New guidance to be issued on council-owned companies

The Chartered Institute of Public Finance and Accountancy (CIPFA) has announced it will shortly issue new guidance to councils on governance arrangements for local authority trading companies (LATCs).

The development of the guidance follows recent revelations in Croydon and Nottingham around growing recognition that a lack of good governance and effective financial management can cause serious damage to the resilience of public services.

The focus of the guidance will be on reducing risk and building stronger assurance processes, while supporting chief finance officers to improve good financial management in line with CIPFA’s Financial Management Code.

Last year, a report by Grant Thornton criticised Nottingham City Council and accused it being blind to the risks of running its energy supply company, Robin Hood Energy.

And in October, an independent report slammed Croydon Council’s ‘insufficient rigor and control’ of its property investment companies.

‘Since 2011, LATCs have come to deliver a wide range of services across the country. Despite this, recent public interest reports show there is a lack of clear guidance to support such arrangements and a lack of data on the possible risk to the financial resilience of the sector,’ said CIPFA chief executive, Rob Whiteman.

‘While not a formal code of practice, this guidance will build on the best examples the sector has to offer to develop greater trust in public financial management and reduce the financial and reputational risks for councils who own companies.’

Local government Luke Hall added: ‘We have recently seen residents in Croydon and Nottingham being severely let down by failed council commercial ventures.

‘I therefore welcome this guidance from CIPFA that will help all councils in their duty to manage taxpayers’ money responsibly in regard to local authority trading companies.’

The guidance is set to be released in the autumn.