Governance: spending other people’s money

Following his arrest and detention in the King’s Bench debtors’ prison, Wilkins Micawber (in Dickens’ David Copperfield) ruefully advised that warning be taken of his fate. For: ‘If a man had twenty pounds a-year for his income, and spent nineteen pounds nineteen shillings and sixpence, he would be happy, but… if he spent twenty pounds one he would be miserable.’ In other words, it is best to live within your means. 

Most of us do try but it is a lot easier to be careless, wasteful even, with other people’s money and particularly when spending is painless. In public authorities, where the taxpayer always picks up the tab, spending does not carry the same angst as for private individuals and businesses. For when a private business runs out of money (and creditors out of patience), the enterprise often goes to the wall. But while public authorities may well be criticised for imprudent overspend, they will usually live to spend another day.

Sound public sector governance therefore requires an organisational culture which promotes, on the part of all officers and members, a driving determination to extract maximum value from every pound of public money to achieve best-value outcomes in line with strategic objectives. Governance systems, procedures and management structures should therefore be lean, clear, intuitive and enabling. All authority decisions should be properly and lawfully taken in the light of material considerations, and leaders throughout the organisation should be evangelists for excellence. So no cakewalk.

Nevertheless, public interest reports from local authority external auditors are often useful in highlighting systemic shortfalls in local authority governance from which all councils can usefully learn. A clear case in point is the January 2022 public interest report (PIR) of the Auditor General for Wales (issued under section 22 of the Public Audit (Wales) Act 2004) into deficiencies in Pembrokeshire County Council’s governance and decision-making concerning severance arrangements for its former chief executive. PIRs in England are issued under section 24 of and schedule 7 to the Local Audit and Accountability Act 2014.

The PIR notes (among other things) that while the council’s leader and its then chief executive (CX) had reached agreement that the CX would leave his employment with a payment of £95,000, the basis upon which he was departing and the reason for the termination payment were not properly recorded. Instructions to external lawyers to draft a negotiated departure settlement agreement were not based on established facts and legal advice was not followed. The auditor found that the decision to make the termination payment (advanced before the agreed date) was incorrectly taken as an executive decision and that the payment was contrary to law. Although Pembrokeshire’s head of legal and democratic services had raised a concern with the monitoring officer that the proposed payment might not comply with the council’s statutory pay policy statement, this was not addressed. In the circumstances, there was apparent deviation from requirements without demonstrable good reason. The decision-making process concerning the severance ‘was fundamentally flawed and did not comply with legislative requirements’. Furthermore, non-executive council members were not given the opportunity to review and decide whether the CX should receive a termination payment.

The auditor’s overall conclusion was that the process followed by the council resulting in the payment exemplified a ‘serious breakdown in governance’. The report consequently highlights: a failure to address and resolve relationship difficulties between members and officers; lack of clarity on respective roles and responsibilities; examples of officers failing to properly discharge their professional duties; disregard of external legal advice; failure to follow internal policies and procedures; poor and untransparent decision-making; failure to document and report the reasons for decisions; members of the council not being given the opportunity to review and scrutinise the proposal; and failure to comply with legislative requirements.

The recommendations included ensuring that members and officers can show ‘a clear understanding of their respective roles and responsibilities’ and that there are ‘constructive and respectful’ relationships between members and officers (and clear informal resolution arrangements to avoid escalation). For decision-making, there should (among other things) be ‘clear accountability and consistency in securing the provision of governance advice’ and the council should ‘ensure that its decision-making procedures are clearly set out, understood and adhered to by members and officers alike’. Future chief officer termination payments should be supported by a proper business case, determined in accordance with legislative and constitutional requirements and the council’s approved pay policy statement. These should also be transparently reported. A programme of officer awareness and training is needed to ensure that ‘robust procedures for procuring and using external advisors are properly embedded’. The council was also recommended to review and rewrite its constitution to make sure that this reflects legislative requirements and is consistent with significant council policies and procedures. This must also be easy to navigate and follow good practice. Finally, the council should ensure that officers and members understand ‘their fundamental obligations as public servants to adhere to the Nolan principles of public life’ (selflessness, integrity, objectivity, accountability, openness, honesty and leadership). Staff should also be aware how they can raise any Nolan concerns and any issues in respect of the Member Code of Conduct.

It is of course easy for authorities to be complacent when reading other councils’ PIRs. But as the 16th-century protestant martyr, John Bradford, seeing a group of criminals led to execution, said: ‘There but for the grace of God, go I.’ While literal executions are not nowadays expected following an adverse PIR, these reports should be read as a valuable learning experience and governance healthcheck. Few authorities can boast governance perfection.

Nicholas Dobson writes on local authority, public law and governance