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In the spotlight – how should public authorities prepare for greater scrutiny around public funds?

07 February 2024

The Department for Levelling Up, Housing and Communities is increasingly interested in the arrangements which public authorities have in place to manage public funds. In this article Jonathan Branton and Alexander Rose explain why this is a particular area of focus at this time and what steps people working within local authorities can take to prepare for such scrutiny.  

Why is there increased interest in public funding arrangements?

Government departments are always twitchy in an election year, aware that any issue can quickly be propelled into the limelight, but a series of politicial themes have converged in recent months leading to much greater scrutiny around the handling of public funds. 

This includes high profile news stories such as the series of Section 114 notices being published and cost overruns on large public projects.   At the same time, the government is also enthusiastically promoting its decision to devolve significant amounts of public funding away from Westminster. 

How is public funding being scrutinised?

There are many different ways which Central Government scrutinises public funds administered by Local Government.

One approach involves undertaking "Deep Dive" reviews, these being spot checks on local authority projects and programmes which aim to ensure:

  • the adequacy of the policies and processes established by the local authorities managing public money; and
  • that public funds can be demonstrated to have been administered in a manner that promotes regularity, propriety and value for money.

These are terms which come from the Treasury's Managing Public Money guidance.  "Regularity" focusses upon whether funds are managed in compliance the relevant legislation and wider legal principles such as Subsidy Control and procurement law, as well as in line with the relevant legal powers.  "Propriety" relates to the meeting high standards of public conduct, including robust governance and the relevant parliamentary expectations, especially transparency.  "Value for public money" incorporates consdierations around efficiency, economy, effectiveness, and prudence in the administration of public resources.

In the previous financial year, 15 deep dive reviews were undertaken by the Department into 9 Levelling Up Fund and 6 Towns Fund projects.  The Department's annual report detailed that issues were discovered in respect of compliance with procurement requirements and Subsidy Control law, with remedial action taken in respect of "two local authorities where transparency of governance and decision making could not be secured for one and grant management concerns remain for the second".

Where the Central Government has specific concerns around how public money has been used it may appoint commissioners who are thereafter responsible for checking specific issues, such as governance arrangements, strategic decision making, finance and senior appointments. 

For example, commissioners were appointed to Birmingham City Council following the publication of a section 114 notice in 2023.  Liverpool City Council has had commissioners since 2021 and their remit was expanded in late 2022.

New processes are being implemented to oversee how public funds are managed.  This includes establishing the Office for Local Government which aims to provide authoritative and accessible data and analysis about the performance of local government, thereby supporting its improvement.  It includes a new 18-point Scrutiny Protocol which was announced in November 2023 and is intended to strengthen the hand of backbench councillors in holding mayors and other leaders with devolved powers to account.

How should public authorities prepare for greater scrutiny around public funds?

Compliance checks not only focus on whether the right steps have been taken, but also whether they have been recorded.

Therefore, knowing that there will be a focus on the regularity, propriety and value for money arrangements around public funds, we would recommmed public authorities check their existing processes to ensure that there is always a clear record that relevant compliance issues have been properly considered, alongside record keeping processes that will allow evidence to be quickly produced in the event of a compliance check or audit. Much of this can be done by careful attention to process to ensure good decision making, including thorough checklists to challenge-proof decisions, but any process also requires on discipline to ensure corners are not regularly cut, which in turn requires "buy in" at multiple levels of the organisation and setting a good example.

Further Reading