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31-05-2004
CIPFA Submission to the Tenth Inquiry of the Committee on Standards in Public Life
1. INTRODUCTION AND BACKGROUND
1.1 The Chartered Institute of Public Finance and Accountancy (CIPFA) is pleased to submit a response to the Committee on Standards in Public Life's tenth inquiry. CIPFA has taken a keen interest in the work of the Committee and gave evidence to the Committee's third inquiry into standards of conduct in local government. CIPFA has made a separate submission to the Committee's tenth inquiry in partnership with the Office for Public Management in the context of the Institute's work for the Independent Commission on Good Governance in Public Services.
1.2 This submission is made from the perspective of CIPFA's position as the leading UK professional accountancy body for public services. CIPFA has 13,500 members and students working across the public services, many holding Director of Finance or equivalent status and a considerable number holding Chief Executive positions.
1.3 The largest proportions of members and students are concentrated in the local government and health sectors; in addition, CIPFA members are also significant in central government departments and agencies, the major accountancy firms, statutory audit agencies such as the Audit Commission and the National Audit Office, and the further and higher education and social housing sectors.
1.4 CIPFA has done much to promote effective governance in the public services and continues to do so. This submission concentrates on the Committee's interests in the areas of the management and enforcement of codes of conduct and questions about organisational culture. It outlines CIPFA's work in these key areas.
2. EXECUTIVE SUMMARY
2.1 Codes of conduct relating to public service employees need to acknowledge the place of professional bodies' ethical and professional standards, which increasingly reflect the requirements of the professions' regulators, both national and international.
2.2 Codes of conduct relating to public service elected or appointed members and employees should include public interest obligations to external parties such as organisations with professional disciplinary responsibilities.
2.3 The Committee's Seven Principles of Public Life have been included in CIPFA's Standard of Professional Practice on Ethics for Institute members and other CIPFA publications covering public services governance and conduct issues.
3. CODES OF CONDUCT
The external environment in which codes of conduct operate
3.1 CIPFA's main observations on codes of conduct relate to codes that cover employees in the public services and how such codes relate to the professional standards, ethical statements and legal responsibilities that cover the conduct of such employees.
3.2 CIPFA's members are bound by CIPFA's Standard of Professional Practice on Ethics and several other technical professional practice standards. Under the Institute's byelaws, alleged breaches of professional ethics and standards are subject to investigation and formal hearing in accordance with the Institute's Disciplinary Scheme Regulations.
3.3 The form and content of CIPFA's Ethics Standard is increasingly subject to external influence from two sources. Firstly, as a member of the International Federation of Accountants (IFAC), CIPFA is subject to review as to its ethical and professional standards against a 'template' that is internationally agreed. Secondly, CIPFA is subject to regulation by the UK Financial Reporting Council (FRC) and its Boards.
3.4 The relevant point here is that codes of conduct promulgated by public sector bodies in the UK are often set in the context of prevailing UK norms and expectations. However, CIPFA members increasingly are expected to comply in their professional duties with standards that prevail internationally or that are expected by the profession's national and/or international regulator.
Potential for conflict between codes and professional bodies' ethics and standards
3.5 This raises the issue as to where codes of conduct for employees in public services 'fit' within a 'hierarchy' of pronouncements from international and national regulatory bodies, individual UK professional bodies and employing bodies. The potential for conflicting expectations resulting from these various tiers of regulating and standards setting bodies is apparent, also a potential for 'code' overload from an individual employee's perspective.
Confidentiality agreements
3.6 A particular conflict arises in the area of confidentiality between employing organisations and professional ethical codes when, in CIPFA's experience, public sector bodies enter into 'confidentiality agreements' or post contract 'gagging clauses' with their former employees, usually in the context of settling an employment dispute.
3.7 On several occasions over recent years, CIPFA has encountered situations when, in the course of investigating complaints about CIPFA members, the Institute has been obstructed by neither the employer nor the employee offering their co-operation on the grounds of such confidentiality or gagging agreements. In other cases, public bodies have refused co-operation for a variety of reasons, including lack of resources and the wish to 'move on' from a difficult episode.
3.8 Codes that seek to regulate the conduct of elected or appointed members and employees should cover their public interest obligations to external parties such as professional bodies with disciplinary responsibilities.
Position of employees with statutory responsibilities
3.9 The Committee will be aware that some employee positions, particularly in local authorities in England, have a statutory basis or significant statutory duties, in particular the Monitoring Officer and the Chief Financial Officer. It is important that, in any future mandatory code of conduct for local authority employees, the statutory duties of these particular posts are recognised. When such duties are exercised they are usually in the context of conflict and/or difficult financial or legal situations where a proportion of elected members may perceive the statutory officers as not acting in the immediate interests of the authority.
4. ORGANISATIONAL CULTURE
4.1 The Committee is particularly concerned to find out what good practice exists to embed the Seven Principles of Public Life into the culture of public bodies (question 14 in the Committee's 'Issues and Questions Paper' refers). From CIPFA's perspective, the Institute has been active through several initiatives and publications in promoting the Seven Principles, good governance and allied values. CIPFA's main contributions are outlined below.
CIPFA's Standard of Professional Practice on Ethics
4.2 As already mentioned, CIPFA members are governed as to their conduct as Institute members by CIPFA's Standard of Professional Practice on Ethics. CIPFA's Standard is unique among the UK professional accountancy bodies as it incorporates the Committee's Seven Principles into an appendix that provides guidance on the application of the Standard. The guidance also includes several case studies that attempt to 'bring alive' the ethical issues that CIPFA members may encounter in the course of their employment and provides suggested solutions that encapsulate either directly or in spirit the Seven Principles.
4.3 As there is currently no general code of conduct for local authority employees, CIPFA's Ethics Standard and allied technical professional practice standards 'fill a gap' for local authority employees who are CIPFA members. Some authorities have taken the step of formally endorsing the CIPFA Ethics Standard for all finance staff, irrespective of whether or not staff are CIPFA members.
The CIPFA/SOLACE Corporate Governance Framework for Local Government
Reasons for developing a local authority governance framework
4.4 Early work on corporate governance in the public services took Cadbury as a starting point but focused more on the control and accountability aspects of governance. This was understandable as at the time concerns were being raised about the lack of accountability of public servants and bodies, by the Public Accounts Committee on the conduct of public business, and in the media about sleaze in public life. The establishment and work of the Committee on Standards in Public Life reflected these concerns.
4.5 There followed a series of specific initiatives to improve corporate governance in different parts of the public services, for example in the NHS, through the development of codes and minimum control standards. There was, however, no major work addressing local government in a comprehensive way. In England, for example, although the former Department for the Environment, Transport and the Regions (DETR) had defined general principles of conduct for elected councillors, these principles were concerned with the areas of personal standards and accountability rather than the more comprehensive aspects of governance.
4.6 There was, therefore, a need to draw together the principles identified by Cadbury, the Committee on Standards in Public Life and, in England, the former DETR into a single framework of corporate governance for use in local authorities. In 2001, CIPFA and the Society of Local Authority Chief Executives (SOLACE) with the support of the Audit Commission, the Local Government Association, Accounts Commission and the Convention of Scottish Local Authorities (COSLA) developed a framework for local authorities to use in reviewing their existing corporate governance arrangements.
Purpose of the framework
4.7 The CIPFA/SOLACE document Corporate Governance in Local Government: A Keystone for Community Governance - Framework is intended to be followed as best practice for establishing a locally adopted code of corporate governance and for making adopted practice open and explicit. The Framework defines the principles that should underpin the governance of every local authority. It acted as a stimulus to encourage local authorities to:
· Review their existing corporate governance arrangements against the Framework
· Prepare, adopt and maintain an up-to-date local code of corporate governance, including arrangements for ensuring its implementation and ongoing application
· Make a statement annually in its financial statements, and refer to it in its Best Value Performance Plan, on how the authority is complying with its local code, including how it has monitored the effectiveness of its corporate governance arrangements in the year and any planned changes in the coming period.
4.8 The Framework defines how the principles that underpin good governance in local government, that is openness and inclusivity; accountability and integrity should be reflected in the five dimensions of a local authority's business. The Framework identifies these dimensions as community focus; service delivery arrangements; structures and processes; risk management and internal control; and standards of conduct.
Application of the Framework
4.9 In its report Stewardship and Governance (August 2003), the Audit Commission noted that nearly 75% of councils in England and Wales have reviewed their corporate governance arrangements in line with the CIPFA/SOLACE Framework.
4.10 The Audit Commission's public sector management paper 'Corporate Governance: Improvement and trust in local public services' (2003) notes that as part of the Comprehensive Performance Assessment exercise
'Auditors recently judged local authorities against five key dimensions of corporate governance based on guidance developed by CIPFA/SOLACE. A majority rate councils as very or fairly good performers in most areas'.
Links with the Code of Conduct for Councillors
4.11 CIPFA/SOLACE prepared a guidance note to accompany its corporate governance Framework intended to assist authorities review the effectiveness of their own corporate governance arrangements by reference to best practice. In particular, the guidance note indicates how the Framework fits in with other governance initiatives. It provides examples of the systems, processes and documents that might be cited by the authority as evidence of compliance with good practice - such as their code of conduct for councillors. The guidance note also includes useful references and tools available to local authorities for self-assessment purposes. In this way the note acts as a signpost to relevant governance work undertaken by other organisations such as the Improvement and Development Agency, the Audit Commission and the former DETR.
CIPFA Guidance for NDPB Board Members
4.12 CIPFA has produced a series of publications and provides training designed to assist Board members appointed to various public bodies across the UK. An example is 'On Board - A Guide for Board Members of Non Departmental Bodies in England' (CIPFA, 2002).
4.13 This publication provides the information needed to understand and carry out the important role of a board member of a non-departmental public body (NDPB). It is aimed at non-executive board members and the chief executives who lead NDPBs and is specifically designed to help make their time as board members both fulfilling and effective. The guide is designed to be relevant to boards of all NDPBs in England, regardless of size or function. It is generic and reflects best practice based on broad principles rather than being prescriptive.
4.14 The guidance includes information on the principles of corporate governance and public life (including the Seven Principles), organisational structures and processes, financial reporting and internal control, as well as expected standards of behaviour. The guidance is supplemented by appendices including statements on internal control; corporate governance - good practice checklist; commissioner for public appointments - code of best practice; and registers of interest.
Public Audit Forum Publication
4.15 CIPFA would like to draw the Committee's attention to a publication by the Public Audit Forum 'Propriety and Audit in the Public Sector' (2001) which contains a useful survey of the operation of governance arrangements, codes of conduct and allied issues across a variety of public service bodies as at the date of publication.
5. CONCLUSION
5.1 CIPFA would be pleased to provide the Committee on Standards in Public Life with any of the CIPFA publications referred to in this submission or to discuss the issues raised at one of the Committee's public hearings.