Financial scrutiny

Posted on 01/07/2021 by Ed Hammond.

New municipal year, new financial year – same pressures. We move into quarter 2 of 2021/22 still struggling to shake off the pandemic, and still facing unprecedented uncertainty about fundamental aspects of the way we do business. In our recent annual survey – full findings of which will published in the coming days – 78% of respondents said that their council was under “significant financial pressure”.

CfGS has produced material to help councils to grapple with these issues. An awareness of financial issues is a critical aspect of high quality oversight of council business by elected members.

Historically, member scrutiny of financial matters was of generally poor quality. Oversight of the development of the budget was often limited to a single set-piece event in January – in-year monitoring of financial issues was often cursory, and confused by the perceived risk of straying into territory occupied by councils’ audit committees.

Things have improved. But even now, only 65% of respondents to our annual survey were able to say that they had confidence that scrutiny is able to adequately oversee matters relating to councils finances – with 10% carrying out no such review at all.

In the recent Northamptonshire County Council: lessons learned report, Commissioners set out the course of intervention at the authority, particularly centring on financial management, scrutiny and governance.

A critical part of the intervention has been the establishment of meaningful challenge, scrutiny and transparency to the business of the Council. We asked the Centre for Governance and Scrutiny to review how scrutiny functioned and propose an effective structure for the Council which we then adopted in full. This included the scrutiny committee being chaired by an opposition Councillor and focusing exclusively on financial matters, as this was the most significant burden the Council was addressing.

In their recommendations to the sector, Tony McArdle and Brian Roberts stated –

If financial circumstances deteriorate, the influence of the scrutiny committee should be boosted in respect of financial overview. For example, provide impartial and independent training and advice to Councillors through the Centre for Governance and Scrutiny, to enable the committee to scrutinise effectively key decisions on services, income and expenditure and learn how to question without aggression.

We think two practical steps can be taken by local scrutineers to ensure that they are doing all they can on council finances.

Firstly, thinking about how scrutiny can take a year-round approach to financial scrutiny. Our March 2020 publication “The financial scrutiny practice guide” sets out a model for how such scrutiny can practically operate. A proportionate approach to oversight of financial matters can pay dividends – early involvement in major financial matters can give assurance to the council and to councillors on high profile political issues around the resourcing of local services. It can also strengthen the council’s overall approach to financial management.

This leads onto the second potential step. Better liaison between scrutiny and the work of the audit committee will help to ensure that member oversight of council finances is seamless and meaningful. Member audit is likely to surface complex issues which might benefit from scrutiny’s consideration, and vice versa. Chairs should be talking about mutual work programmes and thinking carefully about where work might align. Our new publication “Audit committees and scrutiny committees working together” sets out a blueprint for this close working.

Councils will, right now, be in the early stages of planning for the 2022/23, and the financial situation from Q1 will be emerging. It is a critical time, and the right time for scrutiny to rethink its work in this area, and to re-engage with a sense of vigour and purpose. It’s a time for s151 officers and Monitoring Officers to proactively support scrutiny chairs, audit chairs and the officers who support them to work better together.

We’re planning more work in the coming weeks which will provide further support to councils and councillors on budget and finance scrutiny. Look out for it – and in the meantime, get in touch if you have any worries or concerns about financial scrutiny in your own authority, and we will do what we can to help.

About the Author: Ed Hammond

Ed leads CfGS's work on devolution, transformation and on support to councils and other public bodies on governance and accountability.