House of Commons - Draft Local Audit Bill: Pre-legislative Scrutiny

Draft Local Audit Bill: Pre-legislative Scrutiny - Draft Local Audit Bill ad hoc Committee Contents

5 Value for Money Studies (VfM)

64. In 2010, prior to the publication of the draft Bill, the Government decided to terminate the Audit Commission's Comprehensive Area Assessments. The draft Bill removes the Audit Commission's statutory duties in relation to undertaking or promoting Value for Money (VfM) studies. In the future the Government expects the National Audit Office "will undertake a small number of additional value for money studies each year, with a focus on sector wide systemic issues and end to end scrutiny".[79] The draft Bill expects that sector specific bodies including the LGA, HMIC and Monitor, will lead performance improvement for bodies in their respective sectors.

The Audit Commission's Value for Money work

65. Lord Heseltine, the architect of the Audit Commission, considered VfM studies to be one of the founding rationales for the creation of the Commission and an integral tool for measuring the efficiency and effectiveness of local bodies.[80] According to Lord Heseltine:

The work that the Audit Commission did in value-for-money studies created massive economies, and benefits therefore, simply by turning a spotlight on what you could achieve in a well-run authority. It has elevated the practice of the best to a standard that others could copy.[81]

66. However, we also heard evidence that the nature of the Commission's VfM work had changed. Witnesses argued that while larger national studies which were perceived to have had "a lot of value in terms of efficiency and effectiveness across local authorities", they had been superseded by the Comprehensive Area Assessment which local authorities, in particular, judged to be less effective.[82]

67. A number of Witnesses argued that the CAA had become unwieldy, poorly reflected local priorities and that the studies had increased in volume but declined in quality. Joanna Simons, Chief Executive of Oxfordshire City Council told us that there had been too many reports of insufficient quality.[83] Similarly, Stephen Hughes, Chief Executive of Birmingham City Council, argued that some of the Commission's work "was really very good, but quite a lot of the studies they did were useless".[84] Moreover Joanna Simons told us that for most local authorities "the worry is about being inundated with endless requests for additional data for things that feel like a long way from our priorities". She argued that:

the problem with the Audit Commission [was that] it just got out of control in terms of the latest idea that might be fine in "X" part of the country but wasn't relevant for us.[85]

68. The Secretary of State reinforced this argument and told us that he was not convinced that the Audit Commission "really added to that process of producing value for money".[86]

69. The scope of the Audit Commission's work on VfM expanded over time at the request of the Government. While we received conflicting evidence about the value of the Audit Commission's work in this area, we are disappointed that the Government failed to undertake a review of the Commission's Value for Money work prior to its termination.

70. We are very concerned that the draft Bill makes no provision for comprehensive like-for-like value for money comparisons which would enable informed judgements about whether taxpayer money had been spent effectively. The Bill should be redrafted to include a systematic process to enable benchmarking and like-for-like comparisons between public bodies in the new regime.

The National Audit Office and national VfM studies

71. The NAO currently undertakes approximately sixty VfM studies per annum.[87] Amyas Morse, C&AG, told us that he intends to undertake a further six in response to the additional responsibilities conferred on the NAO in the draft Bill; he referred to these pieces of work as the "devolved and local space" studies. The C&AG expected the NAO to undertake studies across local authorities, the Constabulary and health bodies.[88]These studies would, he argued, differ from the inspection work undertaken by the HMIC and Monitor as it would focus on broader systemic issues.

72. Some witnesses questioned whether the NAO had the expertise and experience to perform its new role, arguing that an opportunity has been missed to transfer remaining expertise from the Audit Commission to the NAO.[89] However, the C&AG said he had already recruited of additional staff members[90]and he was confident that the NAO was in a strong position to undertake the work with the resources he has already requested which amount to "roughly a 10% uplift in resources".[91] We note the C&AG's confidence that the NAO will be capable of undertaking the additional VfM work imposed by the draft Bill. The C&AG should monitor closely whether he has sufficient resources to meet this requirement and, if necessary, request additional resources from the Public Accounts Commission to discharge his new responsibilities.

73. A number of witnesses argued that limiting the number of devolved and local space studies to be undertaken by the NAO to six was arbitrary; and that the C&AG should be able to undertake further studies where he deemed it necessary. The C&AG told us that he would be content for the NAO to take on more VfM studies should it "become obvious that we need to do more" but warned against a situation where the NAO would be "covering areas that were not envisaged originally".[92] The Local Government Association voiced similar concerns and warned that the majority of councils would object to the NAO being "involved with individual inspections of work in individual councils in any way, shape or form".[93]

74. The C&AG told us he was committed to the NAO maintaining a close working relationship with the LGA.[94] The NAO currently consults the LGA on the topics for the VfM studies undertaken by the NAO through a reference panel chaired by the Chief Executive of the LGA, Carolyn Downs.[95]While the LGA offers the NAO "considerable guidance" on its approach it is important to stress that the C&AG should take final decisions regarding the six VfM studies.[96]

75. Some of our witnesses were concerned about the way in which topics would be selected for VfM studies. Gillian Fawcett of ACCA questioned whether the reference panel would choose to address some of the "wicked issues", which are usually complex or intractable problems which require monitoring.[97]The Audit Commission currently addressed these difficult issues through their studies by drawing on a national picture in order to make suggestions for improvement nationally and on a local level.[98] It was not clear whether the C&AG would continue this practise.

76. We recommend that the C&AG consult widely in order to identify the core issues which need to be addressed by its six Value for Money Studies. We expect the C&AG to work closely with the Committee of Public Accounts in developing its expanded VfM programme.

77. A number of witnesses were concerned about the C&AG's ability to access sufficient high quality data in order to make powerful VfM conclusions. Other witnesses argued that the C&AG's detailed guidance published alongside the Code (see Chapter 2) would ensure that data is collected in comprehensive and consistent fashion. Moreover, it was also recognised that some of the valuable data and information currently collected by the Audit Commission might be lost in the new regime. An example given was the Audit Commission's unique relationship with the auditors allowed it to survey auditors for information outside of the Code for no additional cost as this work was funded through the Audit Commission's "top slice".[99] This arrangement allowed the Audit Commission to produce reports on local council financial resilience and make conclusions about how many councils struggled to cope with cuts to resources rather than naming them individually.[100] There is no mechanism in the draft Bill to continue this arrangement; any additional work would have to be commissioned separately at an additional cost to the C&AG.

78. We recommend that the Bill include a provision to confer on the C&AG an additional power to instruct auditors to collect consistent information on his behalf. The Secretary of State should provide detail on how auditors will be reimbursed for this additional work.

Sector-led performance

79. Alongside the NAO's six national VfM studies, the Government invites "the sectors themselves" to play "a greater role in improvement activity".[101]According to the Government, this would 'enable a greater focus on issues the sectors consider will be able to add greatest value'.[102]During our inquiry we heard evidence from Monitor and HMIC about their approach to inspection and improvement as well as evidence from the LGA about its newly instituted sector led-approach to performance management. The LGA's approach, which predominantly consists of a peer challenge process[103]and an online data and benchmarking service called LG Inform, was of particular interest to us.

80. We heard conflicting evidence about whether, in principle, a sector-led approach is the most appropriate way to address improvement issues in local bodies. The C&AG argued that "there is nothing wrong at all with the LGA being seen in the role of encouraging and driving improvement"[104] but cautioned that he would want to investigate any cases where the NAO's findings contradicted the LGA's work.[105]

81. However, other witnesses argued that a body representative of the taxpayer rather than the LGA, which is a membership organisation representative of local government, should be responsible for this work, due to the substantial funds that local authorities receive from central Government via taxpayers.[106] We are concerned that as a result of the draft Bill there a vacuum surrounding Value for Money work for individual local bodies which sector led organisations, including the LGA, are expected to fill. This places a substantial amount of responsibility on the LGA which is essentially a membership organisation and is primarily accountable to its members, rather than directly to the taxpayer.

82. Witnesses gave mixed opinions about the effectiveness of a sector-led approach to improvement. While some witnesses suggested that a sector-led process could provide more targeted information to local bodies which better suits their needs, others doubted that such an approach would prove sufficiently robust because the LGA cannot compel its members to collect information in a standardised format.[107] We consider that the effectiveness of the LGA's peer-led improvement work is undermined by that organisation being a membership body, and the absence of a formal mechanisms to identify poorly performing local authorities who may, or may not, choose to participate.

83. Despite this we are encouraged by the progress that the LGA has made with regard to its sector-led approach and it is reassuring to hear that the C&AG is satisfied with the LGA's methodology. Furthermore, we are encouraged that, from mid-2013 the public will be able to use the LG Inform tool to compare the performance of their local authority to others and hold the executive to account. We recommend that the NAO should undertake a review of the effectiveness of the LGA's sector-led approach one year from the commencement of the scheme.