As local authorities brace themselves for austerity 2.0 and the growing likelihood of swathing public sector cuts, the need for transparency over the way that local authorities’ dwindling budgets are being deployed has never been more important.
While the intricate detail of local authority accounts may tell a compelling story about how budgets have been allocated, there is far more at stake here than making sure that the books are balanced and keeping the auditors happy.
Trust in government has taken a battering in recent times and local government is no exception – just 42% of the population say that they trusted local government according to data from the Office for National Statistics published in July this year. Greater visibility and accountability about how the balance sheet relates to spending promises made would go some way to addressing that statistic.
It seems an apt time to revisit Sir Tony Redmond’s government-commissioned independent review, aka the Redmond Review, which threw under the microscope, among other things, the Transparency of Local Authority Financial Reporting. Its rather damning conclusion was that local authority accounts are “considered impenetrable to the public”.
One of the review’s key recommendations was the introduction of an audited simplified statement presented alongside the statutory accounts that would allow comparison of costs with the annual budget and council tax requirements, a suggestion backed by both ICAEW and CIPFA. The government also accepted the recommendation but implementation of the simplified statement has stalled, largely due to concerns that the additional burden it would place on both auditors and finance teams may add to audit delays.
Much may have happened since the review’s 2020 publication – not least a pandemic and several changes of Prime Minister. But the argument for a standardised statement of service information and costs remains as valid now – if not more than ever, Sir Tony says.
“I still believe it’s important because there is a lack of transparency in terms of the council’s presentation of financial information to its council tax payers. I believe that local authority accounts are too complex. They’re certainly impenetrable to anyone other than those who are technically qualified to understand them. And that lack of transparency extends to a potential for lack of accountability and potential inability to demonstrate to its council taxpayers that it’s using its resources wisely.”
And while the audit of local authority accounts gives the public a high level of assurance that there’s nothing untoward in the way the money has been spent, the income has been generated and the accounts have been prepared, the accounts as they currently stand provide little comfort in terms of accountability and governance to those paying for services through their taxes. “To whom does this matter most? Well, doesn’t it matter, most to the people who paid for the services in the first place.”
Being able to compare budgets to actual spend in an easily digestible format is key, Redmond says. “And of course, if local authorities can be seen to be holding themselves to account in respect of the way they deliver their services to the public, and at what cost, that’s got to be good governance.”
“Better engagement of the public is very important and healthy for a democracy,” Redmond adds. “A standard statement of service information and costs really goes in that direction and opens up an opportunity for a dialogue with the communities, which doesn’t always exist at the moment.
Anecdotal evidence from s151 officers across local government hints at frustration that despite the significant effort that goes into producing statutory financial reports, the opportunity to use them to engage local taxpayers is being missed. The absence of a standard format to demonstrate how councils have allocated funds in practice compared to the allocation promises they made, would, Redmond believes, help to plug that engagement gap.
In practical terms Redmond concedes that a one-size-fits-all approach is flawed: “If you take a shire district council or a unitary council, or city council or county council, they deliver different services. So there wouldn’t be one standardised statement for everybody, but a standard approach for each class of authority.”
And while the standardised statement could offer the opportunity for some elements of comparability, it’s something to be approached with caution, Redmond says. “The delivery of services such as street cleaning and refuse collection may be very similar from local authority to local authority, but how you finance it and how you account for it can differ.
“The attribution of cost of services might vary, the way in which overhead on costs are applied could be different from one to the next. My emphasis is very much on the relationship between the council tax payers and the council of an individual local authority.”
Redmond, a former council chief executive, treasurer and local government ombudsman and a past president of CIPFA, stands by his assertion that in order to be both accurate and credible, there needs to be external verification of the standardised statement, but he is also mindful of the challenges this poses against a backdrop of a public sector audit market in crisis, plagued with capacity issues and rising costs. The fact that only 9% of local authority 2020/21 audits were completed before the statutory deadline of 30 September 2021, prompted the Public Accounts Committee to warn that without urgent action the local audit system “may soon reach breaking point”.
“I understand that it’s an additional job. But if the auditors undertake the task in an efficient way, they can follow through the process in both accounts at the same time, and relate one to the other. It shouldn’t be a separate process.”
Redmond says support for a simplified statement among local authorities remains mixed, with many convinced that the narrative statements they prepare do a good enough job of telling the performance story. What is also true is that, in the absence of mandated and audited narrative reporting standards, criticism is rife that there is still too much opportunity to put a positive spin on performance.
“It’s not about making comparisons between local authorities, but making sure that everybody’s adhering to the same rules,” Redmond says. “I understand that a local authority would want to present the council in the best possible light. But it’s better if it’s actually tied to a standardised process that enables it to be straightforward about what’s happening.”
Similarly, Redmond concedes that one of the arguments to push back on a simplified statement is the assumption that council tax payers are not interested in its content. “I know there’s a pushback on this from many professionals in the organisation who say local people leave us to get on with it, they’re not interested. Well, they may well be right, to an extent, but it’s not been properly tested.”
Sir Tony Redmond is a panellist at ICAEW’s Public Sector Conference 2022 on 9 December talking about lessons learnt from governance failures in local authorities.
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