Unpicking the Unholy Relationship between Local Authorities and their CCOs
- Created: Monday, 09 November 2015 14:26
Few relationships in local government come under more stress. The Controller and Auditor-General has produced a report offering practical guidance on how the principles of good governance apply to setting up, operating and monitoring of council-controlled organisations (CCOs).
Refer to Governance and accountability of council-controlled organisation September 2015.
What is in the report?
Drawing on earlier reports in 1994 and 2001 dealing with public entities and their subsidiaries, and on interviews and case studies of eight of the larger urban local authorities, the Auditor-General has provided updated observations and advice for all local authorities. The report should also be compulsory reading for those public and media commentators who persistently blur the line between councils and their CCOs.
The report provides a very useful legal framework for the creation, operation and monitoring of CCOs, from revenue producing companies that supplement council income, to not for profit trusts that manage community based assets. But more importantly it examines the practical reality of the relationship including the decision to form a CCO, the design of the entity, appointment of directors, managing accountability and monitoring, and managing good relationships while operating in a political environment.
In doing so it identifies ongoing issues drawn from the auditing of 124 council-controlled trading organisations (CCTOs) and 74 CCOs annually. It notes that the quality of statements of intent "has been and remains an issue", and aligned with that suggests local authorities are not doing a good enough job of reviewing draft statements or modifying the contents as much as they should. Further, audits have raised issues about the degree of proper consultation before setting up a CCO, the possibility of local authorities giving favourable financial treatment to their CCTOs', the commercial failure of smaller CCTOs, competition with local businesses, and the appointment of councillors as directors.
Identifying issues and guiding principles
However it also provides a useful and balanced discussion of these issues, and most importantly identifies the following principles of good governance for CCOs or subsidiary entities:
- The subsidiary entity should have a clearly defined purpose.
- The subsidiary entity's governing body should be effective.
- The parties involved should be assigned clear roles and responsibilities.
- The local authority should be able to hold the subsidiary entity to account.
- Mechanisms for accountability to the community must be in place.
- The local authority and the subsidiary must establish an effective working relationship based on mutual respect and trust.
These principles are illustrated in the report by case studies from the local authorities that participated in the preparation of the report.
Perhaps the most important theme to come out of the report is the need for both local authority members and directors of CCOs to have a mutual understanding of the reality of an operating environment that is both politically charged and commercially sensitive. It notes:
The challenge is that the local authority remains accountable to its community for the CCO's performance. However, despite the name "council-controlled", CCOs are most successful where the local authority seeks to influence rather than control the CCO. CCOs operate best at arm's length from the local authority.
We recommend reading the report, which can only assist local authorities in this difficult area.
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The contents of this publication are general in nature and are not intended to serve as a substitute for legal advice on a specific matter. In the absence of such advice no responsibility is accepted by Brookfields for reliance on any of the information provided in this publication.
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