Accounts Commmission Annual Report 2006/07
Accountability and performance

Welcome

In this report we give an account of our work in the past year and highlight the main issues which have arisen. It has been a year of continuing development. We have seen the Best Value audit regime increasing its impact on local government, and so benefiting those who pay for and use its services, with nine reports published in the year. 

We also held our first public hearing in connection with a Best Value report and subsequently made findings which addressed many of the concerns which were raised about the operation of West Dunbartonshire Council. I believe that the statutory duty of Best Value placed on local authorities, and our audit reports, are a real spur to improvements in corporate governance and thus in service delivery. But we want to do better. So we have launched a review of the Best Value audit process and we will consult with local authorities on the outcome of that review and any proposals for change.

Last year I mentioned the roll-out of the new risk-based approach to financial audit and assurance. This is another development which I believe has had a positive impact and I am particularly pleased that already we see the benefits from aligning the financial audit and Best Value audit processes. Like all public bodies, we have a duty to ensure that our activity is proportionate and the resources are effectively used for the maximum possible benefit. Our joined-up approach to audit activities will, I am sure, secure real benefits for local government in the future.

During the year we published a number of significant studies, ever more the product of joint working with the Auditor General, which reflects how public services are evolving. I would like to give a particular mention to the study on A Teaching Profession for the 21st Century which I believe has made a valuable contribution to a vitally important part of the public service.

Local government has responded well to our previous reports but continues to face many significant challenges. The overview report of the local authority audits gave our view of the main areas which councils should be addressing in the period before and after the elections of 3 May. We look forward to working with the new councils at both member and officer level in our complementary roles of holding to account and pursuing improvement.

We are committed to demonstrating the public value of audit on a joined-up basis. We very much welcome the review of regulation, audit, inspection and complaint handling under Professor Crerar, and we will continue to work with the review team with a view to maximising the impact of our work while minimising the burden on public bodies.

This is the last annual report which I will introduce as chair of the Commission. During my period of office I have been impressed by the commitment and effort of our partners in contributing to the success of our work together. I am grateful to ministers and Scottish Executive officials, as well as our partners in local government, including COSLA and SOLACE, for all their support. We in the Commission wish to thank the Auditor General and the staff of Audit Scotland for their commitment and continued service. 
On a personal note, I wish to express my appreciation of all the individual Accounts Commission members, past and present, with whom it has been my privilege to work. Their engagement and support have been invaluable during my period of office, and I thank them all.

What we do

The Accounts Commission for Scotland was established in 1975 to secure the audit of Scottish local government and to consider reports arising from that audit. 
The Commission’s original functions have developed and its responsibilities are now:

to secure the audit of all accounts of local authorities and associated bodies either by employed staff of Audit Scotland or by firms of accountants

•to secure the audit of the performance by local authorities of their Best Value and Community Planning duties
•to consider reports made by the Controller of Audit, to investigate all matters raised and to conduct hearings where appropriate
•to undertake or promote Best Value studies in local government
•to give directions to local authorities on performance information
•to make recommendations to the Scottish Executive and to local authorities, and to impose sanctions on individual officers and members responsible for illegality
•to advise the Scottish Executive on local authority accounting matters.

The Commission, together with the Auditor General for Scotland, is supported in its work by Audit Scotland, which was set up to provide services to both. The performance of Audit Scotland is reported separately in its annual report, which can be found at www.audit-scotland.gov.uk

Financial Stewardship
Modernised audit in local government saw its first full year in 2006/07. 
The approach is now fully embedded and focuses on the key priorities and risks in councils, ensuring that audit activity is targeted at the issues that really matter to officers, elected members and the public.

Feedback from councils continues to be positive and the focus of development activity in the last year has shifted to further reduce the burden of audit in local government. The standards of financial stewardship in Scottish local government remains generally sound and the Commission will continue to provide assurance to ministers and the public on the way public money is used in councils. 

The Controller of Audit summarised the outcome of the local authority audits for 2005/06 in her overview report published in February 2007. The report provides a useful summary of the main issues in local government and is used to inform our forward work programme.

The Commission made and published findings on the overview report. The Commission welcomed a general picture of improved performance in councils, while recognising that major challenges lie ahead. 

For example, the report demonstrated that:

•all councils now have policies setting out their positions on reserves. This follows an increasing focus in recent years by the Commission on the reserves issue
•council tax collection rates have reached an all-time high, exceeding 93 per cent for the first time 
•waste recycling rates have reached 24.7 per cent, almost meeting the target of 25 per cent. 

However, the Commission also recognised major challenges facing Scottish local government, including:

•substantial financial pressures arising from, for example, equal pay settlements, implementing single status and rising energy costs
•changes to the political governance and strategic management of councils following the May 2007 elections
•continuing pressures relating to changing demographics
•public sector reform and efficient government 
•partnership working
•shared services.

While welcoming the overall picture of improvement in performance, the Commission found that councils need to develop far more robust methods for driving improvement and measuring performance. 

Joint report with the Auditor General for Scotland 
 
No hiding place: the National Fraud Initiative in Scotland
17/05/2006
Audit Scotland facilitated a national detection exercise under which Scotland’s councils worked with other public bodies to identify £15 million worth of fraud and errors. As a result, the bodies could now seek to recover about £6 million and prevent about 
£9 million in ongoing and future pension overpayments.

Best Value

The Commission has set up formal arrangements for the conduct of Best Value audits. 
When the audit team have completed their work the Controller of Audit makes a statutory report describing the outcome and her conclusions. 

The Commission considers each report and makes its findings, which are published. The council must meet to consider the report and findings and make a formal response, usually including an improvement plan.

During 2006/07, the Accounts Commission made findings on nine Best Value audits, including two progress reports on Inverclyde and Shetland Isles Council. The Commission also held, for the first time, a public hearing into a 
Best Value report, at West Dunbartonshire Council. 

In total, 21 audits of Best Value in local government have been completed and the Commission is grateful to the councils concerned for their co-operation. In early 2007, we commissioned an independent review of the Best Value audit regime, the results of which will be available to the Commission in the next few months. This review has involved extensive consultation with local authorities and other stakeholders. The Commission’s intention is to consult with local authorities on the outcomes of the review later in 2007.

The Commission continues to allow for flexibility in the programme of Best Value audits, with progress reporting and supporting improvement becoming an increasingly important element of our work. 

We have continued to experience some slippage in the Best Value audit programme. There are a number of reasons for this, including the impact of the local government elections, and the extended time required to complete some challenging audits. 

In 2006/07, Audit Scotland undertook a pilot Best Value study in a police authority. This demonstrated that there are important questions about measuring the performance of the police service and about accountability in circumstances where responsibility is shared between police authorities, chief constables and ministers. Therefore there are a number of issues about the future conduct of such audits which we intend to discuss with the principal stakeholders before finalising the 
audit arrangements.

The following section provides a summary of the reports published in 2006/07 on the Audit of Best Value and Community Planning.

The Highland Council 
05/04/2006
Highland Council often delivered appropriate and effective solutions to service delivery, but there were areas in which it must make improvements if it is to be in a position to deliver Best Value. In particular, there was a need for stronger corporate direction. There was a need to strengthen management arrangements, particularly on corporate issues.

Renfrewshire Council 
06/07/2006
Renfrewshire Council’s leadership was strong and effective, understood what needed to be done to deliver Best Value and was making good progress with this. However, there was still much to be done to improve service performance.

Comhairle nan Eilean Siar 
17/08/2006
The report said the comhairle had failed to plan for and to introduce Best Value processes and cited a lack of robust performance management arrangements. It did, however, recognise the particular geographical and historical problems it faced, and accepted that there was strong community engagement and active and committed political leadership.

East Ayrshire Council 
06/09/2006
This report found East Ayrshire Council was committed to Best Value. It had effective leadership, performed well in a number of activities and could recognise areas for improvement and address them. The council needed to streamline its Best Value processes and ensure continuous improvement throughout its activities.

West Dunbartonshire Council 
11/10/2006
This report found the council had made limited progress in Best Value and urgently needed to address its weaknesses. Its leadership was not respected and there was a lack of transparency in decision-making. Staff morale was weak and there were allegations of bullying. The Accounts Commission called a hearing on the basis of this report (see case study).

Shetland Islands Council –progress report
18/01/07
Shetland Islands Council had made a start in addressing the issues raised in the Accounts Commission findings of March 2005. But the Commission remained concerned at the pace and extent of change in delivering improvements.

Inverclyde Council – progress report
20/02/07
The Commission said that Inverclyde Council was moving in the right direction, following its critical report in 2005, and that there was a clear commitment and enthusiasm to improve. Among the actions it had taken was to appoint a new chief executive, set up a new management structure and new political management arrangements, and appoint a corporate management team.

City of Edinburgh Council
27/02/07
The City of Edinburgh Council displayed many of the features of a Best Value council, including many examples of good service delivery. However, some services, such as refuse collection and the processing of planning applications, still needed to improve.

Scottish Borders Council
07/03/07
This report said Scottish Borders Council had made substantial progress in recent years and had done much of the groundwork needed to achieve Best Value. However, there was a gap between its ambitions and its current performance.

The impact of the West Dunbartonshire Best Value report

In October 2006, the Controller of Audit made a Best Value report on West Dunbartonshire Council, citing major weaknesses in leadership, accountability and morale. 

As a result, the Accounts Commission called a hearing to hear more evidence on the report’s conclusions. This was the first time that the Commission has called a hearing on a Best Value audit report.

Over 29 and 30 November at Clydebank Town Hall, the Commission heard evidence in public from representatives from Audit Scotland and the council. Others among the 23 witnesses included John McFall MP, Jackie Baillie MSP, councillors, union representatives and community activists.Following this, the Accounts Commission released its findings in December. It said the council could not currently deliver Best Value. Decisions needed to be more transparent and there were significant deficiencies in corporate decision-making. Staff morale was low, scrutiny was inadequate and senior politicians and officers failed to lead effectively.

The Commission asked for an Improvement Plan from the council and recommended it seek external help. It also said the council should review certain decisions on schools, housing and community facilities.

Local Government Minister Tom McCabe endorsed the findings and demanded urgent remedial action at the council.
Audit Scotland is due to report on progress at the council in November 2007.

Performance audit

The Accounts Commission has the power to conduct studies and issue reports on performance in local government. 
Increasingly, performance audit reports are produced jointly with the Auditor General, which reflects the changing nature of public service delivery.

Four performance reports were published in 2006/07:

Accounts Commission report

A review of service reform in Scottish fire and rescue authorities 
01/03/07
This report said Scottish fire and rescue authorities were giving more emphasis to fire prevention and community safety, but it was too early to demonstrate a sustained reduction in risks from fire. New procedures had delivered efficiency savings and freed up staff for community fire safety activities. Authorities needed to do more to evaluate the impact of their community safety work to ensure they were making best use of resources. 

Joint reports with the Auditor General for Scotland

A mid-term report: a first stage review of the cost and implementation of the Teachers’ Agreement 
11/05/07
The Teachers’ Agreement brought benefits for the teaching profession, but the lack of performance measures made it difficult to assess the wider impact of the £2.15 billion investment. The report recommended that the Scottish Executive work with other parties to the Agreement to identify and report on a set of comprehensive performance measures.

Community planning: an initial review 16/06/2006
This report said community planning partnerships have made progress but needed to do more to show how their work was improving public services.It also said the complex remit of many partnerships made it difficult for them to achieve their aims, and called on the Scottish Executive to support community planning more effectively.

Public sector pension schemes 
in Scotland 
20/06/2006
This report on the six main public sector pension schemes in Scotland found that the gap between current fundingand the potential liability could be as high as £53 billion. The contributions from both employees and employers would almost certainly increase and there were likely to be demands on future public spending to meet these costs.

Performance information

The Commission discharges its responsibility for performance information in local government through a national 
Direction.

The Commission discharges its responsibility for performance information in local government through a national Direction. Since December 2005, when the information for 2004/05 was published, the Commission has changed the way it reports the performance of Scotland’s councils against the statutory performance indicators (SPIs). The new approach has allowed us to make the SPI Data Compendium (‘the Compendium’) and Council Profiles available on our website by December each year, and improved our ability to meet the needs of our stakeholders, who use the data for assessing performance and benchmarking progress. 

The Compendium provides all the SPI data for Scotland’s councils, fire brigades and police forces. The Council Profiles give individual profile reports on Scotland’s councils, with details of their performance against a range of indicators, and reports comparing councils on a range of key services. 

As part of the changed arrangements, we have integrated commentary on a number of key findings from the Compendium into the Overview of the local authority audits 2006. Findings from the SPIs are also used in our Best Value audits and national studies.

The Commission is currently engaged in discussions with stakeholders on the future framework for performance monitoring in local government and the role of SPIs within that. We expect the initial results of these discussions to feed into the 2007 Direction. 

The SPI Data Compendium and Council Profiles can be found at www.audit-scotland.gov.uk/performance/index.htm

Governance 

The Accounts Commission strives to ensure the highest standards of governance in carrying out its duties. 

Audit Scotland provides services to the Commission and the Auditor General and the Commission receives regular reports on its performance. Commission meetings occur monthly, with additional meetings to consider Best Value reports as required. In addition, the Financial Audit and Assurance Committee and Performance Audit Committee meet three to four times per year to consider specific aspects of the Commission’s functions. 

Commission members are also closely involved in Performance studies and individual Best Value audits. Each study is sponsored by two Commission members and two Commissioners attend the Best Value follow-up meetings with councils, along with the secretary and either the chair or deputy chair.

The chair of the Accounts Commission is also the chair of the Audit Scotland Board, and John Baillie, a Commission member, is a board member. The performance of Audit Scotland is reported separately in its annual report, which is available at www.audit-scotland.gov.uk

The Controller of Audit has the statutory function of reporting to the Accounts Commission on the outcome of the audits, including Best Value and Community Planning.

In December the Accounts Commission published its Disability Equality Scheme 2006-09.

The Commission

The chair, deputy chair and members of the Commission are appointed by Scottish ministers following an open recruitment process. 
They are appointed for a period of three years, normally renewable for a further three-year period. The members of the Commission during 2006/07 were as follows:

Alastair MacNish (chair) 
Chair of Audit Scotland Board
Appointed: September 2001 Term ends: September 2007
Chair of Audit Scotland Board. Former chief executive of South Lanarkshire Council. Previously held a number of 
posts in Strathclyde Regional Council including deputy director of Social Work. Served as chairman of the Leadership Advisory Panel.

Isabelle Low (deputy chair) 
Appointed: October 2001 Term ends: September 2009
Former senior civil servant, director of the 21st Century Government Group in the Scottish Executive. Former member of the State Hospitals Board for Scotland, member of Scottish Consumer Council and of the Statistics Commission.

Alan Alexander 
Appointed: October 2002 
Term ends: September 2008
Emeritus Professor of Local and Public Management, Strathclyde Business School. Former chairman of Scottish Water. Member of Economic and Social Research Council and chair, Postwatch Scotland. Non-executive chair, 
Distance Lab Ltd.

John Baillie 
Appointed: September 2003 Term ends: September 2010
Visiting professor of Accountancy at Glasgow University. Member of the Reporting Panel of the Competition Commission. Former partner in Scott-Moncrieff and KPMG. Member of Audit Scotland Board.

Owen Clarke 
Appointed: September 2003 Term ends: September 2009
Former head of Inland Revenue in Scotland/North of England and former chairman of Scottish Ambulance Service. Currently holds two non-executive posts within the Scottish Executive.

Jean Couper 
Appointed: October 2002 Term ends: September 2008
Partner in a management consultancy and previously a senior management consultant with Price Waterhouse. Former chairman of Scottish Legal Aid Board and past member of the Police Advisory Board. Director of The Ombudsman Service Ltd and director of K3 Consultants Ltd. 

Ann Faulds 
Appointed: September 2003 Term ends: September 2009
Partner in Dundas and Wilson, Solicitors. Former solicitor in Central Regional Council. 

Keith Geddes 
Appointed: October 2002 Term ends: September 2008
Policy director for a consultancy firm, a former leader of Edinburgh and Lothian Regional Councils and former President of COSLA. Deputy chair of Scottish Natural Heritage. 
 
Mahendra Raj 
Appointed: October 2001 Term ends: September 2007
Professor of Finance at Aberdeen Business School. Editor of Studies in Economics and Finance. Member of the reporting panel of the Competition Commission for UK. Member of the Scottish Legal Aid Board. Former consultant to the Commonwealth.

Iain Robertson 
Appointed: September 2003 Term ends: September 2010
Chairman of Scottish Legal Aid Board, Independent member of the DTI Legal Services Board. Chairman Coal Liabilities Strategy Board. Former group strategy director of Anglian Water Group and chief executive of Highlands and Islands Enterprise.

Douglas Sinclair 
Appointed: February 2007 Term ends: September 2009
Former chief executive of Fife Council and chief executive of COSLA. Chair of the Scottish Consumer Council.

Two members left the Commission during the year: 

Alyson Leslie 
Appointed: September 2003 to 31 January 2007
Research consultant, interim manager. Lay associate, General Medical Council.

Peter McKinlay 
Appointed: September 2003 to 30 September 2006
Former senior civil servant, director of Scottish Prisons Service and chief executive of Scottish Homes.

In addition, Michael Docherty has been appointed to the Accounts Commission for the period 1 July 2007 to 30 June 2010. 

There is a register of Accounts Commission members’ interests which is open for inspection in the offices of Audit Scotland and which can be accessed on the website at www.audit-scotland.gov.uk/accounts/acmembers.htm

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