Struggling towards best value solution
Local authority accountants have key questions to address, writes Ben Griffiths.
Local authority accountants have key questions to address, writes Ben Griffiths.
With the government’s new best-value regime almost enshrined in law – the Local Government (Best Value and Capping) Bill is currently on its passage through parliament – the gauntlet of updating the existing local authority accounting framework has been thrown down.
Public-sector accountancy body CIPFA is working alongside the Local Government Association, the Audit Commission and the Department for the Environment, Transport and the Regions in a steering group to review existing local authority practice.
The steering group has invited CIPFA, through its Local Authority Accounting Panel, to conduct the review and to recommend a best practice approach to the group.
The government has stated that councils will have a duty to achieve ‘best value’ in service provision from 1 April 2000. The accounting framework will in turn need to be ready for the financial year beginning on the same date.
As the first step in this process, this week CIPFA has published a consultation document on the accounting framework for best value. The institute believes that, without such a framework, councils will not be able to demonstrate clearly whether best value is being achieved in delivery of services to local people.
Performance targets will be set to underpin the regime.
CIPFA has said it wants a framework that is ‘practical, technically correct and compliant with Generally Accepted Accounting Principles’. The institute also believes the framework must be understandable to all parties – councillors, the public and interested parties.
Restructuring the entire local authority accounting practice would be impossible in the time dictated by the 2000 deadline. As a result, CIPFA has said it will evolve the framework from the existing statement of recommended accounting practice, rather than use legislation to allow councils influence over the relevance and practicality of the framework.
The framework will also be used to give some consistency to accounting across local authorities, an idea treasurers are keen to adopt.
‘At the moment, too much of our work to compare costs with other organisations is undermined by a lack of consistency in accounting treatment,’ says Steve Freer, county treasurer at Warwickshire County Council.
Under the new regime, local authority financial information will appear in local performance plans and national performance indicators. It will also be used for fundamental performance reviews and be subject to revised audit and inspection arrangements.
In this context, the revision of the accounting framework needs to consider how financial information will be presented and who will use it.
The move will allow greater comparison with other councils, which is also welcomed by treasurers.
‘Personally I think that we need a tight, prescriptive approach to facilitate comparisons between different service providers and to give some real momentum to benchmarking,’ Freer explains.
CIPFA’s policy and technical director Vernon Sore agrees.
‘It will be useful for citizens to be able to compare like with like across local authorities on the higher level side,’ says Sore.
With this in mind, the CIPFA consultation document highlights key questions for local authority accountants to consider:
What is the total cost of services? Should some of the overhead costs continue to be excluded?
At what level of detail should costs be recorded to help comparisons between authorities?
The relevance of trading accounts – when are they needed?
The role of partnerships – how should the accounting framework recognise service provision resulting from local authorities working together and with the private sector?
While answering these questions, CIPFA’s intention is to modernise the existing framework, consisting of the Code of Practice On Local Authority Accounting – effectively the public-sector accounting Statement of Recommended Practice – and other institute statements and guidance.
As the institute recognises, failure to meet the challenge of best value would inevitably call into question the future of local government, and would imply a need for more centralist planning and management of local services.
‘It is therefore vital that the accounting framework underpinning best value is robust and publicly explainable,’ Sore says. ‘We hope the consultation document will help local authority accountants meet the challenge of the new regime.’
Despite the general good feeling surrounding the challenge of implementing best value, some councils are taking a cautious approach.
Helen Kilpatrick, county treasurer at West Sussex, warns: ‘There is always a tension between standardisation and flexibility for authorities to respond to their own local circumstances.’
In response to these concerns, the government has said it only wants to impose a statutory framework for best value within which councils will be free to establish what their communities require.
By November, the steering group is expected to recommend to the government a draft framework of non-statutory accounting guidance for local authorities.
Despite publication of the consultation paper, with this deadline looming, the really hard work might still be ahead.
HOW SCOTTISH COUNCILS STOLE A MARCH AND ADOPTED ACTIVITY-BASED COSTING
By Steve Brown
CIPFA says its best-value accounting framework is the key to making a success of the government’s replacement for compulsory competitive tendering in town halls. At the heart of best value is the need for reliable costing information and the CIPFA framework seeks to harmonise councils’ approaches.
But already the bulk of local government accountants find themselves playing catch-up. Scottish councils are nearly two years ahead of English local authorities in implementing best value. And when it comes to addressing the costing issues that the new regime throws up, the new CIPFA guidance only serves to highlight how far English councils are falling behind their counterparts north of the border.
As long ago as July 1997, a joint taskforce set up by the Scottish Office and the Convention of Scottish Local Authorities identified activity-based costing as ‘an essential tool for sound financial management and continuous improvement’. The taskforce is driving the initiative forward north of the border, while CIPFA in Scotland – through the best-value working group of its Directors of Finance section – is on the verge of publishing guidance on the costing technique.
Vernon Sore, CIPFA’s policy and technical director, says the institute’s new best-value accounting framework, applying across the UK, does not clash with the Scottish activity-based costing approach – a part of the bigger whole.
But he admits that Scotland is further down the costing road. ‘In a sense, this document is starting the debate they had in Scotland a year or so ago,’ says Sore. He adds that it makes sense to have an ‘overall common framework’ that ‘doesn’t preclude local authorities from making developments for their own region’.
The Department for the Environment, Transport and the Regions has not insisted councils use activity-based costing, although the technique is being adopted elsewhere in the public sector. For instance, the police inspectorate in April last year called on all police forces to introduce activity-based costing systems by the beginning of 2000/2001.
In Scotland, two councils, Glasgow and West Lothian, have run activity-based costing pilot studies. In Glasgow, the pilot was instrumental in the council’s best-value implementation plan being accepted by the Scottish Office. And other councils, currently waiting for the CIPFA guidance before launching their own projects, believe future best-value appraisals in Scotland will look specifically for evidence of activity-based costing.
Fife Council finance manager Brian Livingston, who leads CIPFA’s work on activity-based costing in Scotland, says the guidance will show how the technique can be applied to the public sector and how you go about it. He dismisses concerns over its applicability to the public sector.
‘I fail to see how it cannot be transferred,’ he says.
Sore says it is important that local authorities ‘buy in’ to whatever approach is taken on costing. ‘We don’t want to be prescriptive,’ he says, adding that there may be situations where activity-based costing is not appropriate. He also says that the relatively small number of councils in Scotland means it is easier to get a consensus on approach.
But Livingston insists that the variance between approaches north and south of the border amounts merely to a ‘difference of emphasis’.
Valerie Davidson, CIPFA’s deputy director in Scotland, says Scotland does not have all the answers. ‘We have started the process,’ she says.
‘But, for instance, we have not defined what we will include within an activity.’
The different emphasis on costing between north and south comes as no surprise. Scotland has been doing its own thing on best value since the outset. Its big-bang approach to best-value (all 32 councils submitted best-value implementation plans to the Scottish Office at the end of 1997) contrasts with a piecemeal approach in England, where less than 10% of councils are piloting the initiative.
Steve Brown is a freelance writer