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.
AUDIT OF
LOCAL AUTHORITY
EXPENDITURE
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.
OVERSIGHT AND
INSPECTION OF
LOCAL AUTHORITY
PERFORMANCE
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.
VALUE FOR
MONEY STUDIES
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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