Grant Thornton - UK Local Government Governance Review 2012


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Grant Thornton - UK Local Government Governance Review 2012

  1. 1. LOCAL GOVERNMENT GOVERNANCE REVIEW 2012High pressure system
  2. 2. ContentsIntroduction 1Highlights 2Governance framework and the AGS 4– Annual best practice review– A window for stakeholders– How helpful is the AGS?Risk management 10The audit committee 13Scrutiny 16Partnership working 20Fraud, corruption and the Bribery Act 23The explanatory foreword 27Public accountability 34– Annual reporting– Managing complaints and information requestsPeople 37– Capacity and capability– Standards– Gender diversityAppendix A: Roundtable attendees 40Appendix B: NHS report highlights 41Appendix C: FTSE 350 report highlights 43
  3. 3. IntroductionWelcome to Grant Thornton’s first Local GovernmentGovernance Review. It comes at a challenging time, as Methodologycouncils face intense pressure to deliver unprecedentedfunding cuts, organisational change and innovation in Our review is based on:service delivery, while meeting public demands for greater • a desktop review of 200 councils’ 2010/11 AGS andtransparency in decision-making and performance. explanatory forewords, comparing them to our best Effective governance is essential if senior officers and practice criteriamembers are to meet these exacting challenges. Ironically • responses from 120 council senior officers andthough, those processes that ensure good governance are at members to our survey on governance reportingrisk from the conflicting demands for reduced spending and a in the AGS and explanatory foreword, and there-prioritisation of resources. supporting governance processes Against this background, our review evaluates thesoundness of existing systems for operating in this high- • a roundtable discussion with senior sector figures,pressure environment. We analysed the survey responses public sector governance experts and Grant Thorntonof more than 100 senior council officers and members, we sector experts (attendees listed in Appendix A).carried out desktop reviews of the most recent governanceinformation published by councils in England, Wales andScotland, and we hosted a roundtable discussion of key Scopesenior stakeholders. We also drew on findings from ourrecent reviews of governance in the NHS and FTSE 350. The review covers councils in England, Scotland and Our aims have been to sound warning alarms where Wales. In most cases, findings are presented in aggregate,we believe governance arrangements are failing to cope, to as differences in results were generally minor. Althoughsuggest areas in need of improvement and, perhaps most only English upper tier councils were reviewed,importantly, to provide realistic and practical guidance on the findings are equally relevant to English districthow local council governance can be made stronger and more councils that are subject to the same governance andeffective in UK local government’s high pressure system. In accountability requirements.short, to establish a direction of travel towards “the standardsof the best”.Paul HughesDirectorPublic Sector Governance Lead “All authorities should aim to meet the standards of the best and governance arrangements should not only be sound but also be seen to be sound. Governance is about how local government bodies ensure that they are doing the right things, in the“We would like to thank everyone who contributed right way, for the right people, in a timely, inclusive,to this review including survey respondents, open, honest and accountable manner.”roundtable attendees and all who carried out the Delivering Good Governance in Local Government Framework,research, analysis and report production.” CIPFA/SOLACE, 2007 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 1
  4. 4. HighlightsOn people On risksCouncils should rethink their investment in Councils have strengthened their processespeople to ensure good governance. around governance, but more focus is needed on improving their effectiveness and on emergingOne fifth of survey respondents said they do not believe risks.their councils have robust enough systems to develop thecapacity and capability of officers and members. Respondents indicated high confidence in their council’s Councils are feeling the pressure in people development, risk management arrangements, with 98% agreeingbut we believe they need to continue to develop those they were effective at identifying key strategic risks andresponsible for governance, honestly self-assessing current 96% believing they were effectively managed. However,training and development effectiveness and investing where our research showed governance to be under pressurenecessary. from funding constraints – all at a time when risks in the operating environment have never been higher.Our survey showed women occupy nearly 30% of cabinetpositions. This compares favourably with the private sector We believe councils need to work even harder to makewhere only 10% of FTSE 350 company directors are female. their risk management arrangements lean and dynamic.However, in the NHS, 35% of board directors are women. This is likely to mean rethinking their idea of tolerable risk, There is significant scope to improve gender diversity at adopting an ‘opportunity risk management’ approach andthe highest level in councils. In particular, we believe councils making a significant culture shift.should consider what more they can do to increase the Respondents rated scrutiny as the top priority forrepresentation of women as council leaders from the current improving council governance. More than a third said theirlevel of 12%. council’s scrutiny function was not effective in responding to changing risks and could not demonstrate its value.Our research found that around 80% of councils carry outannual governance reviews. Experience and anecdotal Councils need to ensure that their scrutiny functions areevidence suggest these reviews are more compliance effective in holding senior officers to account and improvingdriven than seeking to emulate best practice. policy making. But investment will be required, particularly in We recommend councils do more to ensure their practice, the training and development of scrutiny committee members.especially the beliefs and attitudes of their leadership team, Audit committees were considered one of the top threereinforces their ambitions for a stronger governance culture. strengths of governance by respondents. There was a strong view that audit committees are responding effectively to changing risks and adding value. We identified excellent examples of audit committees fostering the improvement of risk management and control processes. There is, however, a wide variation in practice and considerable benefits to be obtained by sharing best practice techniques.2 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  5. 5. The need to deliver innovative services for less Three-quarters of councils publish their Annual Governanceincreasingly requires councils to work with public and Statement (AGS), the primary indicator of complianceprivate sector partners. Respondents were, on the whole, with the governance code, in the annual accounts onpositive about partnership working, with 89% saying their website. Of the remainder, some publish statementsthey were clear about the respective roles – a crucial elsewhere on their websites, although quite often inprerequisite for successful outcomes. hard-to-find locations. Some councils did not make them We found that respondents’ positive response to available online at all.partnership working is at odds with other published We believe all councils should publish their AGS, with theirevidence. We believe councils may be underestimating the annual accounts, on their website where it can be easily found.governance challenge that working together presents andrecommend they continue to develop their approach to 98% of respondents agreed their AGS was clear andpartnership. understandable. While most do comply, when compared to best practice we believe there is room for inclusion ofMore than 90% of respondents said their council was many features that would enhance interest and value.aware of, and had responded to, the heightened risk of We suggest that better planning, tracking and evaluationfraud and corruption in today’s depressed economy. Some could bridge the apparent disconnect between the perceived£185 million of fraud was detected in local government and actual merits of the AGS.last year, but with undetected fraud estimated at 10 timesthis figure, this area warrants close attention. On a new way forward The risk that fraud will go undetected – and the knock-oneffect on public confidence – means councils must remain We believe there is a strong case for all councilsvigilant and continue to strengthen their anti-fraud andcorruption arrangements. to publish a consolidated annual report. So few councils produce consolidated annual reportsOn reporting incorporating summarised financial information, the AGS and key performance information, that we were not able toCouncils can significantly improve stakeholder undertake a useful review across the sector.engagement in their reporting. Annual reports can engage the public and other stakeholders by providing the information to enhanceOver a third of respondents say they do not find their accountability and transparency in, for example:council’s annual accounts helpful in explaining its financial • stewardship of scarce resourcesposition. In contrast, the vast majority of respondents • governance effectiveness(95%) believe their council’s explanatory foreword to theaccounts provides a clear and concise introduction. Whilst • operational performance.generally compliant we noted that forewords varied greatly Councils have a responsibility to local taxpayers andin content and approach. other stakeholders to report information in a consistent, We recognise that the inherent complexity of council understandable and engaging way. We believe a well-executedaccounts limits their usefulness to non-expert readers. In this consolidated annual report, drawing from best practice incontext, we believe that undertaking a user review and best other sectors, would provide the solution.practice assessment of the explanatory foreword could improveits quality and usability as an introduction to the accounts, aswell as boosting council transparency and accountability. LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 3
  6. 6. Governance framework and the AGSAnnual best practice review The six core principles of governanceCouncils are responsible for ensuring public money issafeguarded, properly accounted for and used to deliver 1 Focus on the purpose of your authority and onmaximum value for their communities. Consequently, outcomes for the community, as well as on creatingtheir business must be conducted in line with the law and and implementing a vision for your local area.proper standards. It is reassuring, then, that of our survey 2 Members and officers should work together to achieverespondents 80% said they ‘strongly agree’ and 18% ‘tend a common purpose with clearly defined functions andto agree’ that their councils undertook at least the minimum roles.requirement of an annual review of governance arrangementsto ensure compliance with best practice. 3 Promote your authority’s values and demonstrate Our experience tells us that the majority of councils the values of good governance by upholding highdocumented and annually updated local governance codes standards of conduct and behaviour.based around the six core principles set out in the CIPFA/ 4 Take informed and transparent decisions and subjectSOLACE Framework – which, from 2007/08, required them to effective scrutiny and risk managementcouncils to develop a local code of corporate governance ensure proper systems are in place to meet their 5 Develop the capacity and capability of members andresponsibilities. officers to be effective. However, we are also aware that annual reviews oftendo not consider sector best practice – an absence recognised 6 Engage with local people and other stakeholders toby many of our local government clients and roundtable ensure robust public accountability.attendees. Our concern, therefore, is that the annual reviewis sometimes completed as a compliance exercise rather than Delivering Good Governance in Local Government Framework, CIPFA/SOLACE, 2007in the spirit of actually doing the right thing, and that therecould be far greater efforts to achieve best practice. We undertake at least annual reviews of our governance arrangements to ensure that we comply with best practice. Strongly agree 80% Tend to agree 18% Tend to disagree 2% Strongly disagree 0%4 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  7. 7. A window for stakeholdersThe AGS gives councils a mechanism to demonstrate their positive governance culture andachievements. We believe many could do more to realise this opportunity.Councils must produce an AGS to In October 2011, we visited 150 80%report publicly on how they have council websites to find the auditedcomplied with their governance code accounts and review the final versionand describe any governance issues, of the AGS. Of these, 75% includedincluding how they will be addressed. the AGS within the statement of Draft AGS madeThis is a requirement under the CIPFA/ accounts, with 38% of these having the available to usSOLACE framework and, in the AGS prominently displayed and 20%absence of an annual report, makes the providing evidence that the AGS hadAGS a key window through which been re-signed at the audit opinion datecouncils display their governance by the leader and chief executive.credentials. While final re-signed AGS may 75% Our assessment of both the have been located elsewhere on councilavailability and prominence of the websites, we were unable to find them.2010/11 AGS for more than 200 UK This is surprising, at a time whencouncils suggests that many have some the public is demanding greater Final AGS inway to go to make their draft or final transparency and openness from its audited accountsAGS accessible to the public. public services. (See page 34 for further Although no longer formally aspects of public accountability.)required to do so, 80% of councils If a council does not use the AGSposted a draft AGS on their website. to showcase their focus on goodHowever, the remainder did not governance, it may be reasonable forprovide them even when we requestedthem and explained the purpose ofour request. A number of councils stakeholders to conclude that this reflects its underlying governance culture. 38% AGS displayedsuggested we use Freedom of We believe that many councils could prominentlyInformation (FoI) Act provisions. be doing more to demonstrate that their AGS has been properly approved and to make it more accessible. 20% Final AGS re-signed at opinion date LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 5
  8. 8. Governance framework and the AGSHow helpful is the AGS?Upbeat views of AGS value compared with low average best practice quality scores suggest adisconnect between perceived and actual AGS usefulness. We suggest that robust planning, trackingand evaluation could bridge this gulf.Nearly all (98%) of our survey respondents said their AGS Our Annual Governance Statement enables allgave a clear picture to stakeholders of their governance stakeholders, including the public, to understand clearlyarrangements and any significant weaknesses. This is a very the governance arrangements the council has in place,positive response, with almost two thirds of those surveyed including what is being done to address any areas of‘strongly agreeing’ with the statement. However, it was significant weakness.noticeable that chief executives were more reserved in theirassessment. They were likely to ‘tend to agree’ and were the 64%only respondents that ‘tended to disagree’. 34% Meanwhile, our desktop review of best practice showedcouncils’ AGS on average scored 2.3 out of 5. This meansthat, while they are compliant, they only just balance Strongly agreecomprehensiveness of content with a concise and clear Tend to agreemessage. Some key highlights from the sub-categories areshown on page 7. 0% 2% Strongly disagree Tend to disagree6 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  9. 9. Methodology and findings There were higher than average scores for the comprehensiveWe reviewed the AGS against our best practice criteria based inclusion of ‘the acknowledgement of responsibility for ensuringon the CIPFA/SOLACE framework and guidance notes. there is a sound system of governance’ and the descriptionTwo additional questions considered essential for an effective of ‘the purpose of the governance framework’. This, though,AGS were included: reflected the largely boilerplate nature of the early sections of the1 How well does the AGS describe what level of assurance AGS which have less scope for local tailoring. is required from the governance framework for the year in The results for the two questions around sufficiency of question? assurance scored poorly, as did those describing what had2 How well does the AGS conclude on the level of assurance been done (and what is yet to be done) to resolve significant provided by the governance framework for the year in control issues from the previous year. question, including whether this is sufficient? These results reveal a big perception gap between the perceived and actual usefulness of the AGS to stakeholdersWe scored the AGS against 11 questions using a five-point scale: (shown by the difference between the positive views of our1 Missing survey respondents and our quality score). They suggest that councils have some way to go to achieve best practice.2 Part missing We believe councils can make their AGS much more3 Minimum useful by showing they have determined what assurances4 Enhanced they need from governance arrangements and concluding5 Standard-setting explicitly where they have received sufficient assurance. We also think that councils need to provide a clearerThe average for all of the questions was 2.3. picture to stakeholders, year-on-year, of how significant issues have been dealt with and what assurances demonstrate this.Specific question outliers (+/- 0.5 of average score) are shownin the chart. Average 2.3Acknowledgement 3of responsibilitiesPurpose of 2.9frameworkAssurance required 1.4Sufficient assurance 1.8obtainedDealing with prior 1.8year issues LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 7
  10. 10. Governance framework and the AGSThe AGS remains an opportunity waiting to be realisedThis year’s research and our experience since 2007/08 of reviewing AGS, and the processes used to produce them, indicatesthat these important documents are often not given the attention they deserve. In many cases, the focus is line-by-linecompliance with the framework and guidance notes. The opportunity to ensure the AGS fulfils its intended purpose – namely,clearly documenting how council governance arrangements provide sufficient assurance to achieving their vision and strategicobjectives – is yet to be fully grasped. Inadequate Significant Missing the governance issues Static, year ownership and big picture poorly articulated end focus challenge We found the AGS Statements are usually: Statements are: We found that statements rarely addresses • written and presented • unclear about whether are generally: fundamental questions by internal audit – a issues recorded are • prepared at year end such as: potential conflict issue significant in achieving rather than all year • what is the level of given their formal role the council’s vision round assurance we are trying in reviewing the AGS • unclear as to which • amended incrementally to achieve this year? • reviewed by senior part of the framework each year • will the processes officers and members identified the issue and • not updated to reflect and controls we are for minor details rather what this means for significant issues arising describing provide than with a strategic the wider governance between the production sufficient assurance? focus. processes of the draft accounts and • what assurances have • often vague in the audit opinion date. these processes actually articulating ‘significant’ given and to whom? issues identified that • have we achieved the year and in following up level of assurance we action on the previous need and, if not, what year’s issues are we going to do • rarely SMART in action about it? planning.8 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  11. 11. Significant governance issues identified in 2010/11What should councils The average AGS we reviewed was 11.3 pages long and included 4.5 significantdo? governance issues. Based on our analysis of survey responses, the most common significant issues identified for 2010/11 are shown in the chart below. These includeTo add real value we believe the internal control, relationships and procurement in England, Scotland and Wales.AGS should: In England, there is a particular focus on savings programmes, transformational• have greater status within the issues, data quality and IT security. In Scotland and Wales, capability is one of the council’s management and most common responses. reporting processes as the key document that records the Scotland 13 Internal control issues planned and obtained assurances 9 Risk management issues 8 Relationships/procurement around the achievement of the 7 Capability issues vision and strategic objectives Wales 13 Internal control issues• be owned from the top and used 6 Relationships/procurement to plan and monitor internal 5 Risk management issues and external assurance gathering 5 Capability issues throughout the year England 46 Savings programmes/transformation issues• be fundamentally reviewed each 42 Internal control issues year so that it highlights what is 36 Data Issues/IT security 33 Relationships/procurement significant and excludes what is not• have only significant weaknesses recorded with SMART action planning• provide a robust, transparent and honest assessment of the year’s governance framework. LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 9
  12. 12. Risk managementHigh levels of confidence in the capacity of council governance processes to identify and managesignificant risks pay testimony to years of effort. But we believe that, with funding constraints,councils must now be more creative. Risk aversion is no longer an option.A decade ago, council risk management was often led by an Our governance arrangements are effective in identifyinginsurance or health and safety officer with little corporate risks to the achievement of the council’s key objectives.profile. Today, it is on the cabinet and audit committee Strongly agree 41%agenda and is supported by dedicated risk managementspecialists. This increase in importance of risk management Tend to agree 57%was reflected in our survey results that suggest a high level of Tend to disagree 2%confidence in the capacity of governance processes to identify Strongly disagree 0%and manage significant risks. The vast majority of survey respondents (98%) agreedthat their council’s governance arrangements were effectiveat identifying key strategic risks, with almost half ‘strongly Our governance arrangements are effective in ensuringagreeing’ with the statement. Chief executives and directors that key risks are appropriately managed.of governance were more likely to ‘strongly agree’, with Strongly agree 48%directors of finance, audit committee chairs and heads ofinternal audit ‘tending to agree’. Tend to agree 48% Almost as many (96%) felt that these arrangements led Tend to disagree 4%to the effective management of risks, again with around half Strongly disagree 0%‘strongly agreeing’. Heads of internal audit were more likelyto ‘tend to agree’. Slightly fewer (90%) respondents agreed that riskmanagement was embedded into the culture of the council. Risk management is embedded into the culture of theMore said they ‘tend to agree’ than ‘strongly agree’ and 10% council, with those responsible recognising it as an integralsaid they ‘tend to disagree’. Responses were very similar, part of their job.irrespective of position. Strongly agree 33% Tend to agree 57% Tend to disagree 10% Strongly disagree 0%10 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  13. 13. Responding to change Funding pressures mean that Top three strategic risks identifiedRespondents rated ‘improved risk councils may no longer be able to in our survey:management’ as the top outcome from maintain internal risk managementtheir governance frameworks. Improving resource levels – just as they arescores over the years in the independent facing increasing levels of risk due toexternal use of resources assessment is factors such as service transformation,further evidence of this trend. outsourcing and localism. Funding/ UK local government is made up We believe councils need to rethink resourcesof a large number of complex, multi- their approach to risk management,functional organisations, raising and making some tough decisions aboutspending billions of pounds and serving what is tolerable risk. The outcomestens of millions of people. Council of these considerations will need toinvestment in robust risk management be fully understood and accepted byprocesses has, no doubt, supported officers and members as they will affectsuccess in delivering capital projects on how potential service failure is dealttime and within budget expectations, with and managed in the public arena.maintaining continuity of service in Demand/crises, protecting vulnerable people and demographysupporting communities. On the whole, we believe localgovernment manages risk well.However, strategic risks identifiedby our survey respondents indicateincreasing pressure on currentarrangements (see opposite).Specifically, those risks aroundlower funding, reduced capacity and Staffing/increasing demand. capacity LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 11
  14. 14. Risk managementStretched resourcesCouncils will need to become more creative with the Opportunity risk managementdeployment of an increasingly stretched risk managementresource. They must learn to: The Institute of Risk Management (IRM) carried out a• control, but not over-control, the most significant risks review of opportunity risk management approaches in• respond to issues rapidly, but proportionately 2009. It concluded that:• enhance their risk management processes to maximise • attention to opportunity risk ensures critical new opportunity rather than – as traditionally – minimise risk. ideas and challenges are properly considered and raises the focus from day-to-day operational issuesThe scale of the service and financial challenge facing the • a move to opportunity risk helps broaden thesector means that councils cannot afford to be risk averse. perception of risk and supports a more dynamic,Incremental change is an option available to far fewer entrepreneurial business culturecouncils. Bold decisions will be required and, if these are to • a change in approach challenges existing mind-setsbe successful, they will need to be underpinned by effective and improves decision-making, while aligning theopportunity risk management (see box). risk management and business planning processes. Now that councils are more familiar with conceptsof risk, there is scope to move towards a leaner and more Making it happendynamic approach, integrated into strategic management. The IRM suggests delivering an opportunity riskThis will require a culture shift for many councils as management approach by using stakeholder workshopswell as frank discussion with auditors, regulators, central integrated into existing processes. It recommendsgovernment and strategic partners. keeping it simple, strategic and interactive, perhaps by using traditional SWOT analysis.12 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  15. 15. The audit committeeAttention to membership, planning and focus is essential for delivering audit committee valueas council agendas evolve. With more than 90% of those surveyed saying their committee isalready effective, we encourage councils to build further on this success.Although not mandated, over the past few years, most We have an audit committee function that is effectivelycouncils have chosen to have audit committees. These have responding to the changing risks facing the council andlargely developed a useful and welcome internal challenge can annually demonstrate the value it adds.function. Strongly agree 60% Excellent examples of audit committee effectivenessincludes ensuring the implementation of audit Tend to agree 34%recommendations and responding to adverse events, such as Tend to disagree 6%the Icelandic investments episode. In some cases, cross-party Strongly disagree 0%members have worked together to challenge management todeal with governance issues. The positive development of council audit committees isreflected in our survey, in which 94% of respondents agreed, Audit committees – overcoming thewith 60% ‘strongly agreeing’, that their audit committee challengesfunction effectively responded to changing risks and annuallydemonstrated its value. The responses were consistent across • Agenda management – try not to do too much in aall positions. Audit committees and the audit function meeting as this can lead to rushed consideration ofwere also rated as two of the top three strengths of council items of business.governance arrangements. However, based on our experience, council audit • Boundaries – gaps or duplication can result fromcommittees vary in effectiveness and more could be done unclear boundaries with management/executive/to embed good practice principles. The experience of the scrutiny. Keep boundaries clear.corporate sector in undertaking robust annual reviews and • Party politics – use committee time productively andproviding annual reports to the board on their work are two ensure time and valuable points of member challengeareas to consider. Other areas are set out in the adjacent chart. are not lost in the noise of council. • Focus – too much precious committee time can be spent on minor or out-of-scope matters rather than on key risks. • Self-assessment – be honest and always ask: Are we doing what we planned to? Do reports give us what we need? What do we need to do differently? LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 13
  16. 16. The audit committeeThe unprecedented climate facing If these criteria are met, then an reports, active collaboration withlocal government is making the audit committee may not necessarily scrutiny to maximise collective impact,audit committee agenda ever more need to have independently appointed and preparation of an annual chair’schallenging. This increases the risk of members to be effective. report on the work and impact of thethings going wrong, such as applying Planning and managing the work of committee.superficial scrutiny by trying to cover the committee throughout the year is Independent external challenge,too much ground, or failing to spot new also vital to success. Improvements can based on observation, interviews andrisks resulting from transformation. be made if, at the start of the year, the documentation review, is a good way to So how should audit committees committee sets out how it will use its identify areas where change is neededmanage the risks to effective operation? limited time most effectively. It should and help with implementation. Overall,We believe the right membership is be clear about what assurances are audit committees should constantlykey. The appointment of a skilled chair needed around key risks and schedule raise the challenge: “Are we achievingwith the ability to keep the work of the how, and from what source, it wants to our objectives most effectively andcommittee on track is very important. receive them. Maintaining an on-going adding value to the governance of theFinance skills can and should be focus on the content of the AGS is one council?”provided by other members. It is also way of achieving this. Also, claritycritical that, as a group, members have about what constitutes ‘reasonablethe right blend of skills, expertise, assurance’ will help the committeeindependence of mind and political know when this has been achieved.neutrality to enable the committee to Other levers for effectiveness canfulfil its role. include member briefings, shorterTop three key strengths of council governance arrangements identified in our survey: Engagement Audit Audit /awareness committee function14 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  17. 17. Tips for audit committee effectiveness Establishing or Planning for During the year Year end reviewing the the year • Arrange pre-meetings committee (including with auditors) • Challenge the • Focus on the end effectiveness of the to organise and prioritise AGS. • Have appropriate, point of assurance agendas. tailored, up-to-date for AGS. • Ensure explanations • Keep a constant focus of the accounts terms of reference • Allow members on assurance gathering are clear and reviewed alongside to own the agenda for the AGS and speak satisfactory. scrutiny. and ensure that this up or call officers in if • Have a good chair reflects key risks • Prepare a report on assurances are lacking. supported by facing the council. the effectiveness • Challenge vigorously of the committee audit and financial • Ensure the work plan anything that threatens during the year expertise (including and meeting schedule to soak up committee (periodically independently flow from assurance time that is not key to through external appointed members, planning, as well as assurance gathering. review). as required). required training and briefings. • Maintain an awareness • Feed improvements • Consider a ‘board of the risk of drift into into next year’s plan. secretary’ role to scrutiny/executive/ provide effective management roles officer support. and gain assurance that matters are being covered in the appropriate place. • Be willing to flex the work plan, hold an additional meeting or set up a sub-group to deal with important emerging issues and risks. LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 15
  18. 18. ScrutinyOur survey respondents rated scrutiny as their top priority for improving governance. There isno one-size-fits-all formula for effective scrutiny but we believe that leaders’ attitude towardsaccountability and challenge is key.The local government scrutiny function was established Our roundtable attendees felt the quality of scrutinyin England and Wales more than a decade ago, to hold the varied enormously. A key point of agreement was that theexecutive to account for its decisions and to contribute to fundamental driver for successful scrutiny is the attitudeevidence-based policy making. the leadership takes towards accountability and inviting Delivering audit committee effectiveness is a complex challenge.challenge. Each council has only one audit committee, with Consultation and inviting challenge is seen as essentialterms of reference restricted to governance, risk, control for leaders in business as it improves the quality of decisions.and audit. Given that councils have a number of scrutiny We believe local government should be no different and thatcommittees, covering a wide range of issues arising from the scrutiny serves as a key part of that challenge process with itswork of the council and its partners, ensuring scrutiny has ability to bring in the perspective of the service user. Councilsa demonstrable impact on local people is not easy. This is need to support scrutiny to discharge this role as effectivelyreflected in our survey results. as possible. And yet, research from the Centre for Public Two-thirds of respondents said they thought that scrutiny Scrutiny showed that council spend on scrutiny fell by 20%was effective. Directors of governance were more likely last ‘strongly agree’ that scrutiny was effective, while chiefexecutives’ responses were split evenly between ‘tend to We have a scrutiny function that is effectively respondingagree’ and ‘tend to disagree’. to the changing risks facing the council and can annually However, this is much less positive than for many other demonstrate the value it adds.areas surveyed. In addition, almost 33% of respondentssaid they believed their council’s scrutiny function was not Strongly agree 18%effectively responding to changing risks and annually failed Tend to agree 49%to demonstrate the value it added. Tend to disagree 28% Respondents rated ‘scrutiny’ as their top priority forimproving governance in the council. This was followed Strongly disagree 5%by ‘member input and understanding’ and ‘clarity ofinformation and communication’ – both key building blocksin effective scrutiny.16 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  19. 19. Top three things that would improve governance, identified in our survey: Member input and understanding Clarity of information and communication Scrutiny LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 17
  20. 20. ScrutinyAudit and scrutiny chairs workshopHow effective scrutiny can make a The risks councils face can be In relation to both audit and scrutinydifference. heightened as a result of policy and there was a real desire amongIn spring 2011, with Shared performance teams being swamped workshop participants to:Intelligence, we hosted a workshop for and management information being • see cuts are based on analysis andlocal government audit and scrutiny seen as a second priority. assessment of options rather thancommittee chairs to discuss how their Scrutiny can address these risks by: ‘salami slicing’committees could make a difference. • making sure management • hold officers to account and not One of the key areas for discussion information is not neglected or allow them to obscure decisionswas major organisational change. We allowed to go unchallenged within lengthy papershave set out the main points explored • ensuring major decisions take into • avoid closed decision-makingbelow: account what the latest management by using audit and scrutiny to information is saying arbitrate publicly on the mostManaging change in relation to • asking how performance and contentious issues.complex public services can be verydifficult. improvement will be managed in theScrutiny can help councils by: face of significant budget cuts.• putting a spotlight on the change processes in the most critical local Scrutiny can challenge decision- services making robustly.• interrogating needs assessments Pre-decision scrutiny, for example, can Key to ensure the approach reflects the probe what evidence there is to suggest that a proposed change will achieve workshop themes current context and future needs the claimed outcomes. It can add real• exploring how options were value to crucial decisions before they “Demonstrate impact from formulated and who was involved are taken. If scrutiny is to play this role your work.”• holding public sessions that allow effectively, questioning and chairing interested parties to give evidence. skills will be at a premium. “Take the stakeholder perspective.” “Focus on what really matters.”18 18 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  21. 21. Many principles for ensuring effective scrutiny are the sameas for the audit committee. For example: Four principles of effective scrutiny• Establishing the committee – get the terms of reference 1 Providing ‘critical friend’ challenge right and appoint a skilled chair and good quality 2 Enabling the voice of the public and service users to members be heard• Planning – ensure members own the agenda and have 3 Owned and led by ‘independent-minded’ lay members SMART objectives for the year 4 Improving public services• During the year – keep things on track, challenge robustly and respond to necessary changes in plan Centre for Public Scrutiny, Good Scrutiny Guide, 2006• Year end – evaluate and report on effectiveness and feed lessons into next year.Other specific levers for success include incorporating anelement of proactive, pre-decision scrutiny into the workplan and incorporating the views of service users. However,there is no magic formula for effective scrutiny and councilsorganise their scrutiny functions in many different ways. LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 19
  22. 22. Partnership workingDelivering services with other public and private sector bodies is now business as usual formany councils. To achieve the best outcomes, we believe local authorities should put partnershipgovernance high on the agenda.The phrase ‘partnership working’ in the public sector has Difficulties with partnership working often includemany applications. It can refer to shared management teams, a failure to realise savings and other benefits from theshared services, strategic partnering, joint ventures and other partnership business case, or significant overspendsincorporated delivery vehicles, unincorporated partnerships, on projects where the public sector has partnered withcommissioning, outsourcing, co-design, co-production and the private sector. Under the previous use of resourceseven straightforward contracting arrangements. assessments, underdeveloped partnership governance Government policies on the Big Society and Open Public arrangements were often cited as a reason for not awardingServices agendas, alongside the deficit reduction programme, higher scores.are increasing the need for councils to consider alternative Our survey results showed that 89% of respondentsmodels for service delivery with other public sector bodies, agreed (25% strongly) that officers and members were clearthe private sector and third sector entities, including possible on roles and responsibilities when the council works in‘spin offs’ from their own organisation. partnership. The positivity of this response is at odds with Shared service arrangements for back office services such previous external assessments and views from the sector. Thisas IT, internal audit, revenues and benefits, and payroll have suggests there may be a gap between aspiration and theory,had mixed success in the past, but are now firmly back on and reality in practice.the agenda. This includes public-to-public shared servicesand outsourcing support service provision to private sector When working in partnership, members and officers arepartners. clear about their roles and responsibilities individually and There are some high-profile examples of the planned collectively in relation to the partnership and the Council.merger of frontline service delivery, such as the Tri-Borough Strongly agree 25%partnership of Hammersmith and Fulham, Westminster, andKensington and Chelsea, and even full-scale ‘constitutional’ Tend to agree 64%mergers or wholesale outsourcing of services. Tend to disagree 10% When done well, partnership working boosts capacity Strongly disagree 1%and improves performance, value for money and the qualityof services. The Audit Commission’s use of resources goodpractice database and the Local Government Improvementand Development website include examples of successfulpartnerships, but benefits can be hard to measure.20 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  23. 23. The diversification of public service delivery, as set out in theGovernment’s Open Public Services White Paper, is likely Weaknesses in addressingto see the rise of smaller and less experienced public service partnership riskproviders, with more SMEs, charities and social enterprisesentering the market alongside large private sector providers. • Failure to understand the extent of their involvementThe White Paper acknowledges that the risk of failure among in partnerships or its implications, including theirproviders of public services is likely to increase, as minimum financial and legal liabilities. Partnerships can operatestandards and expectations required of providers increase, in isolation, duplicating effort and activity. Partnersfor example, through the use of outcome-based contracts and may not be adhering to the standards and protocolspayment by results. The recent collapse of Southern Cross, expected of them in the corporate sphere.and its impact on 31,000 care home residents, brought thisincreasing governance challenge to wider public attention. • Absent or insufficient corporate criteria to enable The lack of a formula for success in ensuring effective public bodies to assess whether to form a partnershippartnership governance and its importance in maintaining or participate in one, what the appropriate level ofpublic accountability have long been recognised. Structured involvement should be and what resources to invest.collaboration is being explored to help understand and better They may lack formal procedures for assessing themanage the costs, benefits and risks of partnership working, suitability of partners, the legality of the proposedso that value and outcomes can be maximised. We believe that partnership arrangements and standards of financialnow, more than ever, councils must ensure they have robust regularity or conduct.governance arrangements in place and that there is clear • Insufficient thought given to planning an exitaccountability between partners. Partnership risk management strategy. Partners should clarify the management ofarrangements need to be robust and audit committees should any continuing financial liability, the ownership ofbe clear about what assurances they require. assets and arrangements for disposal in order to avoid the risk of future legal disputes, or of the accountable body (often a council) becoming liable by default. • Lack of clarity on insurable risk, such as indemnity cover for partner members or public liability. • Lack of formal systems for recording conflicts of interest or for assessing the risks of funding“Shared responsibility should not mean diminished proposals.accountability.” Governing Partnerships: Bridging the Accountability Gap, Audit Commission, 2005Audit Commission, Governing Partnerships, Bridging theAccountability Gap, October 2005 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 21
  24. 24. Partnership workingCouncils have traditionally had less well-developedarrangements in partnership risk management. We believe Audit committee checklist forthis will need to improve if councils are to demonstrate partnership governanceappropriate partnership risk management arrangements aspart of setting priorities, policy making, financial planning, Do we have the necessary assurance around:information sharing and performance management. For example, there could be a requirement for separate • clarity over who the council’s significant partners are?risk registers to be maintained for each significant • appraisal processes to ensure that detailed partnershippartnership, or the establishment of a member sub-group to business cases are developed and scrutinisedmonitor partnership arrangements, particularly during the effectively?set up and early operational stages. AGS should explicitly • clarity of anticipated outcomes, savings and otherrecord the governance framework and assurances received for benefits from the partnership in a document that hassignificant partnerships. been signed off by all partners? Where services are delivered with or by third partyorganisations, audit committees must be satisfied that • a realistic assessment of the risks and potential conflicts,management has obtained appropriate assurance on factors such and agreement on how they will be managed?as service quality and continuity, value for money and probity. • the performance management framework to Cultural and behavioural aspects of partnership working monitor delivery and provide accurate and timelyare equally as important as structures and processes in ensuring management information for transparent andeffective partnership governance. Reaching a common informed decisions?understanding of the right behaviours is a key challenge for • clear contractual arrangements, for example, settingorganisations coming together to deliver public services. out how risks and rewards are to be shared between As councils work more in partnership, we suggest that partners?partners invest time up front in working together to understandtheir respective cultures and how these could affect the • compliance with all legal and statutory requirements?governance and performance of the partnership. This is often • compliance with all ethical standards, such asbest done through on-going team-to-team sessions facilitated by registration and declaration of partners’ interests?independent experts. • having strong client-side experience, with clear ownership and oversight of delivery, including effective contract and project management arrangements? • a properly constituted partnership board with effective and clear leadership? • contingency plans to ensure continuity of service in case something goes wrong?22 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  25. 25. Fraud, corruption andthe Bribery ActThe level of fraud against local government in 2011 is estimated at 10 times greater than that actuallydetected. To stem this tide, we believe councils should follow established anti-fraud and corruptionguidelines.In its Annual Fraud Indicator 2011, the National Fraud The Audit Commission’s statistics demonstrate theAuthority estimated that fraud against the public sector commonly accepted view that fraud and attempted fraudtotalled over £21 billion a year, with local government losing increase in difficult economic times. We used our survey toover £2 billion. gather the views of senior officers and members on how well they recognised, and were dealing with, the increased fraud risk and the implications of the Bribery Act. Blue Badge Grant fraud Scheme £43m Our results showed that 92% of respondents believed Council abuse £46m their councils were aware of, and had effectively responded tax fraud Pension fraud £90m £8m to, the heightened risk of fraud and corruption sparked by the recession. A significant proportion said they ‘stronglyPayroll andrecruitment agree’ with this statement. Just 8% (mainly chief executivesfraud £152m and directors of governance) said they ‘tend to disagree’. We are aware of the current heightened risk of fraud and corruption and have effectively put in place additional preventative and detective controls to address this. Strongly agree 49% Housing tenancy fraud Tend to agree 43% £900 million Procurement Tend to disagree 8% fraud £855 million Strongly disagree 0%The Audit Commission’s 2010/11 survey of fraud againstcouncils and related bodies shows that: This result indicates that councils are very positive about• councils detected more than £185 million of fraud, their anti-fraud arrangements. The Audit Commission’s involving 121,000 cases figure of £185 million of fraud detected is a significant• the total value of detected fraud losses for 2010/11 amount. However, this is only 10% of the £2 billion of fraud increased by 37% compared to 2009/10, with the number committed against councils. In this context, any proposals to of fraud cases also increasing reduce control and investigation resources may be counter-• councils recovered nearly 1,800 homes from tenancy productive. We would suggest that increased resources could fraudsters. These homes had a total replacement value of potentially be funded by heightened fraud detection and over £266 million. prevention.Audit Commission, Protecting the Public Purse, 2011 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 23
  26. 26. Fraud, corruption and the Bribery ActThe Audit Commission report, Protecting the Public Purse,examines key fraud risks and good practice and makes Top 10 tips for tackling localrecommendations for local government. It also contains a usefulgovernance checklist to assess anti-fraud arrangements, with government fraudguidance on:• general matters, such as policies, procedures, staffing, 1 Measure exposure to fraud risk. awareness and working with other organisations 2 Pursue an aggressive preventative strategy.• fighting fraud with reduced resources 3 Improve use of data analytics and credit reference• current risks and issues, such as tenancy, procurement, agency checks. recruitment, personal budgets and benefits. 4 Adopt tried and tested methods for tackling fraud inWe believe more could be done to prevent and detect fraud risk areas such as Blue Badge Scheme local government. Given the heightened risk of fraud, 5 Follow best practice to drive down Housingwe recommend councils assess their arrangements using the Tenancy and Single Person Discount fraud.Audit Commission checklist and DCLG 10-point plan (see 6 Pay particular attention to high-risk areas such asopposite). Constructive, external challenge may help when procurement and grant awards.carrying out this process. The difficulty in recovering money lost through fraud 7 Work in partnership with service providers to tacklecauses much frustration among public sector bodies. While organised fraud across local services.the level and speed of recovery can be complicated by criminal 8 Maintain specialist fraud investigation teams.proceedings, councils must be confident they are doing all 9 Vet staff to a high standard to stop organisedthey can to recover their losses, quickly. This has the benefit of criminals infiltrating key departments.adding to the deterrent effect. Depending on the level of resource and expertise in 10 Implement national counter-fraud standardscouncils, it may be appropriate to seek specialist help to developed by the Chartered Institute of Publicrecover misappropriated funds and mitigate losses from Finance and Accountancy (CIPFA).fraud. This can help to:• reconstruct financial information The Department for Communities and Local Government press release, 11 May 2011• quantify the amount of funds involved• trace the proceeds of the fraud• identify recoverable property• assist in securing the recovery of amounts stolen.Councils should also maintain sufficient records of how muchhas been saved compared to the cost of investigating fraud andpursuing recovery.24 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  27. 27. The Bribery Act We are aware of the implications of the Bribery Act for theIn our survey, 92% of respondents agreed, with over half council and action is being taken to review procedures to‘strongly agreeing’, that their councils were aware of the minimise the risk of investigation or prosecution.implications of the Bribery Act and had taken action tominimise the risk of investigation or prosecution. As with 54%fraud, chief executives and directors of governance scored 36%lower. Corruption risk through involvement in large-scaleprocurement and tendering needs careful management. With Strongly agreethe emphasis on localism and outsourced service provision, Tend to agreenew relationships are continually being forged betweencouncils and third-party and private sector organisations. Joint prosecution guidance from the Serious Fraud Office 2% 8%and the Director of Public Prosecutions stresses that the Actis not limited to commercial bribery, specifically mentioninginfluence on decisions by councils and members. So far,the Bribery Act has not been used extensively in the public Strongly Tend tosector, indicating success for the sector and those supporting disagree disagreeit in spotting the risk and taking advice. However, the firstconviction under the Bribery Act, in November 2011,where a public sector employee was jailed for six years afteradmitting he received a £500 bribe, serves as a reminder forcouncils to keep their arrangements under review. LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 25
  28. 28. Fraud, corruption and the Bribery Act The Bribery Act – some essential Questions to ask yourself steps • Has the council prepared a strategy for responding • Respond now to the Act if your council has not yet to the Bribery Act? done so. It can take longer than you think • Has a named individual within the council been • Consider using specialist external help, for example charged with implementing the requirements to perform a corruption risk assessment of the Act and investigating reports of possible corruption? • Introduce, revise or align policies and procedures to mitigate risks • Have we performed a corruption risk assessment (CRA)? • Train staff most exposed to corruption risk • Are our anti-bribery policies and procedures • Keep a record of all you do in responding to the Act. aligned to the CRA? • Do our policies and procedures fully address facilitation payments, gifts, entertainment, corporate hospitality and charitable donations on a global basis? • Do we clearly and regularly communicate the council’s strategy and policies on anti-bribery and corruption to all staff, including contractors? • Is there an anti-corruption training programme for the executive, all managers and staff? • Do we have an effective compliance monitoring programme, which provides the requisite assurance?26 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  29. 29. The explanatoryforewordLast year’s explanatory forewords ranged from one to 59 pages and varied widely in content andapproach. We believe that officers and members should ensure theirs is concise, comprehensive andaccessible and serves to enhance council accountability.The importance of the explanatory foreword The explanatory foreword to the annual accounts servesThe explanatory foreword to the accounts is particularly as a clear and concise introduction to the accounts andimportant in local government as there are no mandatory overview of the financial position of the council.annual reports to provide a full picture of how councils are Strongly agree 57%doing, in financial and non-financial terms. This is especiallyso now, as stakeholders become increasingly interested in Tend to agree 38%how councils are spending taxpayers’ money. Tend to disagree 5% However, council accounts, with their coverage of Strongly disagree 0%complex multi-purpose operations and fulfilment ofadditional statutory statements, are not easily accessibleto the layperson. The introduction of International Financial The average length of the explanatory forewords weReporting Standards (IFRS) in 2010/11 is perceived by many reviewed was nine pages, although they ranged from one toto have made the accounts even longer and more difficult 59 pages. Despite this variation, our survey showed 95% ofto interpret. respondents felt the explanatory foreword served as a clear In this context, a good explanatory foreword to help and concise introduction to the accounts and an overviewthe reader easily understand the accounts is essential. The of the financial position of the council – 57% ‘strongly2010/11 Code of Practice on Local Authority Accounting agreeing’.has 12 recommendations on what to include in the Although chief executives and audit committee chairsexplanatory foreword. These are set out in our analysis scored lower than others, the findings suggest that seniorof compliance, overleaf. council representatives believe the explanatory foreword is fulfilling its primary purpose. However, we question how the shortest forewords achieve compliance and how the longest can be regarded as concise and user friendly.“The purpose of the foreword is to offer interested parties an easily understandable guide to the mostsignificant matters reported in the accounts. It shall provide an explanation in overall terms of the authority’sfinancial position and assist in the interpretation of the accounting statements, including Group Accounts.”Code of Practice on Local Authority Accounting, CIPFA, 2010/11 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 27
  30. 30. Explanatory foreword to the accountsOur explanatory foreword review findings ComplianceThe explanatory forewords to the 2010/11 accounts were A summary of our findings for each set of compliancereviewed against our best practice criteria. These included: questions is set out below: Average 2.4• compliance-based questions taken from the Code of Explanation of 3.0 Practice on Local Authority Accounting statements• clarity and consistency questions, including internal Financial 2.4 consistency with the accounts and AGS information• best practice questions from other sectors, including those Material assets 2.3 on wider performance and environmental matters. /liabilities Pensions 2.9 changes A team of graduate reviewers took part, to simulate the views Material charges 2.3of the informed, but not expert, user. We used the following /credits scoring system: Accounting 2.81 Information totally missing policies 2 Information partially missing Change in 2.1 functions 3 Minimum Current 2.44 Enhanced content borrowing 5 Standard setting Sources of 2.3 funding Significant 2.1 provisions Post-report 1.9 events Impact of 2.6 economic climate28 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012
  31. 31. With a maximum score of 5, an average of 2.4 suggests Providing clarity over the financial position is particularlythat disclosure is providing close to the minimum to fulfil important in the current financial climate. Our recentlycompliance needs, rather than seeking to provide the reader published national report on council financial resiliencewith an easily understandable guide to significant matters. showed that, overall, councils have coped well so far.Explanations of the statements and significant changes in However, with an average score of only 2.5 out of 5, manyaccounting policies are among the highest scoring areas, but the councils could provide a clearer explanation of their financialscores of around 3 do not suggest clear unequivocal guidance. position in the explanatory foreword. The lowest average score (1.9) was for details of any A council’s financial position can be summarised bymaterial events after the reporting date, where many councils its balances on usable and unusable reserves, levels ofmade no comment. This will be partly due to an absence borrowing, movements in net assets, performance on theof such events in many councils. However, councils failing Comprehensive Income and Expenditure Statement and cashto update the AGS for events up to the opinion date was flow. Forewords often failed to give a clear summary of thealso a frequent occurrence, suggesting there is scope for key financial developments in these areas.improvement in councils’ consideration of events after the Average 2.5balance sheet date. Understandable 3.0Clarity and consistency Tells same story 2.7For the clarity and consistency questions, the average score Covers significant 2.5was 2.5, suggesting that the explanatory foreword generally featureswas regarded as understandable to the non-expert reader Readily linked to 2.4and told a consistent story overall. Reviewers indicated that accounts graphs and tables helped their comprehension. Consistent with 2.5 The weaker areas were around clear reconciliation accounts of figures in the foreword with those in the accounts, Consistent with AGS 2.1consistency with the content of the AGS and coverage ofgroup accounts. Covers group 2.2 accountsAt a number of councils performance was reduced by: Clear on financial 2.5• no explanation for large movements in balance sheet items position and in reserves (usable and unusable) Balanced and neutral 2.6• too much detail on some aspects, such as service expenditure compared to budget• referencing to notes from the accounts to explain the subject rather than providing a succinct summary of the issue in the foreword. LOCAL GOVERNMENT GOVERNANCE REVIEW 2012 29
  32. 32. Explanatory foreword to the accountsWe also believe that a discussion of financial needs Best practiceand resources should cover the impact of the current We took the approach to review areas of best practice which,economic climate on the council and its services. There was while not mandatory for local government, reflect theconsiderable variation in the way councils approached this requirements to provide real understanding and transparencymatter, with examples including: to the public. They include the sort of information routinely• no discussion on the savings required in 2011/12 provided in corporate reports.• a useful discussion of the overall macroeconomic situation Average 1.9 but little description of the impact of the settlement on the Overview of 1.7 2011/12 budget authority• savings required for 2011/12 quantified and risks Use of KPIs 1.1 summarised Risks/ 2.2• a full discussion of the impact of the government uncertainties settlement over the next three years. Complements the 2.5 accounts Environmental 1.2 matters Clear/concise 2.7 For example, we looked at whether councils considered their environmental impact. Under s417 of the Companies Act 2006, a company must include a statement in its business review section that an impact assessment has taken place, and, in 2010, 98% of the FTSE 350 did so. Our research found councils scored an average of 1.2 in this area, indicating that the great majority did not comment on the effect of council policies and actions on the environment. Many councils provide similar information in other public documents. However, we maintain that good governance includes making key information as accessible as possible to stakeholders. So, if not included in an annual report, we believe the next best place for these best practice disclosures is in an expanded explanatory foreword to the published accounts.30 LOCAL GOVERNMENT GOVERNANCE REVIEW 2012