Streamlining Local Authority Accounts - What Does It Look Like In Practice?

26-09-2019

by Conrad Hall, Corporate Director of Resources, London Borough of Newham

Conrad Hall is also the Chair of CIPFA’s Local Authority accounting panel and a member of CIPFA/LASAAC.

As public finance professionals we are familiar with the benefits of annual accounting: most obviously, in principle at least, increased levels of transparency and accountability. However, local government accounts are long, complicated statements, rich with data but not necessarily enough information. This can make them difficult even for finance professionals to understand. The dense nature of local authority accounts underlines how important the streamlining agenda CIPFA is pursuing could be for the sector. As it begins to take hold across the country, it’s worth pausing to consider what the process means for the public finance sector and how the end result can be achieved.

We need to recognise the regulatory constraints. Current accounting standards local government have been introduced by the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC). The authority for determining local government financial reporting requirements rests with the relevant government administration. It is government legislative support and recognition that provides the basis for CIPFA/LASAAC’s work in developing the accounting code of practice. Governments, represented by the Financial Reporting Advisory Board, therefore have a significant interest and role in the financial reporting requirements for local government.

CIPFA/LASAAC’s responsibilities include developing the code of practice on local authority accounting and evaluating new accounting standards to ensure they are fit for purpose. CIPFA’s Local Authority Accounting Panel (LAAP) also supports finance practitioners by producing sector guidance notes and tackles topical issues as they arise, such as Dedicated Schools Grant deficits and LOBO accounting. Ultimately, the work of both groups determines what goes into public accounts, and both entities are critical in any streamlining efforts.

The additional barrier is that streamlining means different things to different people. For many, streamlining means shorter. Shorter accounts would be quicker to read, which many see as a big benefit. Less information could help ensure that key messages are highlighted more prominently. However, accounts include valuable information on debt collection, pension deficits as a measure of intergenerational equity, financial sustainability and much more. Trimming too much in the interests of shorter accounts runs the risk of limiting access to information that some users regularly need.

Streamlining could also mean making statements more recognisable, so that numbers in the accounts look like figures that would normally be seen as part of the financial management reporting of any well-run authority. This shift has the potential to make local authority accounts easier to understand, digest and produce. Standardised reporting within an appropriate external audit process also helps build trust and confidence. Without consistency, numbers may be reported in different ways in different places at different points of the year, which can erode public understanding. However, should the industry adopt a ‘recognisable’ approach to reporting accounts, it’s important to be clear that some data can only be found in local authority accounts. Can financial planning and management decisions really be made without that data?

Ultimately, it all comes down to who you see as the users of the accounts. Residents, councillors, management, government departments, banks, and auditors are all possible users of the data. However, accounts that attempt to meet the needs of every possible user end up being long and inefficient. If we focus on residents as the primary users of accounts, we as finance professionals can bring transparency to local authority accounts and clarity to the streamlining process. If residents are not at the heart of our thinking, local authority accounts will remain too long, trying to serve so many purposes that they achieve few, if any, of them.

But the streamlining agenda cannot be accomplished without engagement across the sector. Each year, CIPFA/LASAAC drafts the Invitation to Comment (ITC). The ITC is key to the adoption, interpretation or adaptation of both the standards and the Code. Engagement from the sector is vital if we are to act on legitimate concerns.

Whilst the benefits of streamlining are clear, it’s worth noting that streamlining can’t just mean simple. Local authorities aren’t simple. We do complex things in order to make better use of scarce resources. If we accept that accounts will never be entirely straightforward, we can move towards the true goal of streamlining – adopting a new format and process that fosters better decision making and better use of public money.

It cannot be enough to define the streamlining agenda in terms of simpler and shorter. Accounts can’t lose the distinct value of what’s in them. However, good financial reporting should drive better decision making and meaningful transparency. This approach will be key to regaining public trust and putting citizens at the heart of everything we do.

This article first appeared in Public Finance.

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