level of revenue resources to pay off any borrowing.

-          Financial support / loans to failing ventures /companies – the Council did not have any failing companies but remained vigilant to make sure there was organisational oversight of the financial plans and performance of companies, partnerships and joint ventures.

-          Ensuring there was appropriate and timely action to look at either budget overspends or the likely undeliverability of budget savings.  An extensive process of review and challenge was in place when it came to the MTFP budget setting process, including a CMT Budget Board and monthly Budget Boards within all directorates.

-          That the Council had a strong strategic procurement team, that regularly reported contract waivers and breaches to the Audit and Governance Committee.

-          That it was standard procedure with the disposal of property to ensure a s123 valuation was undertaken confirm that the disposal arrangements were value for money for the Council.

A Member reported that individual member engagement on key decisions could be improved as local ward members were not believed to be consulted with on a consistent basis. The Committee discussed that a way of exploring this further, may be to take a sample of Cabinet Member decisions and assess local member involvement in each decision. A comment suggested not only referencing local member consultation within reports but to detail what the opinion of those members was and the dates they were consulted with.

ACTION LOG: That the Director of Legal and Democratic Services in co-operation with Business Assurance explore the feasibility of assessing member engagement in Cabinet and Cabinet Member decisions in a way they see appropriate. This piece of work may be undertaken by the newly in post Principal Governance Advisor. Consideration should also be given to sharing this report with the Finance and Resources Select Committee.

The Committee thanked officers for the production of the report and welcomed the action plan.

RESOLVED –

(1)   That the report be noted.

(2)   That an update on the action plan be brought back to the Audit and Governance Committee in six months.