The Audit Commission has warned FDs that do not closely monitor the finances of trading units – formerly direct labour organisations – that they risk managing the services in an ‘inappropriate’ and ‘unacceptable’ way.
Meanwhile FDs could find themselves ‘downgraded’, CIPFA has warned, as senior management teams are restructured to accommodate new cabinet style executives under local government reforms.
The warnings come just weeks before the introduction of Best Value – the largest single upheaval local government has faced since Labour came to power.
In a new management paper the Audit Commission said FDs had, in some cases, become ‘peripheral’ to the financial management of trading units and were unaware of the ‘scale of deficits or the reasons for those deficits’.
The paper, Getting the Groundwork Right – Financial Health for Local Authority Trading Units, said: ‘This indicates that the finance director has become – and allowed himself/herself to become – marginalised in an inappropriate and unacceptable way.’
A spokesman said: ‘It’s important that finance directors and local authorities have clear internal objectives.’
The Commission recommends local authorities follow guidance in CIPFA’s Statement on the Role of the Finance Director.
CIPFA said it issued the statement because of fears FDs in local authorities are losing their ‘strategic’ roles on management teams. ‘We believe very strongly that FDs in local authorities should be playing a strategic role as well as doing the stewardship role,’ the institute said.
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