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

Written evidence submitted by Vanguard Consulting

This submission is concerned only with oversight and inspection of local authority performance. I have no expertise in audit of expenditure but would consider it important that financial expenditure should be assured for probity.


—  Audit is not without value judgement.

—  The idea of "best practice" should be abandoned.

—  The "value for money" methodology has little to do with value for money.

—  "Better" is a more constructive lodestar.

—  Responsibility for innovation must be with the innovator.

—  Inspection of performance should be limited to one question.

—  Citizen redress should be given teeth.


Vanguard helps service organisations change from a "command-and-control" design to a "systems" design. The Vanguard Method enables managers to study their organisation as a system and on the basis of the knowledge gained, re-design their services to improve performance and drive out costs.


When the Audit Commission's role was extended to include performance management it inevitably began to formulate views of what "good practice" is. The adoption of service models including shared services, back-offices, choice-based lettings, schedule of rates, targets, service-level agreements, customer service standards and many other similar features have been promulgated as necessary for compliance through the oversight and inspection processes.

Many of these features fit with politicians' predilections; thus the Audit Commission became an instrument of government. For example, Audit Commission inspectors have encouraged, some would say coerced, the adoption of shared services, despite there being no evidence as to their efficacy and plenty of evidence of expensive failures which have cost the public purse.

The features listed above do not constitute "best practice". Worse, they cause sub-optimal performance of the service involved. For example, "economy of scale", often assumed to be a "no-brainer" by those specifying and inspecting services, is in fact shown to be a myth when applied to the design of services. Industrialised services create their own ("failure") demand. Recent revelations about HMRC's performance illustrate: The failure of the industrialised design (call centres, back offices, standardised work, IT-dominated processes, etc) has led to what must be the majority of PAYE taxpayers' payments being found to be wrong or not "closed" (meaning HMRC is not sure). This and other failures of industrialising services ought to provide caution to those who now seek to provide the newly proposed Universal Credit on-line and through a single national call centre.

While politicians have placed faith in Audit Commission ratings of local authority performance, our studies of Audit Commission performance ratings show problems of validity. High ratings are given for compliance with specifications developed by DCLG, the Cabinet Office and the Audit Commission. When studied as systems, 1-star performers look little different to 4-star performers to their customers.

In summary, the processes of oversight and inspection are replete with value judgements about "good" or "best" practice. The judgements are not grounded in evidence but are based on ideological beliefs about service design. Oversight and inspection activities have contributed directly to sub-optimising performance.


Vanguard's work with local authorities has identified, in practical terms, how oversight and inspection activities have made performance worse in each and every local authority service. Three examples:

Housing Benefits service

In 2008 the Audit Commission published a "research" report[48] which claimed the greatest potential efficiency savings in Housing Benefits services would be made by "partnerships", meaning either sharing services with other local authorities, or out-sourcing to private-sector providers.

By the time of this report most local authorities had adopted the DWP's mandated design for benefits processing, a front-office/back-office design with associated targets. From this position it was an easy step to share or out-source a "back-office".

Sir Peter Gershon's report into government efficiency also concluded that local authorities should share or out-source Housing Benefits processing.[49]

Local authorities that have studied the Housing Benefits service as a system have found that a front-office/back-office design, with associated targets, creates enormous waste. They have also shown that the best design for Housing Benefits is to design the service against demand (or, to use the parlance, a "front-office-only" design). Benefits are processed in a matter of days and typically efficiency gains of 20 to 40% are realised. More importantly because claimants are seen, these local authorities solve the whole problem for people, diminishing demands on other services but most importantly, providing services that work.

Housing Repairs

Local authorities that have studied housing repairs know that the schedule of rates (introduced to control costs), the menu of repair targets, the use of standard times and procurement on the basis of cost—all features rated highly by inspectors—drive costs up and worsen service.

Portsmouth City Council's housing service, to take just one example, has been re-designed. Today it provides repairs to tenants on the day and at the time the tenant wants it. The cost per repair has been halved. It is, by anybody's standards, an economic benchmark. However, Audit Commission inspectors visited and down-graded their rating of Portsmouth because the features inspectors had been sent to see were not present.

Adult Social Care

Adherence to the specifications developed by CSCI and now maintained by the CQC means the time it takes to determine an adult's needs is extraordinarily long, requires multiple visits by different functions and is confusing for the adults requiring help. For example, in one local authority it was learned that for every £100 spent on care £1,000 was spent in administration (establishing the need for this care to be provided). While all of the functions within this service may be meeting their targets, and the service may be highly rated by inspectors, the customers' experience was dreadful. Often those who need care suffer deterioration in their conditions.

Local authorities that have studied their systems have used this knowledge to design the service against demand and hence improve the service—people get their problems solved in short times—and this reduces costs in three ways: the costs of administration, the costs of equipment provided and, by far the largest saving, the costs associated with driving people into care homes.

At this time care services are still subject to the specifications originally developed by CSCI. The Munro review into children's services will report on regulation. Professor Munro's findings will be relevant to all care services.

The above observations are true for all local authority services. The idea of "best practice" being promulgated by the centre and reinforced through inspection must be abandoned.


The Audit Commission's "value for money" methodology is based on the measurement of cost, with a particular focus on unit cost. It is both misleading and damaging. Managing costs creates costs.

Consider, for example, local authorities' compliance with the 2005 target to establish call centres. It was based on the notion that telephone calls are a cheaper way to provide a service. In every case studied, compliance led to a rise in the volumes of calls (failure demand). The true costs of service are represented by the total number of transactions it takes customers to get a service. The pursuit of lower transaction costs drives costs up.

The "value-for-money" calculation for museums and galleries is the percentage of the population that has visited divided by the cost of the services per head. It teaches us nothing about value and will lead to dysfunctional decision-making.

In housing repairs, service "costs" are measured through the schedule of rates. Very often the low-cost providers are also those that have to visit tenants repeatedly. The schedule of rates was introduced to control costs but in practice it only drives costs up. The same phenomenon is found in health commissioning, it is inflating costs.

The Audit Commission's Key Lines of Enquiry for housing repairs encourages the use of "modern procurement methods and partnerships". The "professional" procurement industry which has grown around out-sourcing repairs ensures that only the larger providers that employ the schedule of rates, targets, standard times and workforce management systems—all considered "best practice"—will get the work. All of these features have been abandoned by housing organisations that have adopted the systems approach because they have learned how these things only drive costs up.

To know about the cost of anything is to know nothing useful; any action risks making things worse. Studying local authority services as systems has given managers knowledge about quite different things: the nature of demand (what do people want from us?), the capability of the organisation in providing it and the costs of failure to do so. By designing their services against citizens' demands and managing value they have driven costs out of their organisations.

The "value for money" methodology has nothing to do with value and, with its focus on cost, serves only to reinforce poor-quality management thinking. While the Audit Commission regards "value for money" studies as "can-openers" on management's problems, I regard them as leading to a misunderstanding of the problems.


"Best practice" is a static idea. It leads us to think we should copy others. Father of the Japanese post-war revival W. Edwards Deming taught that copying without knowledge is dangerous. The genius behind the development of the Toyota Production System Taiichi Ohno taught that visiting others was looking in the wrong place. He showed how everything you need to know to improve your organisation is within it; you simply need to learn how to look at it differently.

Benchmarking "best practice"—comparing to and visiting others—is the fastest way to mediocrity.

Anything can be improved, even the best. "Better" is a dynamic idea and is therefore a better lodestar for local authorities' performance management.


The vital feature of the coalition government's removal of targets and central specifications is the shift in the locus of control. The previous regime ensured only compliance with the centrally-set specifications. To innovate we need responsibility in the right place, where the services are provided. To that end local authority managers must be completely free to choose on all matters of method and measures when designing and managing their services.


If there is any inspection of performance, and in my view it should not be necessary, the inspector should be limited to asking one question:

"What measures are you using to understand and improve performance?"

The question maintains the locus of control with the local authority manager. Having been told the answer, inspectors should then look for the use of the same measures in the work-place. This will radically increase the validity and reliability of inspection while also reducing its costs.

The same measures should be published locally.


Citizens want services that work. With most services citizens do not want to be asked to design them or control them; they just want those services to work. When they don't work the citizen's first port of call should be their local representative who, after all, was elected to do exactly this. If that fails, redress should be provided to a body with the power to investigate and take whatever action is required. Both steps should be given teeth.

Professor John Seddon
Vanguard Consulting

January 2011

48   Audit Commission research into Housing Benefits services: "The Efficiency Challenge: the administration costs of revenues and benefits" November 2005 (accessed 23/11/2010) Back

49   Gershon, P 2004 "Releasing resources to the front line: Independent Review of Public Sector Efficiency" HMSO, Norwich. See for example the recommendation on page 43 to "rationalise the number of providers of the same transactional services, such as housing benefit, thereby delivering significant economies of scale" Back

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Prepared 7 July 2011