Audit Committee, 12 Mar 2008

Meeting date: Wednesday, March 12, 2008

Official Report 292KB pdf

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Accounts Commission

We will receive a briefing on the overview of local authority audits in 2007. We have with us Professor John Baillie, chair of the Accounts Commission, Caroline Gardner, the deputy auditor general and controller of audit, and Gordon Smail, the portfolio manager of local government audit in Scotland.

Professor Baillie, would you like to make an introductory statement?

If I may, convener; thank you.

I thank the committee for inviting us to give a briefing on our overview report. 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 boards. Together, those bodies spend about £16 billion each year.

The overview report brings together all aspects of the commission's work—the financial and governance audits, the audits of best value and community planning, the statutory performance indicators, and our in-depth studies of services—and it draws on all those to highlight strengths and areas that require improvement. This year, the report highlights progress in services and the need for increased focus on key areas to meet the challenges that are coming. I will raise six key messages and then finish by raising a further three points about activities within the Accounts Commission that are of some relevance.

The first of the six key messages is that performance has improved in some areas, such as council tax collection and waste recycling. The amount of council tax due and collected in the year 2006-07 was just under 94 per cent, which is an increase of 1 per cent on the previous year. That sounds like a small increase, but the councils are already collecting at that level, so it gets more difficult to improve each year, although they are continuing to do so. On waste recycled or composted, the percentage was 28.4 per cent last year, which again shows a steady increase over the previous two years and, indeed, over the past five years.

Secondly, last year we highlighted the new voting system and the multi-member wards. Early signs are that the transition has gone well. Almost half of Scotland's 1,222 councillors are new and are bringing fresh ideas and impetus, but they need to be supported in their new and developing roles, especially in areas such as strategic leadership and scrutiny.

The third key message relates to performance management. Councils need to improve significantly, to enable them to show that they are improving services to local people and to help members in their scrutiny function. Such improvement is essential to support the shift towards the outcomes-based approach that is set out in the concordat between the Scottish Government and the Convention of Scottish Local Authorities.

The fourth key message is that financial accounting and reporting remain generally sound. Audit qualifications are rare—only one was made last year, in relation to Shetland Islands Council. The commission's drive for better information about reserves has been quite successful. All councils have put in place policies that set out why reserves are held and their intended use. The amounts that are held in reserves increased somewhat in the year to March 2007. Unallocated reserves—that is, the part of the total reserves that is held for unforeseen circumstances and contingencies—represented less than 2 per cent of the net cost of services. It remains our view that it is for councils to decide the amount to be held, taking account of local circumstances.

The fifth point is about pressure on finances, for example as a result of the implementation of single status agreements and above-inflation increases in energy costs. The existence of such pressures underlines the importance of robust long-term planning that is risk based and sustainable.

The sixth and final key message is that councils need to demonstrate the net benefits from community planning and sharing business support services.

I will make three points about Accounts Commission activities. First, we publish joint study reports with Audit Scotland from time to time—two recent reports were on sustainable waste management and free personal care. Such reports are examples of our cross-cutting work with the Auditor General for Scotland on policy and service delivery. We jointly consider major policy matters, which affect local government and other parts of the public sector, including the Scottish Government. The work shows how the Accounts Commission, the Auditor General and the Audit Committee can work together.

Secondly, the commission welcomes Audit Scotland's work with the inspectorates and other scrutiny agencies to minimise duplication and reduce the burden on organisations that are audited. "The Crerar review: the report of the independent review of regulation, audit, inspection and complaints handling of public services in Scotland" highlighted the need for more streamlined scrutiny, based on robust self-assessment and a sharper focus on the needs of service users. We support that aim and welcome the role that is envisaged for the Accounts Commission in realising it.

Thirdly, we have been reviewing our programme on best value and how it contributes to better governance, in advance of the next round of audits, which will start in mid-2009. The work should ensure that our processes remain fit for purpose and continue to contribute to improving services and governance in local government.

In aggregate, the Accounts Commission is encouraged by the progress that councils are making and looks forward to working with councils, through audit, to deliver further improvements.

Thank you. In the past, concern was expressed about specific councils. In some cases accounts were not signed off. Are any councils currently in that category?

Are you asking whether any councils have not had their accounts signed off?

Yes, and whether any councils are giving cause for concern.

No councils are not having their accounts signed off. In the past 18 months or two years we have been concerned about several councils, including Inverclyde Council and West Dunbartonshire Council. We have been back to both councils and issued reports on them, and there are signs of improvement. We have scheduled return visits—some 18 months from now, in the case of West Dunbartonshire Council.

Beyond those two councils, are there any others that give any cause for concern?

We are talking about a wide spectrum of councils. There are always issues in any council, but those are the two councils that I would highlight. I ask Caroline Gardner to comment further.

All I would add is that we are aware, as we highlight in the overview report, that there are long-term financial pressures in a number of councils, examples of which are single status and equal pay, and the long-term asset investment plans that are required to meet the Scottish housing quality standard. We continue to monitor how those pressures play out for particular councils and the extent to which councils plan over the medium term rather than just year on year so that we can ensure that they have a proper financial strategy in place to meet those pressures, as far as they can.

I have a specific question about what you describe as reserves or balances, which you indicated would be a matter for each authority. From an accounting perspective, are you satisfied that all local authorities have sufficient reserves or balances?

Each council's reserves and balances are a matter for it to evaluate in terms of its spending plans. Perhaps I could answer the question in two parts. First, I reiterate the point that Caroline Gardner has just made: we are extremely keen that councils develop a long-term planning strategy for finance and for other resources, including buildings and people. We stress that key point time and again—if members can forgive the repetition, we will probably do so several times today. We are talking about a snapshot of councils' reserves as at March 2007. I believe that, in the meantime, the councils that had no reserves to speak of at that time have been working to increase them.

Secondly, the allocation of reserves for a specific purpose is good and well, but I and—I think—my colleagues would be concerned if unallocated reserves were used to fund day-to-day expenditure on service delivery, because that would be an opportunistic use of non-recurring funds. That is not a desirable way of funding regular service delivery.

Would you comment on that if you saw it happening?

If it were material, we would be bound to.

Good afternoon. I want to ask you about your comments on council tax collection rates. It is encouraging that they have increased year on year. If I read the figures correctly, the collection rate for 2006-07 was 93.8 per cent. Does the Accounts Commission have a target figure for council tax collection that it wants councils to strive to meet?

We do not have a specific target figure of less than 100 per cent.

If you do not have a target, how do you assess councils' performance on council tax collection? How do you decide whether the rate—whether it is 93 per cent or whatever—is satisfactory, given that in the real world a collection rate of 100 per cent will never be achieved?

Our view is based on tracking the trend, which is getting better every year. Although the fact that the harder core of non-payers is being confronted would lead us to expect and hope for continuing improvement, we realise that we are not dealing with an even incline—the hill gets steeper the further up it we go.

Yes, I can see that, but in what circumstances would a council's accounts cause you concern and lead you to comment on its council tax collection rate?

It would give us concern if we saw council tax collection rates falling rather than climbing.

As long as they keep going up, you will be content.

As long as they keep going up and there is no reason to think that they will not continue to go up, we will keep an eye on the situation. I would never like to describe an auditor as being "content"—it is not a word that we use.

Given the long-standing drive for improvement and more professionalism, I was a bit perturbed to note that your report states:

"Councils still have a long way to go in producing good quality management information to inform decision-making. The lack of consistent and robust performance information limits an in-depth analysis of service performance in councils."

How widespread is that problem and how curable is it?

We are quite concerned about the need to develop good, robust performance management and information to support it. That is what we strive for, and our report is peppered with that sentiment. Caroline Gardner will add to that.

We are getting a clearer and clearer picture of what is happening in that area through the round of best-value audits that will come to a conclusion in the next few months. It is fair to say that some councils do it very well indeed. West Lothian Council is an example. It has a strong performance management system, it knows what it is trying to achieve, and it regularly tracks how it is doing. Other councils are much less good, particularly in some of the more complex areas around social work services and outcomes for children and families, where a range of complex issues come together. The best-value regime is clear that councils should be able to do it, and we are pushing improvement through the round of audits.

The focus is changing for two reasons. First, it is increasingly important for information to be available to councillors so that they can exercise their scrutiny role properly, monitor how performance is improving, and make the difficult choices that have to be made. Secondly, the shift to an outcomes-based approach between the Scottish Government and councils has heightened the premium on councils' having good information about their priorities and how they change in time.

Convener, I found some of Professor Baillie's comments a bit out of touch with the reality on the ground.

Professor Baillie, you said that councils seem to be settling down. The implication is that everything is going well, but in Edinburgh we have cuts to nurseries and home-help services—90-year-olds are having their home-help services reduced. Bus fares will have to go up as a result of the great concordat that everyone keeps talking about, and concessionary fares are under threat. The council might have to consider reducing access to concessionary fares.

In another area that I know well—South Ayrshire—public toilets in villages are being closed down and kids' play and recreation areas are under threat. That is the reality on the ground. Councils—particularly those where no party has overall control—are not considering best value, efficiency savings and the other things you talked about; they are cutting services for young people and the elderly. Is that not the reality on the ground?

There are instances of that, and you quoted some of them, but our view is that councils are making progress in specific areas. The ones that I mentioned are the ones that I wanted to highlight, such as the council tax and waste recycling.

It is clear that councils are facing financial pressures for a variety of reasons, and we highlight that in our report. There is scope to meet those financial pressures, but it is limited too, so councils will have to make difficult choices. We state that in our report as well. I am not sure that our report is at variance with what you say. It is a question of emphasis.

Instead of doing the things that you suggest, such as saving money by improving efficiency, councils are cutting services for vulnerable people. That is the reality on the ground for the councils in Edinburgh and South Ayrshire, which are the two that I know particularly well.

Is it fair to argue that cutting services and achieving efficiency gains are not mutually exclusive?

It is not wonderful for the 90-year-old who is not getting a home help or the parents whose kid is not getting a nursery place.

I accept that.

I think that we are starting to intrude into the political.

Am I not allowed to be political?

Not with Professor Baillie. He is not responsible for political decisions.

Well, he ought to know about these things.

Professor Baillie, I have another question on West Lothian Council, which, again, I know something about. You talked about the scrutiny arrangements. Can you have a look at West Lothian Council? The controlling group there not only forms the cabinet, but chairs the scrutiny committees. Is that not at variance with normal, proper procedures for running councils?

Caroline Gardner was closely involved in the writing of the initial report, so I will ask her to comment on that.

I can assure Lord Foulkes and other members that, as part of the work on best value, we will look at how scrutiny arrangements work in all councils. Lord Foulkes is right that the change in the political administration in many councils last May led to a change in the arrangements that were in place. Our auditors will go back to look at how they are working in practice now, to ensure that they match up to good practice guidance.

Will you start with West Lothian Council?

We will ensure that we focus on where the risks are highest.

It is funny that, notwithstanding George Foulkes's comments, councils have been delighted to sign up to the historic concordat that he mentioned.

Professor Baillie, I would like you to clarify a couple of issues in the general fund picture. If councils' general performances are improving, when is it appropriate for you or others to look at councils' levels of contingency reserves? You said that, as a percentage of net costs, 2 per cent seems reasonable, but as performance improves and mechanisms such as the prudential borrowing framework become available to more councils—that has certainly been the case over the past few years—when does it become appropriate to revise the assessment of contingency reserves so that councils do not sit on huge amounts of uncommitted balances that could be reinvested in public services?

As you will know, the reserves at the point that we are talking about, which was last March, represented a return to approximately where they had been two years prior to that. It is fundamentally a matter for councils to balance the reserves with all their other priorities and needs. Our concern would be that the reserves were being used for regular service delivery, which would not be the way to run a council. If reserves are allocated to specific purposes, that is fine.

What it comes to is the extent to which long-term planning—I am sorry that I am using that term again—is adequate to enable councils to anticipate, as best they can, all the costs that will be incurred in the near, the middle and the far future. A good example of where costs were not particularly well anticipated was the single-status agreements. If councils can identify their costs better, there will be less need to have a large amount in unallocated contingency reserves.

Can you envisage our getting to a point at which you would advise dropping the contingency indicator from 2 per cent to 1.5 per cent? The effect of such a drop might be that several hundred million pounds could be spent or reinvested.

It is a difficult matter to talk about in the round on a national basis. The 2 per cent figure represents only a national average for information. I am sorry to be stubborn on this point, but we would have to look at each council individually and consider all the circumstances and priorities, and the needs of the citizen, before we could take a view on the level of the contingency reserve.

I did not fully answer your first question about borrowing. Councils can borrow, but they must repay that borrowing and, in the meantime, they will incur interest costs—there is no easy answer.

I will refrain from being political, except to say that exhibit 1 in the report shows that councils have a far healthier make-up now, Mr Foulkes.

No comment.

I am interested in something that I have not seen in the audit report, which is whether we are seeing council-led councils or official-led councils. Is there room in your audit to examine that, Professor Baillie?

One of the factors that we look for in our best-value audits is how much councillors are engaged in the entire process, from governance right through to service delivery. It is no surprise to find that the councils that are considered the better performing have councillors who are ambitious and focused on strategy and leadership. Those councils also have open and transparent meetings and effective scrutiny processes. When we consider best value, those are three factors, among many others, that we study in terms of councillor engagement.

Is the situation improving? Are councils engaging more, or are we at the status quo?

The general answer to whether the situation is improving is probably yes, but there are, of course, exceptions. I am sounding slightly hesitant because we have just had the 2007 council elections and things are taking a little time to bed down. However, the transition appears to be working rather well.

Morale is discussed under point 115 in the report. The word "morale" can be a bit of a catch-all, if we bear in mind some of the questions that we have put to you this afternoon. Is there any way of highlighting the benefit of there being positive morale in a council area? Inverclyde Council and West Dunbartonshire Council have been mentioned. I know a wee bit about the Inverclyde area. If there are cost pressures, they can adversely affect productivity, and morale will be a lot lower as well.

I will give a general answer and then ask Gordon Smail to flesh it out a bit. Staff morale is very important. The best-value process aims to examine the extent to which officers are linked into the entire process—especially senior officers.

One particular issue may be influencing morale in some quarters—the time it is taking to negotiate and complete agreements on single status. That appears to be sapping morale, although the evidence is rather anecdotal.

I do not have much to add to that. A purpose of the overview report is to bring together all the information. Staff morale is one of the things we consider in our best-value audits. Another purpose of the report is to try to identify where things that are going well might be at risk in future. The best-value reports that we have had so far have suggested that staff morale is generally good across councils—although, as you would imagine, there is wide variation. However, there are risks, especially relating to employment costs.

Pages 36 and 37 of the report mention free personal and nursing care. At a previous meeting, we felt that a large problem was looming because of the growth in demand. Have you looked into variations between local authorities? At a recent meeting, we received a report on substantial variations between local authorities' provision of free personal and nursing care.

The report that we refer to is the joint report that was prepared for the Accounts Commission and the Auditor General. Each council has received feedback on the Scottish average and on where it sits in relation to the other 31 councils. Our auditors will keep an eye on the issue as part of their continuing audit work. As Mr Foulkes suggests, it has been identified as a potential financial risk. There is also a risk to the people who rely on the services. We are all waiting for Lord Sutherland's review of the policy, and we will see how people respond to it and plan ahead.

Will that report come here and to the Accounts Commission?

That is right.

Part 5 of the report is on outlook and outcomes. How are councils developing their ideas on measuring the impact and outcomes of public services? Hitherto, councils have been good at saying what they have done, but perhaps some work has been needed to describe the benefits for the public of what they have done. How are councils progressing in that regard?

Again, I will say a few words by way of general introduction and then, for a good reason, ask Caroline Gardner to answer that.

It is fair to say that councils are in the early stages of developing the outcome measurements. The good reason for that is that the outcome measurements are still being developed centrally as well; there is no point in reinventing the wheel several times over.

It might be useful for us to take a step back and think back to the report on community planning that the Accounts Commission and the Auditor General published a couple of years ago. It tried to get at how councils work with their partners to improve outcomes for their communities and the various groups within them rather than just manage their traditional services of social work, schools and so on. At that stage, the recommendations centred on the need for councils to move on from the processes for working with their partners to setting the goals that they wanted to achieve and to demonstrating that they were achieving them. The outcome agreements are another step on from that requirement.

We are all aware that most of the things that matter to communities cannot be delivered by councils on their own, any more than they can be delivered by health boards on their own or the police on their own. If the outcome agreements work well—there is an "if" there because we are all still learning—they should be a good way of ensuring that partners are clear about what they want to achieve together and what the contribution that each of them will make looks like so they can measure progress towards that end. There is a lot of work to do to put the proper underpinning for that in place. The commission is very conscious that the duties of best value through good performance management and public performance reporting still exist, but we hope that we will see a renewed focus on outcomes for communities by councils and their partners.

Thank you, Professor Baillie, Caroline Gardner and Gordon Smail, for your contributions.

Meeting continued in private until 12:48.