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The statement of accounts is a key tool for local authorities to explain to stakeholders how they have used public money to deliver services and achieve strategic objectives. But how effective are we at telling that story?
The typical scenario is that finance staff spend weeks of effort pulling together a set of financial statements, subjecting them to further weeks of external audit, and finally publishing the audited and approved accounts…only for just a handful of people to actually look at them. Does that sound familiar? How useful is a set of accounts as a statement of public accountability when nobody engages with them?
This is a huge challenge for authorities up and down the country, and one where there is no easy answer or quick fix. Let’s get one thing clear, the challenge here is not unique to local authorities…the length and complexity of financial statements based on International Financial Reporting Standards (IFRS) has been raised as an issue across the globe. However, what makes the challenge more complicated for councils is that, as well as the IFRS based statements, you also have the impact of statute to explain to users of the accounts. It’s no easy task.
The economic cost of providing services is shown in the Comprehensive Income and Expenditure Statement (CIES), however that is not the basis of setting tax and is not how council budgets are set. This difference can be confusing, even for accountants, let alone the typical lay reader or elected member. So how can we make that story understandable?
For 2016/17, some significant presentational changes were made to the financial statements to assist in explaining the link between how services are managed during the year by the Chief Operating Decision Maker (typically the Cabinet or Executive) and how they are reported in the accounts. The cost of services is no longer based on the standard headings in CIPFA’s Service Reporting Code of Practice (SeRCOP), but is now described in the same way they are managed internally (typically analysed over departments, directorates or portfolios). This hopefully provides a clearer link between monitoring reports, out-turn reporting and the financial statements.
In addition, a new note to the accounts, the Expenditure and Funding Analysis (EFA) shows prominently to users of the accounts the impact of statute on how the cost of services charged to taxpayers reconciles to the IFRS-based figures shown in the CIES.
Along with your Narrative Report, the EFA is a key tool in telling the story and explaining the financial results to your stakeholders. So, have you asked your elected members for feedback? Do those charged with governance understand your financial statements and how statute impacts on the reported cost of services? The changes in 2016/17 are unlikely to be the complete solution to the challenges you face in explaining the complex business of the council to lay-readers, but has it helped?
So, if you are running training for your elected members on the accounts, why not ask them for feedback and encourage suggestions on how the accounts can be made easier to understand. The financial statements are a key public accountability tool, but true accountability can only be achieved if the accounts are read and understood.