LGA issues report on learning from councils which faced finance and governance challenges

The Local Government Association has published a report setting out the learning from research and roundtables into five councils with experience of finance and governance challenges which led to either a s114 report or a capitalisation direction with a governance review.

The LGA commissioned management consultancy Human Engine in September 2022 to carry out a desktop study on the five local authorities: Northamptonshire County Council, Croydon Council, Slough Borough Council, Peterborough City Council and Wirral Council.

The first stage of research was completed in April 2023, following which roundtables were held to discuss the findings and recommendation. Four further local authorities have issued s114 reports after the research was commissioned.

The LGA said the aims and objectives for the research were three-fold, namely to:

• synthesise the main messages from publicly available reports
• identify factors impacting financial resilience and the reasons for this
• identify common factors which apply to all three councils which published S114 notices and the two councils receiving capitalisation directives.

The research did not include in its scope: interviews with former political and managerial leadership of the five councils; analysis of the culture of the organisation; and identification of accountability of individuals / groups.

The report authors said: “The immediate causes of S114 reports and financial difficulties in [the five councils] have been subject to thorough scrutiny and investigation, so it was not the intention of the research to revisit old ground. Instead, the work examined published sources going back up to five years to identify anything that might have been missed in those official reports.”

The report summarises learning points and makes recommendations in eight areas.

The first of those areas surrounds the quality of strategic risk management, where the report found that annual governance statements in some of the five councils had identical risk statuses and mitigating actions year on year.

“This was despite the inclusion of statistics showing changes in circumstances at the council,” it said.

Actions plans had been presented, agreed and timelines for reporting progresses set out, but there was no evidence that these had been presented back to Members.

Often risk management policies/ strategies did not clearly set out respective roles and responsibilities for risk between Members and Officers, the report said.

To improve the quality of strategic risk management, the report recommends that councils:

1. adopt stronger approaches for the management of long-term strategic risks and ensure appropriate awareness of the knock-on impacts of such risks
2. assign clearer roles and responsibilities for the implementation of mitigating actions
3. have processes to ensure that Internal Audit recommendations are addressed by the council’s leadership
4. scrutinise mitigating actions to ensure they are implemented and have had the anticipated impact
5. report transparently on where mitigating actions have been successful and unsuccessful in managing risk levels
6. be more explicit in the recognition of the severity of the risks identified.

The LGA report questioned the quality and timeliness of scrutiny and reporting, with the research showing that public reports were “often unavailable or missing, including contract registers and spend data”.

There was also evidence that pre-scrutiny, decision making, and use of committees was not undertaken properly, with items agreed for consideration by scrutiny committees but never appearing on agendas before being presented to Cabinet and Council.

The report also found that:

• The publicly available documentation, or lack of it, showed consistently that accounts were missed, spend data was unavailable.
• The research found a lack of evidence of scrutiny being followed, and committee meetings not taking place, highlighting governance issues. Delegates noted the importance of monitoring progress in addressing issues identified in Annual Governance Statements throughout the year and viewing the statements as an opportunity to consider how value for money is being achieved. 
• There was recognition of the leadership role that audit, and risk committees can play, and the need to strengthen overall governance.
• It is important that the basics are done well. This includes committing to record all key decisions, share relevant papers in advance of meetings and ensure all reports are supported by evidence.

The report also covers and makes recommendations in relation to:

• Delivery of savings programmes, where savings programmes or initiatives were “often presented with speculative lines such as ‘general efficiencies’ or ‘transformation savings’ or ‘contracts review’ with many millions assigned to each”. Public reports also showed year-on-year non-delivery of savings projects. The snowballing impact of this can be traced through papers, often in the region of only 50-70% of savings being delivered.
• Commercial investment and arm’s length bodies: “Having used the publicly available documentation to track the decision-making process of large commercial investments across the councils, the research found little or no scrutiny had taken place ahead of multi-million pound purchases.”
• Demographic pressures, with the councils in the desktop study varying in the extent to which they perceived themselves as demographic outliers.
• Culture and leadership, with a key point noted throughout the research being the importance of transparency when it comes to decision making and risk management. The need for trust between officers and members was also highlighted as being key to effective management.
• Today’s context, where delegates “noted the seismic shifts in the external environment, making long-term financial planning increasingly difficult”. National circumstances outside of council control, including a huge increase in both demand and cost, had led to financial pressures and risks to statutory services in many councils. Staff shortages and hollowed-out corporate centres had resulted in a lack of capacity to plan and deliver any long-term savings.

The report said the discussions emphasised the need to move away from always placing blame on councils for issuing a S114 report. “Rather, there were calls for S114s to be viewed as potential instigators of positive change.”

It added: “The view from some roundtable attendees was that the funding gap facing councils was an emerging driver for councils’ wider challenges. There were therefore calls for a shift in the public discourse around S114 reports, highlighting that this is not necessarily an indication of a dysfunctional council, but of chronic underfunding."