Governance: spending other people’s money | Characteristic

Following his arrest and detention in King’s Bench debtors’ prison, Wilkins Micawber (in Dickens’s David Copperfield) sadly advised to be warned 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’s best to live within your means.

Most of us try, but it’s much easier to be careless or even wasteful with other people’s money and especially when spending is painless. In public authorities, where the taxpayer always pays the bill, expenses do not carry the same anxiety as for individuals and businesses. Because when a private company runs out of money (and the creditors run out of patience), the company often goes bankrupt. But while governments may well be criticized for reckless overspending, they will usually live to get through another day.

Good public sector governance therefore requires an organizational culture that fosters, on the part of all leaders and members, a determination to make the most of every pound of public money to achieve the best results in accordance with strategic objectives. Governance systems, procedures and management structures must therefore be lean, clear, intuitive and enabling. All decisions of authority must be made correctly and legally in light of material considerations, and leaders throughout the organization must be evangelists of excellence. So no hassle.

Nevertheless, public interest reports by local authority external auditors are often useful in highlighting systemic shortcomings in local authority governance from which all councils can usefully learn. A clear example is the January 2022 Public Interest Report (PIR) of the Auditor General for Wales (published under Section 22 of the Public Auditing (Wales) Act 2004) on the shortcomings in Pembrokeshire County Council’s governance and decision-making over severance pay. for its former CEO. PIRs in England are issued under Section 24 and Schedule 7 of the Audit and Local Accountability Act 2014.

The PIR notes (among other things) that if the Head of Council and his then Chief Executive (CX) had reached an agreement that the CX would quit his job with a payment of £95,000, the basis on which he was going and the reason for leaving the termination indemnity was not correctly recorded. Instructions given to outside counsel to draft a negotiated severance settlement agreement were not based on established facts and legal advice was not followed. The auditor found that the decision to make the severance pay (advanced before the agreed date) was wrongly taken as an executive decision and that the payment was against the law. Although Pembrokeshire’s Head of Legal and Democratic Services raised a concern with the Supervisory Officer that the proposed payout may not be in line with the council’s statutory remuneration policy, this has not been resolved. . In the circumstances, there was an apparent deviation from the requirements without demonstrable good reason. The decision-making process regarding the dismissal “was fundamentally flawed and did not comply with legislative requirements”. Additionally, non-executive board members were not given the opportunity to review and decide whether the CX should receive severance pay.

The general conclusion of the auditor was that the process followed by the board leading to the payment illustrated a “serious failure of governance”. The report therefore highlights: an inability to address and resolve relational difficulties between members and leaders; lack of clarity on respective roles and responsibilities; examples of officers not performing their professional duties properly; disregard for outside legal advice; non-compliance with internal policies and procedures; poor and non-transparent decision-making; failure to document and report reasons for decisions; board members were not given the opportunity to review and consider the proposal; and non-compliance with legislative requirements.

Recommendations included ensuring that members and leaders can show “a clear understanding of their respective roles and responsibilities” and that there are “constructive and respectful” relationships between members and leaders (and resolution arrangements clear informals to avoid escalation). For decision-making, there should be (among other things) “clear accountability and consistency in providing governance advice” and the board should “ensure that its decision-making procedures are clearly defined, understood and respected by members and officers alike”. Future severance payments for Chief Officers must be supported by an appropriate business case, determined in accordance with legislative and constitutional requirements and the Board-approved compensation policy statement. These should also be reported transparently. An agent awareness and training program is needed to ensure that “robust procedures for recruiting and using external advisers are properly embedded”. It was also recommended that the board review and rewrite its constitution to ensure it reflects legislative requirements and is consistent with important board policies and procedures. It should also be easy to navigate and follow best practices. Finally, the board must ensure that officers and members understand “their fundamental obligations as public servants to adhere to the Nolan principles of public life” (altruism, integrity, objectivity, accountability, openness, honesty and leadership). Staff should also be aware of how they can raise any concerns with Nolan and any issues regarding the Member Code of Conduct.

It is of course easy for the authorities to be complacent when they read the PIRs of other municipalities. But as the 16th century Protestant martyr John Bradford, seeing a gang of criminals being led to execution, said, “There, but for the grace of God I go. While literal executions are not expected these days following an unfavorable PIR, these reports should be read as a valuable learning experience and governance health check. Few authorities can boast of perfect governance.

Nicholas Dobson writes on local authority, public law and governance

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