Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by CIPFA (LGA 20)


  1.1  CIPFA has a keen interest in the impact of the local government Act 2000 on the underlying governance structures and financial management arrangements of local authorities and is therefore pleased to submit comments to the Sub-Committee's inquiry.

  1.2  As a professional accountancy body that specialises in the public services, CIPFA's evidence focuses on two areas—the link between changes in approach to political management and governance arrangements and the effects on local authority officers.


  2.1  In CIPFA's view it is still too early to assess in any great detail the effects of the 2000 Act as new approaches to political management have not yet had time to "bed down". However what is clear is just how important it is for new executive structures to be built on solid foundations. In our view, the key factor that can provide this sound underpinning is a robust but dynamic approach to corporate governance that is sufficiently flexible to respond to cultural and organisational change without sacrificing probity and accountability.

  2.2  Introducing a new approach to political management will achieve nothing unless the underlying systems and processes that an authority has in place to manage its internal affairs and its relationships with key stakeholders are themselves sound and "fit for purpose". If insufficient attention is paid to the need for sound governance arrangements there is a risk that new executive arrangements will be regarded as a bureaucratic "add on" and as a result fail to take root throughout the organisation or have an impact on the wider community.

  2.3  In CIPFA's view, effective local government and democratic engagement rely primarily on the credibility of, and public confidence in, elected councillors and officials rather than on organisational structures. In particular, local authorities need to operate in an open and accountable manner and demonstrate high standards of conduct and self governance that can inspire confidence amongst citizens and in potential partners from the public, private or voluntary sectors. In practice this means that the principles of good corporate governance need to be

    —  embedded in the culture of individual local authorities

    —  applied within a defined framework of management processes

    —  transparent to all stakeholders.

  2.4  We strongly believe that it is an authority's underlying approach to corporate governance that is the key to whether or not any new approach to political management is effective and whether greater transparency and accountability is achieved as a result. Our view is that local government has long recognised the importance of good governance and therefore has a sound base on which to build. Local authorities also have the advantage of operating within a strong regulatory framework of control and robust arrangements for monitoring and review.

  2.5  Given the central importance of corporate governance, CIPFA and SOLACE with the support of the LGA and the Audit Commission last year published "Corporate Governance in Local Government: A Keystone for Community Governance". This Framework emphasizes that authorities must be able to demonstrate that they are complying with the underlying principles of good governance, that is

    —  openness and inclusivity

    —  integrity

    —  accountability.

  2.6  The CIPFA/SOLACE Framework promotes a local, self-regulatory approach to good governance, with a strong emphasis on continuous improvement, rather than a universal "one-size-fits-all" approach—it does not therefore prescribe a single model of governance, but rather commends local authorities to review their existing corporate governance arrangements against the Framework. It is also designed as a stimulus to local authorities to prepare and adopt an up to date local code of corporate governance including arrangements for ensuring its implementation. In our view this is an invaluable exercise that not only provides a sound foundation for 2000 Act executive arrangements but also helps foster a positive, trusting view of authorities amongst their stakeholders


  3.1  Any change to the way in which local authorities operate is bound to cause tensions and anxieties amongst staff in the short term and during the process of transition. By introducing significant constitutional changes, the 2000 Act has also led to questions over whether traditional officer structures need to change. Whilst CIPFA agrees that authorities need to think through the implications of new executive arrangements on managerial structures it is important that the continuing value and relevance of the underlying principle—that officers serve the whole council, are politically neutral, objective and professional—is not compromised.

  3.2  CIPFA is particularly concerned about the potential impact of the split between executive and scrutiny on senior managers. Clearly the 2000 Act has introduced a tension in that both "sides" will need and expect objective advice and support from officers. Anecdotal evidence suggests that in some authorities this has led to pressure to establish two sets of officers: one accountable to the executive, the other to the scrutiny function. Quite apart from the duplication of effort this would involve and the associated resource implications, this approach also ignores the fact that—when it comes to finance—there is a statutory duty (s151) for each Council to have a single officer responsible for managing an authority's financial affairs in all its dealings.

  3.3  In response to these and other concerns, CIPFA is now reviewing its 1999 Statement on the role of the finance director. To ensure that we take account of practical issues, we carried out a survey last year of all finance directors to identify points of tension arising as a result of the 2000 Act. This exercise revealed a number of actual or expected difficulties that can be grouped loosely under three broad headings—cultural, structural and procedural.


  3.4  As you would expect there were general concerns at both officer and member level about coping with resistance to change and adapting to a new way of doing things. One particular issue identified in a number of responses was an anxiety that "backbenchers" may disengage if they felt their roles lack meaning when compared with those involved in the executive or scrutiny functions.


  3.5  The most commonly cited concern relates to making the overview and scrutiny role work effectively and in particular getting "buy in" from councillors and officers and developing effective structures for its operation and support. There were also a number of detailed concerns about establishing structures for officer support that could serve both executive and overview and scrutiny.

  3.6  Another area of concern centred on the potential for lack of clarity in reporting lines for finance directors and other chief officers and confusion over linkages between functions. For example how the roles of scrutiny, internal audit and audit committees fit together.


  3.7  At a more detailed level, the survey identified a number of practical or procedural requirements linked to the 2000 Act. For example, the need to establish

    —  a framework for decision making rules and procedures that is workable and not overly bureaucratic

    —  a practical and workable framework for budget and policy making

    —  new protocols setting out how the s151 officer reconciles advice to cabinet/leader with accountability to full council/scrutiny.

    —  protocols governing how the finance director's advice is secured and taken into account in arriving at cabinet decisions

    —  clear delegation rules and procedures

    —  financial regulations that fit new approaches.

  3.8  As well as recognising the impact of the 2000 Act on the finance director's role, CIPFA's revised guidance will look at the implications of the Government's recent White Paper—Strong Local Leadership, Quality Public Services—and in particular the emphasis it places on sound financial management and advice. Our intention is to issue a draft for consultation in the Spring and we would be happy to share a copy with the Sub-Committee if that would be helpful.

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Prepared 22 April 2002