Contact, Ejner Knudsen Ext 7403 or Jeff Pattison Ext 7321

1 Summary

1.1 The framework has been published to establish best practice for a locally adopted code of corporate governance and for making adopted practice open and explicit. The County Council already conforms to the principles of corporate governance and therefore has a sound basis on which to build. There is a strong regulatory framework of control and there are robust arrangements for monitoring and review. The County Council now needs to draw all its documentation and procedures together in one place to form a part of the corporate strategy. This will provide an essential element of the Corporate Performance Assessment.

1.2 This report seeks to:

· summarise the contents of the CIPFA/SOLACE framework

· identify the actions that the County Council needs to take to implement its recommendations.

1.3 The guidance suggests that local authorities use the framework to carry out a review to:

· consider whether the authority complies with the principles and elements set out in the framework

· identify systems, processes and documents that provide evidence of compliance

· identify the individuals and committees responsible for monitoring and reviewing the systems, processes and documents identified

· identify issues that have not been addressed in the authority and consider how they should be addressed

· identify the individuals who should be responsible for undertaking the actions that are required.

1.4 The guidance also stresses the importance of:

· reporting the review to an audit committee or other appropriate member body

· providing assurance externally with the published accounts as to whether the corporate governance arrangements are adequate and operating effectively

· identifying plans to ensure effective governance in the future.

2 Introduction

2.1 The term corporate governance came into common use after the Cadbury Report in 1992 and is defined as "the system by which organisations are directed and controlled".

2.2 Since then it has risen in prominence within the public sector, as a result of the first report of the Committee on standards in Public Life (the Nolan Report) and more recently the Local Government White Paper, Strong Local Government - Quality Public Services and the introduction of Comprehensive Performance Assessment (CPA) for local authorities.

2.3 The Chartered Institute of Public Finance and Accountancy/Local Authority (Scotland) Accounts Advisory Committee (CIPFA/LASAAC) Statement of Recommended Practice (SORP) requires the County Council to publish with the statement of accounts, a statement on the system of internal financial control, but with an option to include a broader statement on governance if it so wishes. The Audit Commission's consultation draft Delivering Comprehensive Performance Assessment, however, explicitly states that the Corporate Assessment element of the methodology will build on the CIPFA/Society of Local Authority Chief Executives (SOLACE) work on corporate governance (published in their framework, " Corporate Governance in Local Government - Keystone for Community Governance"). The framework requires local authorities to develop their own codes of corporate governance and report on how they have monitored the effectiveness of corporate governance arrangements in the year and any planned changes in the coming year.

2.4 Further prescription on budgets (reserves and balances, estimates), budget monitoring and accounts are likely to follow in new Accounts and Audit Regulations as a consequence of the Local Government Bill. A further report will be necessary when these are enacted.

2.5 This report seeks to:

· summarise the contents of the CIPFA/SOLACE framework

· identify the actions that the County Council needs to take to implement its recommendations.

2.6 The report follows discussion between the Monitoring Officer and the Chief Internal Auditor and consideration by the Treasurer's Management Team, Corporate Management Team and the Cabinet.

3 The CIPFA/Solace guidance

3.1 The guidance identifies the principles underpinning good governance as being:

· openness and inclusivity

· accountability

· integrity.

3.2 These should be reflected in all aspects of a local authority's business and the guidance suggests that each local authority should draw up a local code of corporate governance and be able to demonstrate publicly that they comply with it.

3.3 The guidance also provides a framework showing how the principles of corporate governance should be reflected in a local authority's affairs in five dimensions:

· community focus

· service delivery arrangements

· structures and processes

· risk management and internal control

· standards of conduct .

3.4 The framework identifies how the principles of corporate governance should be reflected in each of the five dimensions, what the local code should include and suggests documents/ processes and other means that could be used to demonstrate compliance with the code.

4 Implementing the CIPFA/SOLACE recommendations

4.1 The guidance does not impose a timetable for implementing the recommendations and there is currently no requirement under SORP to provide a statement on corporate governance with the final accounts. Current advice from CIPFA is, however, that this will be considered for the 2003/04 accounts. It would, therefore, be timely to build on current experience of providing a statement on internal financial control by proving a fuller statement to include corporate governance with the 2002/03 accounts. This would be signed by a leading member and the Head of Paid Service. A suggested statement is attached as appendix A

4.2 To enable this to happen there will need to be some constitutional changes made which will need to be recommended by the Standards Committee and approved by full Council. This process is unlikely to be completed until February 2003. A full review as suggested in paragraph 1.3 above can then be carried out. It is unlikely that this would be completed in the timescales required for providing an opinion with the 2002/03 accounts. It should, however, be possible to report that there is a code of practice and a framework in place, albeit that review mechanisms were not in place during the year, to confirm the effectiveness of the framework and the degree of compliance with it.

4.3 During 2003/04 work will take place in departments to review arrangements and identify any omissions or lack of compliance. Internal audit will also carry out a high level review of this process. In future years internal audit will also include governance arrangements in departmental management reviews.

5 The role of the Standards Committee

5.1 The guidance suggests that the review of corporate governance is reported to an appropriate committee. It is proposed that this should be the Standards Committee as it is currently responsible for approving governance issues such as the codes of conduct for members and officers and financial regulations. The Committee would recommend the Code of Governance to be adopted by the County Council. The constitution of the Committee would also need to be changed to allow it to receive certain internal audit reports (see paragraph 7.3 below).

6Local code of corporate governance

6.1 The County Council already has in place an extensive corporate governance framework (see Appendix B). It is now proposed that the County Council adopts a code that will make explicit its commitment to maintaining high standards of governance. This code will explain how the County Council undertakes to ensure that the principles of corporate governance are upheld in the five dimensions. (A suggested code is attached as Appendix C.)

7 Compliance

7.1 To demonstrate that the code is effective and being complied with, the Monitoring Officer will need to carry out an annual review of arrangements. This will be audited by the Chief Internal Auditor who will report annually on behalf of the County Treasurer to the Standards Committee.

7.2 There are already mechanisms in place to monitor the effectiveness of, and compliance with, various aspects of the governance framework with the results reported at committee level eg risk management through the Cabinet, and complaints through the Standards Committee. The Monitoring Officer will be able to rely on this work when he is carrying out the annual review.

7.3 There is, however, one important element of the governance framework that is not currently reported at committee level and that relates to the internal control framework. This is reviewed by internal audit to provide an annual opinion on the effectiveness and level of compliance with the control framework. Whilst assurance statements for 2001/02 were considered by executive members and this will continue for each service, it is suggested that an overall annual internal audit opinion should, in future, be reported to the Standards Committee. To enable the committee to understand how this opinion is formed, it is suggested that the County Treasurer should:

· seek approval from the Standards Committee of the audit strategy and any changes to it

· notify the Standards Committee of the annual audit plan

· keep the Standards Committee informed of progress with delivery of the audit plan, highlighting any key findings.

8 Timetable

8.1 A suggested timetable for implementing the actions suggested above is attached as Appendix D.

9 Recommendations

9.1 That the Standards Committee:

· be responsible for the Code of Corporate Governance and adopt the draft Code of Governance with immediate effect

· approve the statement of assurance outlined in Appendix A and the framework in Appendix B

· consider whether the assurance statement on Corporate Governance should be signed by the Leader or the Chairman of the standards Committee

· receive reports from the County Treasurer about audit strategy, planning and delivery


9.2 That the terms of reference of the Standards Committee be amended to include the following:

· the adoption, review and amendment of the corporate governance framework for the County Council

· to receive and consider reports from the County Treasurer on internal audit strategy, planning and delivery.