Local Public Accounts Committees

Why is it needed?What will it deliver?How will it work?

Discussion Paper

FEBRUARY 2018

Introduction

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In 2013, the Centre for Public Scrutiny (CfPS) first introduced the idea of local Public Accounts Committees (PACs). They are a concept that we have continued to develop since then.

We believe that a new mechanism is necessary to knit together accountability and responsibility for outcomes at a local level (what “local” means is a question we address). Through a direct focus on value for money, local PACs would mirror the role of the Public Accounts Committee in Parliament – challenging a range of organisations whose decisions and actions impact the public to align their priorities and vision, to focus on the impact their spending delivers, and opening up the business of “partnership” to accountability, transparency and the involvement of local people.

Local policy-making is now defined by partnerships – some formal, some informal – between public sector bodies and between the public and private sectors. These trends have created greater complexity and raise challenges for governance and accountability. Where is the public pound being spent and by whom? Who is responsible and accountable for spending decisions? How are spending priorities aligned and how does delivery against these priorities get measured?

Recently we carried out a survey of councillors and officers working in scrutiny on the subject of complex governance. Over half of those responding thought that governance had become significantly more complex. Half, too, felt uncomfortable with this complexity – often because they felt that they did not understand how new delivery and management systems in the sector operate. Moreover, most felt that scrutiny which attempts to engage with these issues is currently of limited impact.

This highlights CfPS’s contention that accountability and governance systems of individual organisations are ill-equipped to

deal with these issues. In many cases they are an evolution of internal systems designed for 20th century public services – a world of tight, hierarchical control over decisions in individual organisations and institutions. That world no longer exists but our control systems and other oversight mechanisms (particularly those that are public-facing) have not really caught up.

We believe that we should ask ourselves whether strong enough systems are in place to provide clear enough accountability and sufficient scrutiny of public spend. There is also the potential for a local democratic deficit due to changes to how some public services, education for example, are now structured and governed. There are certainly specific challenges around the culture of working, within and outside partnerships, which suggests that increased complexity in the way services are designed and delivered is making those services less visible and more remote from the influence of local people. All of this, of course, has happened against a backdrop of significant reductions in public spend and increased demand.

We look forward to having a public debate on these proposals with colleagues nationally and locally, and we welcome specific comments on the contents of this paper. If you do wish to comment, and feed your thoughts into our plans, we ask that you do so by 23rd March 2018. You can e-mail Ed Hammond, our Director of Research, at ed.hammond@cfps.org.uk or call 020 3866 5109. Or you can tweet us @CfPScrutiny.

Jacqui McKinlay Chief Executive, Centre for Public Scrutiny February 2018

Dealing with the governance of complexity at a local level

Local public accounts committees

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Our local PAC proposal: why it is needed, what it will deliver, how it will work

Why is it needed?Assurance on value for money (VfM) in public spend is at the heart of this agenda and is the challenge which we designed local PACs to solve. Our conception of VfM is one that goes beyond the traditional “New Public Management” language within which the term is usually framed – it encompasses the need to secure environmental and social value from investment as well. It is about more than applying the principles of social value to procurement (although this is an important element) – it is about integrating that understanding of the wider impact of public spending into everything a commissioner or provider of services does.

New Local Government Network’s work on place-based policymaking and “changemaking” councils – recognising the reality of approaches to policy which will be increasingly defined by the creation of bespoke solutions for individual areas rather than national responses – supports this perspective. VfM will look different from area to area; it makes sense, then, that the concept of VfM is “owned” locally too.

A broader conception of VfM is also supported by wider research on economic growth. The Royal Society of Art’s research commissions on City Growth and Inclusive Growth, both demonstrated the critical importance of social action alongside action to enhance the economy. Similarly, the Centre for Local Economic Strategies’ research on “community economic development” published in late 2017 highlights the risk that looking at economic development in isolation from wider social factors is unbalanced. This suggests an approach that replaces a focus purely on economic growth with one that looks at wellbeing and local wealth – precisely the broader VfM focus that we consider would be the key driver for local PACs.

Locality’s “Commission of the Future of Localism”, chaired by Lord Kerslake (who is also the Chair of CfPS), has also influenced our

recent thinking. The Commission’s argument that local power is about people and communities is well-made – in what is still a heavily centralised state, this should not feel radical. The Commission highlighted the need for strong structures around accountability at local level. The geography of local PACs will be important in ensuring their relevance and visibility to local people; we hope that local PACs can complement and support the kind of hyper-local community activity that the Commission sees as necessary to support local action and local democracy.

These are ideas which have traction across the political spectrum. Localis, a local government thinktank which is consciously right-leaning, recently highlighted in its research “In Place of Work” the links between social issues, the local labour market and economic growth. Many of the contributors to its essay collection “Neo-Localism” drew some of the same conclusions about where some of the key challenges to economic development lie.

Our paper on local PACs published in March 2015 set out a number of challenges for local public service governance. Since then, further developments have made the need for local PACs more urgent, and which allow us to reflect on the research above. These are highlighted by developments such as:

The concerns highlighted by the National Audit Office about Local Enterprise Partnerships (LEP) governance in 2016, and the Ney Review of LEP governance in 2017, which has been a prelude to more concerted efforts by Government to address the issue. This was an in issue raised in our publication “Growth through good governance” (2014);

Major changes and developments in other sectors which highlight the issue of governance and accountability, namely:

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• Sustainability and Transformation Partnerships (STPs) and Accountable Care Systems, as covered in our “STP checklist on governance and engagement” (2016) and ‘Verdict so Far’ (2017);

• The fire at Grenfell Tower, which raises profound questions about contracting out and arms length management, and the outsourcing of accountability between partners;

• Changes to funding, delivery and oversight in education.

The broader challenge and opportunity of devolution. We highlighted these issues as part of our comprehensive research and practical support on devolution and governance, reflected in “Devo how? Devo why?” (2015), “Cards on the table” (2016) and “Charting the way” (2017);

The wider agenda around service transformation, commercialism and new methods of service delivery – strategic commissioning, deeper collaboration, more complex partnerships. These were issues we highlighted in our publication “Change game” (2015);

Brexit. The UK’s decision to leave the European Union will inevitably have an impact on the way that local services are designed and delivered (something which is being examined by CIPFA’s Brexit Advisory Commission). It should also stimulate how we think about those who make decisions on our behalf, and where those decisions are made.

In brief, some of the big questions that need answers are:

How are services funded, and how is that funding overseen?

• Funding for local services comes from a huge range of different sources. A local PAC can help to unpick and understand how spending is joined up so as to make a difference to local people’s lives;

• A vast range of different organisations, in the public, private and voluntary sector, are now involved in service delivery. Relationships are based on a complicated web of contracts and agreements, many of them subject to minimal public scrutiny and hidden from view because of commercial confidentiality;

• There is evidence of cost shunting and cost duplication between various parts of the public sector, which provides poor VfM to taxpayers, and potentially poor services too;

• Devolution deals bring with them significant additional funding, which is subject to some oversight, but this oversight focuses on the deal and the national/combined authority relationship, not the relationship that combined authorities have with their citizens.

How are decisions made, and by whom?

• Decision-making in partnership often happens in private and/or informally, in ways that are unpredictable and difficult to understand;

• Recent trends are moving towards making this kind of governance – across partners – more complex. Council reorganisation, greater commercialisation (the creation of Teckals / trading companies, and so on), all pose challenges to the systems for oversight of individual organisations. STPs/ACSs, and similar pressures to innovate elsewhere in the system, are accelerating this trend without necessarily clarifying where political and democratic responsibility and accountability lie.

How can we therefore have confidence that services are value for money – and that partners have a shared understanding of what “value for money” means?

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What will it deliver?

The importance of culture

A local PAC would engage head-on with the challenge of the governance of complexity. To be effective in doing this it would need to focus not on the structures of partnerships, the legal relationships between partners or the way that performance and delivery are “formally” managed, but on culture.

Culture is critical to value for money. The behaviours, values and attitudes that decision-makers and providers think are important are what drive them to be more, or less, open – more, or less, responsive to the needs of local people. A positive culture is one that cements an understanding amongst decision-makers that VfM is not just about good financial management, but about having a profound understanding of where local needs lie. Moreover, it is about directing resources to best meet those needs through defining the right outcomes.

Compliance with minimal governance standards – even when those may seem robust from the perspective of an individual institution – will not be enough in the reality of the messy and often overlapping governance systems that typify modern public services.

As such, we have suggested a framework for local PACs which emphasises that they are locally led (defined by the priorities of local people and what VfM means, further to their specific needs) but based on a national framework of powers, with a narrow and well-defined role that complements other local actors.

They will exist to identify, act and report on risks, to knock heads together, to give local organisations, Government and local people the confidence and assurance that public services are properly joined up, and to shine a light on novel delivery methods which might currently sit outside the governance systems of any one organisation. They are about promoting a culture of innovation, learning, sharing and openness – between partners, and between partners and the public.

We will know that local PACs are effective when local partners and partnerships work in ways that reflect a culture of openness and accountability and are driven to engage with a wide range of others – including local people. Practically, the outcomes for a successful PAC would be:

Local decision-makers to be more easily identifiable. Individual responsibilities will be clearer, and the intersection between the responsibilities of individual bodies and “the partnership” will be clearer. As it stands in many areas, there may be detailed bilateral agreements between partners, and general agreements across a partnership, but little information available publicly about the division of duties in a more comprehensive and comprehensible way;

Systems of accountability between partners (for service delivery in particular) to be understandable, with decision- makers behaviours and attitudes backing up the governance systems that exist on paper. Ethical issues (particularly those relating to conflicts of interests) will have been flagged up as part of the detailed design of the above systems – meaning that there are fewer chances that administrative solutions to such problems will need to be invented on the fly;

A more understandable process for policy development – backed up through robust and consistent data collection and sharing across the area (see below);

The public to influence decisions, policy, and performance at the right time. This involves partners together having consistent systems for public involvement and engagement on key issues and decisions at all levels of decision-making;

Assurance to be provided on the way that organisations individually and collectively establish whether public expenditure is VfM.

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The importance of data and information

One of the principles that underpins effective partnership working is the sharing of information, and the use of that information to plan and design services.

Public bodies have in recent years taken a number of approaches to how they think about drawing this data together. For the sake of simplicity and to explain both what a local PAC might add, and how this is closely connected to the points on culture we raise above, we present two broad approaches below:

“Big data”. A managerial approach to drawing together and analysing data for the benefit of professionals. Central collation and analysis allows partners to share an understanding of what data tells them; sharing flags up links and correlations which might not have been obvious to individual organisations. The approach taken sometimes but not always reflects traditional management approaches to data – a focus on quality and consistency of datasets, and of a “single version of the truth” which can be shared between partners to bring about a uniformity in how those partners understand the local community, therefore minimising the risk of divergence in the design of policy objectives and outcomes;

A more collaborative approach. Rather than information being drawn together centrally and/or by professionals, its publication enables anyone to analyse it and to reflect on its meaning. This can lead to conflicting interpretations of the same data – this is a good thing, because it challenges the assumptions of professionals. It is an approach which accepts that data takes a large number of forms, and that professionals will never be able to draw all of that into a single agreed repository.

The second model is probably that which is most amenable to scrutiny – a model for data sharing and analysis which is outward facing and encourages different perspectives. This, itself, requires an open and questioning culture to

exist not only in individual partners, but across the partnerships which might be subject to a local PAC’s oversight.

A local PAC would need on it (and working to support it) individuals who understand the challenges and opportunities arising from data and information and the increased opportunities provided by technology to draw conclusions from it (often in real time). A local PAC would itself need a robust way to draw together, sift and understand information in order to carry out its work – the amount of data produced and available locally is colossal, and it would be very easy for a PAC to drown in it. PACs will need to be able to take a more discriminating approach, using data to underpin how work is prioritised as well as to challenge the design and delivery of VfM services.

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How will it work?

The duties and powers

In order to deliver the outcomes we have talked about, improvements to culture and to the way that local partners use information, alongside bringing a forensic approach to value for money to bear on local services - a local Public Accounts Committee would be a body with the following duty:

To hold to account the delivery of public services by organisations working together across a locality, and to investigate the value for money of those services.

The local PAC would not look at the day-to-day activities of individual organisations – which have their own, existing governance arrangements. It would however need to be aware of the roles, duties and work of those organisations, using that insight to look at the way these individual organisations interact. In particular, it would examine the way that VfM is used as a driving force to align the priorities of different bodies delivering public services. There would be an expectation that broader, systemic issues identified through the governance systems of individual organisations might be “escalated” to the PAC. The PAC could also provide support and advice to those engaged in non-executive activity in the local area.

Importantly, a local PAC model would be scalable and sustainable. Its strategic focus would mean that, as more services come under local control (and hence the purview of the PAC), substantial changes to its means of operation would not be necessary.

Meaning of “public services”, “locality” and “value for money”

Our description of the duty demands that we explain the meaning of these words:

Public services are services delivered with support from public money. Rather than the powers of a local PAC being limited to some named organisations, this would see it

having the freedom to follow the “public pound” around a local place. It would require exclusions for “local” spending on national issues such as defence, but we would envisage these exclusions to be narrowly focused. However, if this issue is not subject to legislation, the definition would be subject to local agreement, with public bodies and others essentially signing up to oversight by the local PAC. We envisage that, in any formulation, this would include oversight over public services which are contracted out, delivered by alternative delivery vehicles, and so on.

Locality is the area covered by the local PAC. We think it makes sense that councils, local communities, and local partners think together about the best geography for a local PAC. Because we think they are best tackling strategic cross-boundary issues, we think a larger footprint would be more appropriate, but this does raise challenges for public visibility (see below).

Value for money for us is about outcomes – economic, social and environmental. Public bodies are uniquely placed to understand the broader implication and outcomes of their work – our conception of VfM directly engages with those impacts on society. This could be seen as an expansion of the traditional VfM focus on “effectiveness”, but still alongside the need to secure economy and efficiency in the design and delivery of public services.

Possible powers, and where they would come from

“Enter and view” – similar to powers held by Local HealthWatch. “Enter and view” is about giving a PAC the right to directly inspect and investigate public services, to speak to those in receipt of those services, and those delivering them. This could come from statute, or from local agreement of the organisations involved. This is about ensuring that a local PAC

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can cut through official documentation and paperwork and look directly at how services are experienced on the ground, in order to make a more accurate judgment on VfM. It is not about giving the local PAC free rein to adopt an operational approach to its work. However, it does recognise that in order for the PAC to make strategic recommendations that cut across partners and partnerships, a sense of how things work on the ground is needed.

Rights of access to papers and documents held by any organisation delivering, commissioning or otherwise directing public services in the local area. This right would need to be broadly expressed to be meaningful. These rights could derive from statute, or from local agreement of the organisations involved. They could be expressed as a more general “duty to co- operate” with the work of the local PAC. It would address the issues raised about the sharing of data, going some way to opening up debate about what information is used to support which outcomes locally, and how this allows partners to demonstrate that what they do is VfM.

Rights to require people to attend and answer questions. This right would need to be carefully expressed and proportionately applied. The focus of evidence-gathering sessions in public – to which witnesses would presumably be invited – would need to be on partnership issues and their intersection with VfM, rather than specific service issues.

A power to require a specified response to recommendations. The power to make recommendations is shared with local overview and scrutiny, and Parliamentary select committees. Such a power could be given to a local PAC, enhanced by providing additional powers to require updates on the implementation of recommendations six months or a year after they are accepted. As a general rule, the right for the local PAC to specify the form in which a response to a recommendation is made would mean

that a duty to give reasons for rejecting a recommendation could be imposed.

A specific audit function. CfPS does not propose that a local PAC might undertake an “area-wide” audit – it would be counter-productive and costly. However, the PAC could review the outcome of audit exercises, review associated risks, identify instances where risks are shared, and make recommendations accordingly. Of course, the specific legal and financial duties of auditors – and the intersection of those roles with that of a local PAC – deserve more investigation. The nature of formal audit duties and responsibilities mean that these powers could only be conferred onto local PACs by statute, although there is conceivably a role that the PAC could perform of audit oversight.

Sanctions. The presence of sanctions for non-compliance with a local PAC’s requests (further to the above powers) is potentially contentious. It would be important for a PAC to be able to enforce its wishes but beyond the use of judicial review by the PAC to bring about this enforcement, it is difficult to see that a formal sanctioning power could be effectively drafted or used. Potentially, sanctions could be attached to any formal audit function.

The work of the local PAC would, as far as possible, happen in public and be public facing. Meetings would be open to the public, and papers published. Proceedings would be conducted in an open and accessible way, untangling complex issues of governance and service delivery and highlighting the key areas where the public demand accountability, and answers. The local PAC would need to engage with the public to gather evidence – we would hope and expect it to have the kind of profile and clout at local level that the Public Accounts Committee has at national level.

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How would PACs be supported, and where would their powers come from?

A local PAC’s powers could derive from two sources:

Statute. As noted below, these powers would be available rather than being imposed. In the short term, for local PACs to be established under these arrangements would require Government commitment of Parliamentary time, which is unlikely;

Local agreement. Between them, local organisations could agree a range of powers and duties for a local PAC without the need for Government backing (or to augment and develop powers provided for in statute). At the outset, and certainly while options are being trialled and piloted, we consider this to be the only viable solution.

Practical operation

Operating models

We think that there are two models for local PACs, and how they would operate. We expect that in the short term, Model 2 is most feasible. However, as partnership working and transformation in the public sector develop and accelerate, we consider that a robust model such as Model 1 will be the only feasible one.

The two structural models for the local PAC are:

1. Total independence. In this model, the local PAC is a separate legal entity. This would minimise the risks of conflicts of interest, and the risk of undue pressure being exerted on members of the PAC and the officers providing support to it. Under this model the local PAC might be funded in a number of ways (the source of which is discussed further below). An entirely independent body such as this would cost around £500,000 a year to run, or more if audit functions were included. We have based this calculation on the likely amount required for committee administration, policy support, specialist

financial support and communications support.

2. Hosted by another organisation. This kind of local PAC would still be technically independent but would be hosted within another organisation – it would not be a separate legal entity. It would be easier to establish, but there might be more chance that it could be seen to have been “captured” by its host, and its methods of operation might give rise to risks of conflicts of interest. The extent to which this would be a serious factor would depend on the perceived independence of the host. Separate funding and resource arrangements might be difficult to resolve.

Both models require a level of independent, local expertise to support a PAC’s work. For the PAC to take a forensic approach towards VfM would require the appointment of people with expertise in finance, accountancy and public policy; effort would need to be made to recruit to these posts beyond the standard “local government” talent pool. There is nothing to suggest that these skills do not exist beyond England’s major cities, or that recruitment would necessarily be a problem, but the fact remains that these would be completely new posts, requiring a blend of generalist skills, specialist subject knowledge and highly developed interpersonal skills.

Membership

We think that the membership of a local PAC should be as follows:

Chaired by an independent person (as with local audit committees);

A mix of non-executives from local authorities and other local organisations. Some areas might wish councillors to form a majority of the committee in the interests of legitimacy. But it will be important for non-councillors to be represented too.

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The local PAC would not be a local government committee, and so would not be subject to rules on political proportionality, but areas might wish to ensure that councillor representation is proportionate;

A relatively small size. Under 15 is we think the optimum. Others could be involved as co-optees for individual pieces of research or inquiries;

Co-opted experts who have specialist knowledge;

Potentially, local MPs.

The local PAC would probably need to establish time-limited task groups to carry out some of its duties (in particular, the dealmaking/devolution transition/improvement duties we introduce later in this document).

Members should benefit from an allowance reflecting their responsibilities. There would need to be agreement about issues such as the length of membership term.

Support arrangements and working with other local non-executives: minimising the risk of duplication

Duplication with the work of other local non-executives would be a natural risk where local PACs are in place.

While it would be attractive to see the local PAC take on direct responsibility for overseeing specific organisations – streamlining the existing, confused accountability landscape in operation at local level by the abolition of some of the existing structures – we think that this is likely to prove problematic, and would not deliver the expected benefits.

There are a number of reasons for this.

Legitimacy. Democratically led bodies, such as councils, should focus accountability within their own democratic, publicly-visible, structures. It would be inappropriate (for example) for local government scrutiny to be replaced

wholesale by local PACs, which would have some elected representation but not to the extent of a council committee.

Expertise. Non-executives working in individual organisations will have developed a substantial subject expertise to assist them in their work. If expected to develop a subject expertise across a wide range of disparate policy issues, a local PAC would find it difficult to manage its duties within resources;

The benefits of duplication – a shared responsibility for governance. Duplication – a bit of it – may not be a bad thing. Having people with different perspectives and responsibilities, and from different institutional positions, involved in governance helps to shine a light on local issues from different angles. Overlap encourages collaboration, and prevents issues falling between the gaps.

We consider that in areas with a Combined Authority, the combined authority overview and scrutiny committee could be augmented to become a local PAC, as the CA’s strategic functions make such a merger a good fit. In these arrangements the CA could effectively become the PAC’s host organisation.

Two opportunities for the local PAC to exercise more direct oversight in the longer term

While we do not consider that the local PAC should have a permanent role in the scrutiny of individual organisations, we do consider that it should have such a role on a temporary basis. There are two circumstances where this might be appropriate:

during the devolution “dealmaking” process with Government, and following this, when preparations are being made for the deal to be implemented on the ground (the “transitional” period when services and issues are passed from central to local control);

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when service failure (or the serious risk of service failure) has occurred or is occurring, and increased oversight and improvement support is necessary – this support/ oversight would be co-ordinated, and provided, by the PAC.

These are two specific areas where direct local need would draw a local PAC away from its more general VfM role. At the moment, we do not consider them to be feasible roles as the local PAC model is tested, but, with Government agreement, they might form part of a more formal model in the future.

Funding

An entirely independent local PAC would require independent funding. We consider that this could derive from one of three sources:

Funding voted by the House of Commons and “passported” through the NAO. This would provide links between the local PACs and the national PAC, and ensure that the NAO could exercise a supportive role to those providing support to local PACs. It would, however, lend a national flavour to a system that is meant to be about local accountability and control, and would of course require an appetite for action by MPs to take what would be a significant step into local decision-making. We have already noted the likelihood that national politicians will not have the time or inclination to act in this area at the moment;

A direct local precept. This more politically controversial mechanism would give local PACs clear independence and accountability to local people;

A subscription-based model where local public organisations contributed to the cost. In the short term, we think that this is most likely to be the solution (certainly for areas pursuing pilots). The impact of ongoing funding challenges in the public sector are potentially an issue here.

During periods where additional resources might be required – for example, when the local PAC carries out improvement/dealmaking/transition oversight duties – additional funds would probably be needed. Because of this, the local PAC would need to be funded to allow it to draw on reserves for those periods where it needed to “flex” its officer complement to take account of these additional pressures.

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Conclusion and next steps We are keen to hear views from people across a wide range of sectors as well as local leaders, scrutineers, academics, national representative bodies and others on this proposal. Views, comments and suggestions should be sent to Ed Hammond, CfPS’s Director of Research, at ed.hammond@cfps.org.uk

We are also now actively seeking areas who might be prepared to begin to test how a local PAC might work in practice, by talking practically about how it might work on the ground and experimenting with some of the ways of working that we would expect a local PAC to employ. This will help us to move towards a point where some areas may feel confident enough in the process and its utility to pilot something more substantial.

We have set out some specific questions below and would welcome views:

How can agreement be brokered on the central point of the need for a local PAC, amongst a sufficiently broad range of organisations to make such a body viable?

Is there an “optimum” operating model for a PAC with the powers we have set out – or is it right that there be significant divergence between areas based on local need and appetite?

How much of a challenge is it for a local PAC to engage in the cultural aspects of its work – particularly when that involves engaging in the internal culture, behaviours, attitudes and values of decision-makers in individual organisations?

What level of co-operation is required with existing governance systems?

Is “value for money” as we have defined it an adequate focus and driver for the PAC’s work?

How can local people be involved in the PAC’s work?

How can we have confidence that local PACs – individually and collectively – are working to deliver the kind of outcomes we hope?

Views are welcomed by 23rd March 2018.

Our plan is to identify a small number of areas in England and to begin conversations with a range of partners about these questions. We will also seek to find ways of “tweaking” existing scrutiny and governance mechanisms to make them “local PAC ready” – to use those mechanisms to conduct limited experiments of new ways of working which could actively contribute to a fully fledged pilot local PAC in due course.

Centre for Public Scrutiny February 2018