Responding to COVID-19: insight, support and guidance

How to improve councillors' financial scrutiny

26-06-2020

By Diana Melville, CIPFA Governance Advisor

A transparent and accountable public sector is a cornerstone of our democracy. This cannot be achieved without suitably robust scrutiny and governance. This is true across all parts of the public sector – and in local government, this role is largely fulfilled by councillors.

While there are many examples of high quality scrutiny, evidence gathered by the Centre for Public Scrutiny indicates that high quality financial scrutiny is not the norm across the sector. Their 2017 survey of scrutiny in local government found that 51% of authorities felt they did not carry out scrutiny of finance issues effectively. This could be for a number of reasons. A great deal of budget scrutiny takes place only shortly before being submitted to council for approval, not providing enough time for thorough review. In addition, it can be more difficult to meaningfully contribute to a scrutiny review of financial information if it is not linked to underlying service performance and the impact on people's lives. Sometimes the language of financial management is intimidating to non-experts.

In order for councillors to effectively challenge and oversee council finances, they need access to some basic information, and the skills necessary to understand it. This is why CIPFA and the Centre for Public Scrutiny have released a new guide on financial scrutiny. We hope it will support councillors in understanding not only the role and value of scrutiny, but also what good financial scrutiny looks like.

Councillors should first understand the big picture of the financial position of their authority and the risks and financial challenges it faces. To do this, it is helpful for councillors to understand the principal areas of income and expenditure. The financial scrutiny guide provides a basic orientation and highlights further useful resources. When it comes to scrutinising the budget, scrutiny councillors should certainly be probing, but a line by line review is likely to be unhelpful and ineffective. Instead there should be a focus on how the budget addresses and aligns with the council's goals and objectives, and whether it helps to achieve effective use of its scarce resources.

To get the best out of the financial and performance data that councillors have access to, make use of summaries and plain language information, and insist upon appropriate time to absorb it. This information can then be used to escalate important, strategic issues for more detailed discussions.

While councillors do not need to be financial experts, they do need to know the right questions to ask. This can require support, and should form part of the plan for members' wider development needs. Basic finance can play a role in the induction of new members, but further guidance and training can help demystify finance for councillors across the authority.

The fact that high quality financial scrutiny has been found not to be the norm across local government should be a matter of concern, especially during the current crisis. Local authorities have taken on new financial commitments to tackle the effects of the pandemic whilst at the same time experiencing significant shortfalls against their financial plans for 2020/21 and beyond. Currently the level of central government support is uncertain. Managing this financial risk will be extremely challenging. All parts of the governance framework need to play their part.

This article first appeared in Local Government Chronicle.

Explore more

CIPFA is holding a key event for councillors on 8 September: Councillors' Guide to Understanding your Council's Financial Reporting Requirements Webinar. This is an unmissable event for all elected members tasked with financial scrutiny – and indeed any councillor interested in the wellbeing of their authority.