Audit and inspection of local authorities - Communities and Local Government Committee Contents

Written evidence submitted by Centre for Public Scrutiny, December 2010

The Centre for Public Scrutiny is a charity dedicated to promoting the value of scrutiny and accountability in the public sector. The bulk of the work that we do relates to local government and the health service.

The main points of our submission are:

—  In general the principle of replacing top-down central regulation with local self-regulation and improvement has great merit. However, there are several important caveats to this which are currently not addressed by the government's proposals.

—  Effective local scrutiny mechanisms must be viewed as central to any proposed framework of audit and inspection.

—  External auditors should be appointed by the council not the executive and there should be a limit on how long the auditor provides services for a particular local authority.

—  There should be an audit committee in each council, but it should not be required to be completely isolated from other scrutiny bodies in the council as there is benefit in linking financial and performance scrutiny.

—  The audit committee should be independently chaired, either by the opposition or by an independent co-opted member.

—  Councillors should have a clear role in referring concerns expressed by the public over published information for further scrutiny and action where necessary.

—  We support the Local Government Group's proposals on self-regulation, with the addition of a clear role for local democratic scrutiny.

—  The local scrutiny function (or in a council with a committee system, some body with some independence from the ruling administration, such as the audit committee referred to above or the local standards committee if the council chooses to retain one) should have a role in signing-off or providing a health-check or validation of the council's annual report.

—  Scrutiny should have the power to refer serious concerns over performance to other agencies, as appropriate, and to "trigger" some kind of intervention, whether in the form of inspection, audit or peer support for improvement from the local government sector.

—  The Centre for Public Scrutiny could act as an "honest broker" to assess referrals, ensure they are basically well-founded and recommend an appropriate course of action. This would fill the gap in terms of how to pick up on early warning signs of poor performance which will be left by the demise of the Audit Commission, while leaving primary responsibility for tackling performance at local level where it belongs.

—  The Centre for Public Scrutiny Accountability Charter provides a means for local authorities—and other partners—to demonstrate publicly how they plan to make themselves accountable by setting out a number of commitments around accountability, transparency and involving local people.

—  The NAO is the natural home for value for money studies but it would require resources and a change to its remit to enable this to happen.

We will address each of the Committee's three lines of enquiry in turn.


The government's proposals envisage a replacement of the Audit Commission's regulatory role in relation to audit with an open market in the provision of audit services to local authorities. They also propose greater public transparency over local authority expenditure, arguing that this will impose greater discipline on council officials, as well as enabling more competition and comparisons to be made in order to drive down costs. There are a number of concerns about whether a free market in audit services will in fact save money or provide the same degree of assurance over public expenditure.

We think that there are some safeguards that—if this path is to be followed—need to be in place at local level to ensure robust and independent audits are maintained. These include:

—  The auditors should be an appointment of the full council, not the executive.

—  Local authorities should maintain a council (not executive) committee with responsibility for overseeing audit and financial performance. However, we believe that authorities should be able to decide such committees' detailed remits and not be required to have a separate, stand-alone audit committee if they wish to amalgamate it with a finance and performance scrutiny committee, for example. There are benefits from linking financial audit work with performance monitoring, so that the outcomes of expenditure can be assessed along with the purely financial metrics. CfPS research shows that internal audit functions perceive benefit from a close link with the wider scrutiny function as it raises the profile of audit with members and enables the link with performance to be made (Internal Forms of Review, CfPS 2007).

—  The audit committee (whatever its title) should be independently chaired, either by a member of the opposition or by an independent co-opted member.

—  Councils should be required to change external auditors every few years to avoid a cosy relationship building up. If the terms of appointment were for three years, for example, it should not be possible to renew this more than once.

—  It should be possible for a single audit regime to be provided across different areas of local public expenditure, particularly where there are joint or pooled budgets. Different audit and accounting regimes across local government, health, the police and other branches of the public sector mitigate against effective, efficient—and properly accountable—joint decision-making and expenditure.

In relation to the publication of expenditure information, the important thing is what then happens as a result of the information being published. What can the public do with it, and where and how do they raise any concerns that they may have about what they have seen? Local councillors should be at the heart of this process, as local champions for the public interest, as sign-posters and facilitators and as scrutineers. If there are public concerns about particular patterns of expenditure, local councillors should be able to refer it to the appropriate committee to determine whether it should be fully investigated.

In their overview and scrutiny role, elected councillors provide a route to connect the public's concerns and views about performance information with the formal decision-making and review process, thus closing the loop and making transparency meaningful. Councillors are also able to make considered judgements in the collective public interest about concerns raised by the proposed "army of armchair auditors". Such concerns about individual items of expenditure may be valid or there may be evidence of the value and impact of this expenditure. Scrutiny should have a role in examining public concerns about published data and assessing whether they are well-founded and whether further more in-depth examination is required. This emphasises the importance of not disconnecting financial audit from performance monitoring—often what will matter to the public is not so much how much was spent but what it was spent on and what was achieved for that expenditure.


We believe that the previous Audit Commission performance assessment regime had many strengths and helped to focus attention on performance, with evidence that local government did indeed improve as a result of this regime. However, the time is right to move back from such a centralised and burdensome approach. We support the Local Government Group's proposals for self-evaluation leading to an annual report, with a three year peer review to provide external validation, as it leaves primary responsibility for improvement where it should lie, with the councillors elected locally to run their council. However, one of the weaknesses of the previous performance regime was that there was a great temptation for local authority administrations to provide a self-assessment for their Comprehensive Performance Assessment or Comprehensive Area Assessment inspection that was overly optimistic and sought to present the council in the best possible light rather than to give a true and honest assessment of strengths and weaknesses. This led to a lack of credibility and created a perception that councils could not be left to self-evaluate.

We suggest that the proposed annual report should be subject to local scrutiny to provide an independent (but local) health-check or validation. This could be combined with involving and engaging local people in contributing their views on how well the council is doing. This should be done in a considered way, and forums which enable deliberative and informed discussion and contributions from a variety of views should be sought. Scrutiny has long experience of handling such exercises to seek a range of views on topics being scrutinised and could be put in charge to ensure the public engagement was carried out independently from the executive of the council. Local health scrutiny committees have also had experience of providing healthcheck commentaries on health trusts' self-assessment reports for the former Healthcare Commission.

For authorities to be open about their challenges and need for improvement requires them to trust and respect the system that is judging them. This means peers and others who are well-qualified and experienced. It also requires a system where authorities can ask for help privately and not be penalised for weaknesses that they themselves have identified. Where political relationships in councils are mature and effective, they enable constructive challenge to be both made and accepted. For example, a common complaint by scrutineers is that the ruling group or executive controls the activities of majority group members on scrutiny committees. But in some councils, the majority group has chosen not to take up all its places on scrutiny committees, voluntarily denying itself a majority and enabling objective scrutiny to take place without fear of a majority whip being applied. In such councils, the opposition also tends to respond positively to this opportunity and ensures it acts responsibly and objectively.

CfPS is developing an Accountability Charter which will enable all public sector organisations to demonstrate how—in whatever way they consider appropriate to their local circumstances—they plan to be accountable for the public money they spend and the decisions that they make. We think that to strengthen the process of local accountability—as mechanisms for central accountability will become weaker—local authorities should be expected to set out the ways in which local communities will be able to hold them to account, how transparent they will be, how decisions will be made and how they can be influenced, how the public can get involved and how feedback on performance can be provided.

We also believe that local scrutiny functions should have a formal role in being able to "trigger" potential external support or intervention through making a referral to whichever agency would be most appropriate, depending on the problem. A serious concern about child safeguarding could be referred to Ofsted, a financial issue might be referred to the external auditor, and a wider corporate performance issue might be referred to the Local Government Group for peer support to improve. While we acknowledge that there might be concerns over inappropriate / politicised referrals, in such cases, scrutiny (and the opposition, if it was a politically motivated referral) would damage itself for having done so and would lose public credibility. We would also argue that the same thing could be said in reverse about the danger of council leaderships not being wholly honest about their true situation and seeking to conceal under-performance.

As part of the attempt to build a culture of trust and openness, and just as government needs to trust councils to be responsible for their own improvement, councils have to trust local overview and scrutiny committees enough to give them real teeth. We believe that there is evidence of this kind of system already working well in health scrutiny, where health overview and scrutiny committees have the power to refer consultations on major reconfigurations of health services to the Independent Referrals Panel who then advise the Secretary of State. The IRP have commented that health scrutiny committees have acted responsibly in exercising these powers, which have generally been used only as a long stop, when all local attempts to build consensus have failed. The IRP's view is that health scrutiny has been "good for everyone". There were also concerns expressed about the potential abuse of the "call-in" power, when it was originally introduced, but other than in a few cases, by and large it has been responsibly exercised, with the average number per authority remaining low at two to three per year. We believe that this demonstrates that when given real power, scrutiny can be trusted to exercise it responsibly, and that any system of local self-regulation should involve local scrutiny and challenge.

We see this "power to refer" as working in potentially a variety of ways. A scrutiny referral could, for example, trigger an earlier peer review than originally scheduled under the three year programme. Where service risks are identified, scrutiny should have a role in providing on-going challenge to ensure improvement continues. The Birmingham "Who Cares" scrutiny report is a good example of where scrutiny has acted in a genuinely independent and rigorous fashion to provide challenge and identify the key areas where action was needed to improve children's services. The press coverage of this scrutiny report (produced by a committee chaired by a member of the majority party) constantly referred to it as "external" and "independent" as if they could not believe that such a hard-hitting report could have been produced by any part of the council. The chair has now been co-opted by the executive to oversee implementation of his committee's recommendations, and has himself argued that, having been a committee chair in the old metropolitan county council in the 1980s and 1990s, scrutiny provides more power to create change and improve things than the old system.

There are some services—those for vulnerable children and adults in particular—where greater external inspection should still be expected, but it should be more proportionate and risk-based, and always willing to step back where it can be reassured about the strength of local scrutiny. In Cardiff, the Welsh Social Services Inspectorate ultimately stepped down its close intervention and monitoring of a poor social services department, because it was satisfied that the local scrutiny function was monitoring progress against the action plan and performance was improving.

CfPS could potentially act as an "honest broker", to assess the merits of any scrutiny referrals / triggers and advise the appropriate agencies on a possible course of action, much in the same way as the IRP does over health scrutiny referrals before advising the Secretary of State. We know enough about effective scrutiny to assess whether any referrals were soundly based or not, and could provide reassurance over the risk of malicious or politically motivated referrals. One of the concerns about any new system that may emerge is over how early warning signs of poor performance will be picked up and shared, which the Audit Commission used to provide. Local democratic scrutiny is the best way to pick up on poor performance and make recommendations for improvement, but if their concerns are ignored by a ruling administration in denial or otherwise unwilling to accept their recommendations, then having somewhere to which they can refer serious concerns but which can "triage" the referrals to weed out any that are obviously unfounded and recommend an appropriate course of action, could fill the gap that may be left when the Audit Commission goes.


The ability to aggregate and compare data and carry out national studies on performance and value for money was a valuable role performed by the Audit Commission. The National Audit Office is the obvious home for this work, but it will require resources and a clear remit to do so. At present its role is to support Parliamentary scrutiny rather than provide independent commentary on government policy in a wider sense.

The strength of the Audit Commission's role in this area was the ability to link financial and performance and outcome information. It is important that this happens at local level as well—hence our comments earlier about the value of audit and performance scrutiny being linked. It will also be vital to ensure that in the drive to reduce the burden of reporting on performance, nationally comparable datasets are not lost, otherwise value for money studies will be impossible to carry out in any meaningful way.

January 2011

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Prepared 7 July 2011