More on that Audit Scotland 'wish list'

by EWAN LAMB

Risks associated with arms length companies, the potential threats posed by participation in so-called city region and growth deals and a concerning reduction in the number of finance staff working in local government all feature in the latest Audit Scotland report on safeguarding public money.

The document sets out to reinforce the importance of councils having effective internal controls.

It says: "Although these may have a low profile, they are fundamental to maintaining a council’s finances; securing its core values; safeguarding public money; and minimising the reputational impact on a council if things go wrong. Checklists are featured to help councillors and officers assess their council’s situation and, where necessary, to identify and plan improvements."

According to Audit Scotland, through their audit reports and plans, councils’ external auditors flag concerns about internal controls as a result, for example, of the trend in reduction of finance staff.

"Recurring weaknesses are becoming apparent with certain types of controls, particularly those relating to information processing controls, such as for key financial systems and performance reviews, such as making effective use of computer-generated reports that usefully highlight patterns and exceptions."

And the report goes on to highlight other issues linked to internal financial controls including segregation of duties, including ensuring that a council officer cannot perform both Human Resources (HR) and payroll functions, and so create fictitious employees; and ensuring an officer cannot both make a purchase from a supplier and arrange the payment for it.

To illustrate what can happen if internal control systems are not working efficiently, the report describes one case study in which an unnamed local authority continued to pay former members of its workforce over a three year period.

Audit Scotland say: "Between April 2015 and February 2018, the council made over 800 salary over payments totalling approximately £812,000 to a combination of actual and former employees. An eighth of former employees were still paid after leaving the council, usually due to a delay in a department notifying Payroll Services staff that someone had left. Six over payments exceeded £10,000 and the highest was £15,500. At the time of the external audit, there were no documented procedures for preventing or recovering payroll over payments."

The public spending watchdog goes on to urge Scotland's 32 councils to ensure: full council, cabinet, committee and board meetings are held regularly; there is trust between councillors and senior officers; and councillors and officers recognise and respect their distinct roles;

"A culture of openness to challenge helps councillors and officers to recognise the importance of scrutiny; be open to candid discussions about risks and related controls; and promote this culture across the council and the partnerships it is involved in.

"Scrutiny works best when officers provide councillors with timely, good quality information . A council should be transparent about its decisions and the quality of the services it provides, so that the public and the council’s partners can be confident it is making informed decisions; and safeguarding public money. This involves the council’s leadership being open to scrutiny and accountable for their plans and performance. Every councillor – not just those who sit on the council’s audit committee, scrutiny committee, or equivalent committees – has a valuable scrutiny role to play at corporate, local area and electoral ward levels."

In its reference to ALEOs (Arms Length External Organisations) which have been developed by many councils, the report warns: "ALEOs can bring financial and operational benefits, with more potential for innovation but also considerable risks. Once an ALEO is operating, councilors need to oversee its financial and service performance; financial sustainability; associated risks; and seek assurance from council officers that suitable controls are in place for managing these risks. Risks include a potential conflict of interest where a councillor sits on an ALEO’s board, especially should it encounter financial difficulties.

And councils participating in city region or growth deals - for example Scottish Borders Council is involved in two such deals -  may risk gaps between their income and spending in future years, which could threaten their financial sustainability if risks are not managed carefully.