Public Audit Committee, 25 Mar 2009

Meeting date: Wednesday, March 25, 2009

Official Report 394KB pdf

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Accounts Commission

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“Overview of the local authority audits 2008”

Agenda item 2 is the overview of local authority audits. We have with us the chair of the Accounts Commission, John Baillie. He is accompanied by the deputy auditor general and controller of audit, Caroline Gardner, and the portfolio manager of local government audit in Audit Scotland, Gordon Smail. I welcome them to the meeting.

I should remind the committee that I currently serve as a local councillor on East Ayrshire Council. The committee should be aware of that before we discuss the report in detail.

Thank you for that.

I invite Professor Baillie to make some introductory remarks.

Thank you for giving me this opportunity to brief the committee on the report, "Overview of the local authority audits 2008". I will make a short opening statement, after which I and my colleagues will be pleased to respond to the committee's questions.

Each year, the Accounts Commission requests a report from Audit Scotland on the main issues arising from the audit of Scottish local authorities. The report covers the 32 councils and the 41 related local authority organisations, such as the police and fire and rescue authorities, which together spend about £17 billion each year and provide crucial public services. The overview report brings together all aspects of the commission's work in the calendar year 2008: for example, the annual financial audits, the best-value audits and our wide range of in-depth performance studies of policy implementation and service delivery. We draw on all that work to highlight issues of importance for the local government sector in Scotland.

This year, we welcomed the evidence of improving local authority service across a range of areas, including council tax collection. However—it is a rather big however—we highlighted significant challenges that councils face as a result of the recession and in making partnership working achieve its full potential. Our overview report identified six areas on which councils should focus, to ensure that they are fully equipped to meet those challenges. The Accounts Commission has tracked and reported on most of those areas for some time, but in the current environment we view them as crucial. I will cover each area briefly, before I talk about work that the commission is currently doing, which is of relevance.

The first area is performance management and monitoring. Good management processes remain important, and robust information about the quality, cost, accessibility and value for money of services is essential to support performance monitoring and reporting, decision making and scrutiny.

The second area is culture or attitude. Councils need to have a strong best-value attitude and a culture of continuous improvement across services, with an even greater emphasis on efficiency, the effective use of resources, equalities and sustainability.

The third area is competitiveness of key services. A more systematic and rigorous approach is needed to demonstrate service competitiveness and value for money, with more use of comparative information.

The fourth area is shared services. We are disappointed at the slow progress of councils in working together on shared service initiatives to secure efficiencies. In light of continuing financial pressures, all councils should consider the area to be a high priority.

The fifth area is making partnership working real and effective. Single outcome agreements and community planning require local authorities to work closely with organisations that cover the same geographical area, such as national health service bodies, to deliver services. The commission hopes that other public bodies will also work to improve partnership working.

The sixth area is continuous development of elected members. Personal development is essential to ensure that councillors are properly supported in carrying out their demanding and complex roles of leading, monitoring and scrutinising. All councillors should have a personal development plan that sets out their training needs and progress.

I will conclude by making three points to update the committee on our work. First, we are continuing our cross-cutting work with our public audit partner, the Auditor General for Scotland. We recently agreed performance studies that will consider topics that affect local government and other parts of the public sector, including the Scottish Government. For example, tomorrow we will publish a joint report on drug and alcohol services and during the next few months we will publish joint reports on mental health services and civil contingencies planning. There is a strong partnership theme across much of the study work.

Secondly, following the Crerar report, the Government asked the Accounts Commission to take on a key role in co-ordinating scrutiny in local government. We are working hard with the other scrutiny agencies and making good progress in developing shared risk assessments and planning for joint scrutiny work. We are currently consulting on proposals for joint audits and inspections of the police service.

Thirdly, we have completed best-value audits that cover all 32 councils, and the final council report will be published by the end of next month. We are well advanced in developing our approach to the second phase of best-value audits, which will be more risk based and proportionate and will include a stronger focus on partnership working and what local people have to say. We will issue a public consultation paper at the end of this month, and we will hold consultation meetings with councils early in June, following similar meetings that we held with councils at the beginning of the second-phase development.

Thank you, convener, for allowing me to make those opening remarks—we are happy to take any questions.

Thank you, Mr Baillie. You have stressed value for money, which is always an issue for the public, particularly in difficult times such as those we are currently experiencing, when people become acutely aware of it. In many local authority areas, the population is declining, there is a reduction in the number of schools and teachers, and the amount of housing stock is decreasing. Having examined local authorities throughout Scotland, do you think that that is an accurate picture of what is happening?

It varies by council area—the overview report tries to address the key points that arise rather than concentrate on specific issues. Although in some areas the population is forecast to decline, in others the number of children of school age is forecast to increase quite significantly.

That is the case in a handful of areas but in general, in local authority areas throughout the country, populations are declining and the number of schools is decreasing.

Have you considered what is happening with regard to the salaries of chief executives and senior officials? In recent years, there have been significant increases in the salaries of senior officials throughout the country, at a time when belts have been tightening for everyone else. Have you looked into those huge rises to decide whether they are justified and represent value for money?

Decisions on the payment of specific salaries are a matter for individual councils and their elected members. We have examined best value and considered the extent to which it can drive improvement. For example, it can draw attention to the scope for shared services and to the fact that services can be shared to a far greater extent than is currently happening. That in itself should drive value for money, which would, I suspect, necessarily include a reduction in some areas in duplication of effort involving two or more people.

I accept that you say that individual salaries are a matter for each local authority, but are you saying that you have no interest in the fact that throughout Scotland the salaries of chief executives and senior officials are increasing disproportionately, at a rate higher than those of the rest of the workforce and higher than the public would think represents good value for money?

No, that would not be a proper representation and I am sorry if I gave you that impression. We have an interest in anything that causes the public concern. Indeed, that is part of our fuel for the development of best value 2, which places greater emphasis on what the public need and want. If salaries were perceived to be disproportionately high or to be rising at a disproportionate rate, it would be a concern for us.

Before I go on, I ask Caroline Gardner to supplement that answer.

As part of best value, we examine councils' management structures and how they are changing to meet the demands on councils and to fit their responsibilities. We also consider openness and transparency. There is a case for councils to be accountable for the decisions that they take about management structure and salary levels—that is a United Kingdom-wide debate, as the committee will be aware—and there is room for transparency to be increased so that the public interest can be satisfied on such important decisions.

As the matter would be of interest to the Accounts Commission, does it intend to consider it?

At the moment, we would consider the issue along the lines that Caroline Gardner just described. If the decisions of elected local government are transparent, that is part of good governance. If, in the course of those decisions being reached transparently, there is local concern about them, elected members will respond to it.

I would be concerned about the extent to which there was a general, across-the-board drift in salaries. We would be under a duty to report any such increases as perhaps out of proportion with more general increases, without necessarily commenting about whether they were justified.

Another interesting point, which is perhaps related, is that 10 councils will change chief executives in the period between last September and the coming September. I am as yet unclear about how that will affect salaries.

So you could report on that. Will you come back to us to do that at some point?

We will note it for consideration and determine whether is a general issue that should be drawn to the attention of the committee and other stakeholders.

I will ask about single status, which is covered in paragraphs 90 to 93 of your report. You say in paragraph 90:

"A third of councils had yet to implement the agreement fully at 31 October 2008",

notwithstanding the fact that it was supposed to have been implemented by April 2002. When do you expect the remaining councils to have implemented the agreement fully and resolved this long-running issue?

We understand from our auditors that all those councils expect to settle single status in the course of the next year. It is important that they do that, not only because the agreement is, as you say, of long standing but because many of them continue to incur equal pay liabilities while the issues remain unresolved. Significant amounts for equal pay and the single status settlements are being held in provisions. It is important to finish that business so that the liabilities can be capped and the sometimes damaging effects on staff morale and engagement can be ended.

Are you satisfied that the remaining councils have provision in their accounts to resolve the issue so that there is no continuing, open-ended risk to them?

The answer to that is not straightforward, I am afraid. About £143 million has been set aside for outstanding equal pay liabilities throughout Scotland, but we do not know whether that will be enough, partly because the case law keeps changing as further appeals go through and some are upheld. Through the audit process, we ensure that auditors keep asking councils questions about the issue, but the uncertainty is a strong reason for bringing the single status agreement fully into effect and capping the liabilities rather than running the risk that they may increase further in future.

So there is still a risk that some councils may be exposed to substantial additional costs over and above what they have budgeted for.

Yes, there is certainly a risk of that.

I think that I am right in saying that some of the earmarked reserves in the general fund contain an additional expectation of further amounts to be paid. Because those amounts cannot be accurately estimated, they are earmarked in reserves rather than in provisions. I am sorry to get technical.

Thank you.

Will you comment on the role, potential and scope for shared services as a means of increasing available resources and the efficient provision of services? It seems a sensible approach that provides mutual benefit, so why has overall progress been slow so far?

There are fairly significant opportunities, which I guess start with backroom services, although they do not stop there—the approach could be extended into the backroom services that support the delivery of specific services such as education, social work and housing.

There are good demonstrations of shared services being explored. Most recently, Sir John Arbuthnott held a summit meeting with the eight councils in the west of Scotland to take a good hard serious look at the issue to see what can be done. There are examples in the north in relation to council tax collection, and Glasgow City Council and the City of Edinburgh Council have done pioneering work, which other councils are considering closely. There are many instances of such work.

I ask Caroline Gardner and Gordon Smail to comment on the reasons for the slow progress.

That is a question for local government, rather than the Accounts Commission, to answer in more detail, but we have picked up some of the reasons.

First, shared services are difficult to achieve. There is no question but that they require people to be willing to think fundamentally about what they are trying to achieve, how they balance local control and employment against the cost of services, and how they set up shared services to meet councils' needs, particularly for key services such as finance. The second issue is about the definition of shared services. There has been a lot of work in areas such as procurement—by working together, councils have made significant savings in the money that they spend on buying goods and services—and it is reasonable to consider that as a type of shared service.

At the other end of the spectrum, the financial pressures that all public services are likely to face mean that councils will have to be willing to consider much more radically the way in which they provide public services. For example, they will have to consider working with partners in health to consider not only backroom services but the way in which front-line services, such as those for older people and mental health services, are provided with the aim of increasing quality as well as cutting out some costs. There will be an increasing need for that in future.

The only additional point that I have is on the definition of shared services, as the term can mean many things. The onus is on local government to demonstrate to us and the public where efficiencies come from and to give us more information about the progress that has been made.

Necessity encourages co-operation. It is important to have good models of best practice.

Yes, although another aspect is that, inevitably, people are suspicious of such changes. There is perhaps a natural intransigence in people organisations.

Paragraphs 48 to 50 of the overview report deal with efficiencies, which you define as

"delivering the same services with less money".

You acknowledge that councils are making efficiency gains in response to the financial pressures that they face, but there is an on-going issue about what is a cut and what is an efficiency gain. Throughout Scotland, there are reduced teacher numbers, and community halls and libraries are closing—clear examples of cuts. It is therefore important that performance measures are put in place to help us monitor efficiencies and differentiate between cuts and efficiencies. Your report notes that issue, but do you have any suggestions for practical performance measures that councils could put in place?

Quite a lot of work has been done on the development of performance measures generally and, as you will know, the Convention of Scottish Local Authorities and the Improvement Service offer councils recommendations and advice on the development of performance measures. Whenever performance measures are selected, it is important that they meet the needs of the council and local people. They have to be open and transparent, so that everyone can understand the quality of the service, what is being achieved and how much it is costing. Thereafter, performance measures can be tuned to the individual council's needs, in line with what the people want.

Caroline Gardner might want to develop those points.

About 18 months ago, we published a piece of work on the first strand of the efficient government initiative that was kicked off under the previous Administration. That piece of work included an approach to measuring efficiencies and—this picks up on Mr Kelly's point—to differentiating between efficiencies and service reductions.

It is important that councils start off with a clear picture of what they want to achieve, which might be doing the same with less money or doing more with the same money. Neither of those would be a cut; they would be an improvement in efficiency. The council has to be able to track such things.

The study programme that the Accounts Commission has just approved and which Mr Baillie referred to in his opening statement includes a couple of pieces of work that are relevant to this issue: one considers efficiencies and the other considers unit costs in local government and the way in which people are using them to make comparisons. We hope to say more about that in our next overview report.

You have said that you will be urging local authorities to have a continuous personal development plan for each elected member. We would all accept that councillors' roles are complex and demanding, and the report says that

"personal development is now established as essential to support elected members".

Are you confident that local authorities will want to buy into that idea? Do any of them already make provision for personal development? It is important that they should.

I agree—it is extremely important. Elected members are there to lead, to direct, to monitor and to scrutinise. If proper information on performance management is lacking, scrutiny suffers—and we have seen just what happens in the private sector when scrutiny is ineffectual.

The report says that just under half of all elected members do not have a personal development plan. That group is not to be confused with the half who are new members, having first been elected in May 2007. It is important to stress that we are talking about a different cut of members.

We are not alone in asking for continuous professional development to be considered seriously. COSLA, the Improvement Service and others have considered the issue, and there is general agreement that personal development is necessary for the reasons that I have indicated. I think that I am right in saying that some councils have their elected members fully signed up to the idea but that other councils are not quite there yet.

There is an element of taking a horse to water. I would speculate that some experienced councillors feel that they already know enough to be equipped for the job, and perhaps they do—I am not suggesting that a personal development plan is necessary for an experienced councillor who has been with the council man and boy or woman and girl. However, I think that the vast majority of councillors would benefit from specialised training in how to understand what is going on in the council, especially in finance. That would make them better able to scrutinise effectively, at a time when scrutiny will be extremely important.

In your report, you highlight sport and physical recreation and the amount of money that councils spend. Councils spend more than half a billion pounds throughout Scotland but, despite that expenditure, we are not hitting the targets or encouraging young people to take up sport and get involved—the report says that participation is declining.

The report also says:

"sportscotland estimates that an additional £110 million a year is needed for the next 25 years to bring sports facilities up to an acceptable standard"—

that is, to a standard that might encourage folk to get involved. How will you approach that issue in your future study? In the current financial climate, that is a lot of money to find.

Yes, indeed. I will make a general point before inviting Caroline Gardner to comment—she has been examining this issue closely.

I would submit that recreation is ever more important in a time of recession. It is not just young people but all people who need to have stress relieved, for example if they are losing their job or if they are in a job that they know they might lose. If I may say so on a personal note, there is a greater need for recreation.

As Cathie Craigie mentioned, we have a study on physical recreation services in our forward programme, and it is a good example of where we believe councils should be thinking quite radically with their partners about what they can do better together than they can individually. There is a big backlog of maintenance required on existing facilities, and the way in which they are used varies quite a lot across Scotland. A big investment is going into the 2014 Commonwealth games, and there is a clear link to the health service and public health policy.

There is room for councils, both locally and at a national level, to think much more radically and in more innovative ways about how to use their facilities and about other forms of physical activity, such as walking and using the countryside that we in Scotland are blessed with, to secure health benefits without necessarily spending more on buildings as we have done in the past. We should use also the buildings that we have as effectively as possible for the sport part of physical activity.

We do not know the answers yet, because we have not done the work, but my comments illustrate the questions that we are asking as we set out its scope. We look forward to discussing that report when it is published.

Targets have been set to encourage young folk in schools to get involved in physical education, with a minimum number of hours of PE per week. Has that come up, or will it be included in your forthcoming piece of work?

It will be included in our study. We published an overview of sport policy last year, which looked ahead to the Commonwealth games, and the target was one issue that we identified. The next step is to examine in more detail how individual councils are addressing the issue so that we can identify what good practice looks like and encourage councils to think more widely about how they can work with their partners.

Is there scope for councils to seek more money to address the issue, or does that have to be done with the budgets that have been set? You have highlighted a matter that the convener brought up earlier—paragraph 6 on page 7 of your report mentions "continuing pressures" with the "ageing population". How do we bring everything together?

It is pretty clear that councils' finances will be stretched for the foreseeable future. The settlement heads into 2009-10; after that, the Scottish Government's budget will start to reduce slightly in real terms and there is likely to be a knock-on effect for all public services. That is why the Accounts Commission has highlighted the need for councils to think ahead about how they will respond to those pressures. For the first time since devolution, there is no real-terms growth, after some years in which there was quite significant growth. The situation requires public services to take a different approach to what they can do, and they need to address questions around sport, activity and a wide range of other services in a much more fundamental way.

Caroline Gardner has used the word "radically" at least twice, and that is one of the key things that we wish to impress on everyone: councils need to consider the situation more radically than they have done until now. Difficult circumstances might call for radical solutions.

We will now have a question from—

Could I ask one further question?

It needs to be a quick one, following which we will go to Willie Coffey.

I am thinking about this year. The national priorities that are contained in the concordat state that single outcome agreements must be agreed by the partners. How does that affect the ability of local authorities or health boards to be on top of their budgets? Who holds the purse for that work?

The process starts with determining what the single outcomes are to be—the outcomes must be agreed by the partners—and performance indicators are then identified that people think will confirm whether those outcomes have been achieved. My old friend performance management also comes into the process because, without monitoring any drift from the plans through performance management, achieving what is in the plans will be difficult.

More specifically, it is important at the outset that the partners involved in the plan agree who is responsible for what and when they are responsible for that. The funding and the use of people, property and pounds should be taken into account at the same time. The linking of people, property and pounds not only for today but for tomorrow and the long term is important for the partnerships, as it is for the operation of the council itself. We advocate a strategic approach with the full involvement of each partner, who should know who is doing what, when they will do that and who will be accountable for it. That is important.

What the report says in its opening remarks about the shifting emphasis towards outcomes, continuous improvement, customer satisfaction and so on is encouraging. Such messages crop up fairly regularly in the committee, which is welcome. Locally, I share the experience that has been outlined.

I want to ask specifically about the decision-making structures. Some councils have adopted cabinet models as opposed to the traditional committee system with which many of us are familiar. Did you consider that model to find out how effectively it is delivering? It is clear that such a model in a local authority places greater emphasis on the scrutiny function. I am interested in your comments.

We have seen both types of model. There is no question but that the cabinet-style model can improve scrutiny or increase the opportunities for scrutiny, but that does not necessarily mean that the other model is wrong—it is for each council to determine the way that it will go. It is clear from our best-value work that the councillors who have achieved the most improvements and the best value have had effective leadership, open and transparent decision making and effective scrutiny. If those things can be delivered within the limits of a more traditional model, so be it. I prefer the cabinet-style model, but that is not an official position.

Thank you very much. We look forward to continuing work in the area.

I suspend the meeting for a couple of minutes to allow the witnesses to change over.

Meeting suspended.

On resuming—