Armchair auditors and their weapons in the war on waste

Last week I heard a local authority Head of Internal Audit refer to Eric Pickle’s army of “armchair auditors” as “nutters”.

I looked the term up on The FreeDictionary. “Nutter” is a slang term for:

“A crazy or eccentric person.” or
“An enthusiast; a buff” or
A part of the male anatomy.

This made me think as I am interested in issues of public finance and mental health.

I suspect that those who want to scrutinise records of public spending may be slightly eccentric. Perhaps this is only a matter of degree – these armchair auditors choose to do their stuff for free unlike professional auditors.

I do think that there is potential in “armchair auditors”. Look at the creation of a huge encyclopedia online from the crowd-sourcing endeavours of those who right and edit articles using wiki technology.

Technological mashups might offer them an impressive arsenal. In the UK Mysociety introduced a range of tools for improving democratic accountability: They work for you; FixMyStreet; Whatdotheyknow. These got taken up by the last government with its No 10 petitions site.

In September Dan Herbert in Public Finance surveyed what the current government’s “data-sharing revolution” had prompted. It is worth looking at some of the tools he refers to. Some – like wheredoesmymoneygo.org - provide interesting information for tax payers on how public funds are spent but this is not really raw material for armchair auditing. Others set out more detail – such as Spotlight on Spend and Armchair Auditor – but not really enough to give any armchair auditors scope to drill down to provide either comfort or concern.

As the Reluctant Armchair Auditor on The Guardian’s Datablog noted last week:

For this to work in the way envisaged, councils must put out a lot more information and in a format that can be used by anyone. There has to be sufficient context to enable anyone reading the information to understand what is being bought and why. Then you can have a sensible discussion about whether the spending makes sense or is value for money. We can then deal with the material figures not the trivial ones which cause most of the negative publicity.

Of course, it is early days. The army of “armchair auditors” may have a long march ahead of them. But it is vital that government – local and national – provide assistance in terms of useful data in helpful formats.

The how and when of the YPLA's replacement

Tucked away in yesterday's Schools White Paper was the announcement that the Young People’s Learning Agency will be “replaced” by the Education Funding Agency. Perhaps re-badged would have been a more accurate description – the staff of the YPLA will be brought in-house into the Department for Education from being a standalone Non Departmental Public Body.I expect some other DFE staff will be included as the EFA will have a role in relation to schools which are not (yet) academies.

There was some uncertainty about the date of the change but according to the YPLA website the transition is assuming April 2012.

It is worth noting that Michael Gove has backed off from the idea of a direct EFA-schools relationship seen in an earlier draft of the White Paper. I suspect that this is a tactical retreat. You can only eat an elephant one bite at a time.

It is ironic that the survival of the Skill Funding Agency and the (de-quangoed) YPLA/EFA were not advocated in either manifesto of the Coalition parties for the post-16 funding landscape.

The government's changes to social rents and tenancies

The government’s announcements yesterday about rents and tenancies in social housing are complex and part of what can be seen as a somewhat contradictory policy agenda (cutting housing benefit and pushing up rents in social housing).I would therefore recommend the Chartered Institute of Housing’s fair minded Briefing on Social Housing Reform (pdf available).

The briefing clarifies what the new types of tenancies being proposed actually involve: (1) the fixed-term flexible tenancies lasting as little as two years and (2) the affordable rent tenancies set at a maximum of 80 per cent of local market rents.

The latter is intended to generate finance for more affordable housing at a time of much reduced capital spending on housing. The affordable rent tenancies will initially be offered by housing associations rather than local authorities. It will be offered on a proportion of re-lets from April 2011 and on new stock later. The CIH point out: “in high value markets 80% would not be an affordable product for consumers and it would create problems around housing benefit”.

As the flexible tenancies and the affordable rent tenancies may account for an increasing proportion of local authority and housing association tenancies, the shorter tenancies may well mean that Right to Buy never recovers from its current low levels. Maybe we are seeing a Conservative prime minister effectively abolishing Right to Buy while it is being retained in theory.

Government U-turn on a national funding system for schools and 16-18

Today the FT Westminster Blog reports that that the government is backing down on a national school funding system. It quotes Michael Gove on the Andrew Marr Show as saying:

The Financial Times ran a report of what they thought was going to be in the white paper, fair play to them, journalists often anticipate events, but the truth is that we will be funding schools through local authorities as we do at the moment.

The Westminster Blog says that it had a copy of a draft copy of the white paper and the details of their story were confirmed by civil servants at the Department for Education.

Where all this leaves the Young People’s Learning Agency is unclear. The draft seen by the Financial Times included this paragraph:

The Young People’s Learning Agency (YPLA) will extend their current responsibility for funding Academies and Free Schools to funding all schools becoming the Education Funding Agency from April 2013. It would administer the national funding formula to all schools directly as well as post 16 funding ensuring that the maximum amount of money goes directly to schools in a fair, transparent and equitable way. Local authorities will pass the national funding formula allocation directly to maintained schools until the Education Funding Agency comes into existence.

I suspect the YPLA will carry on even though the government has U-turned on the broader reform. Sadly this may mean that the inequalities in 16-18 funding between schools and colleges persist.

Bribery, corruption and trips

On the Third Sector website I was reading that the Oxfam Finance Director was concerned that charities might be tripped up by the new Bribery Act unless sector guidance was issued. The Act creates new offences including one which relates to businesses that fail to take sufficient steps to prevent bribery involving their employees or agents.

The Bribery Act might well affect the education sector too. Colleges and schools take learners to fascinating and exotic places. Some destinations have endemic corruption. For example, students sometimes visit Russia – 154th out of 178 in the Transparency International league table.

I have travelled widely in the former Soviet Union so have had bribes extracted from me directly or via taxi drivers. On one holiday I had to cross the border of the breakaway Pridnestrovian Moldavian Republic on four occasions – on three of them, I had to pay a “fine” or make a “present” to the border guards for fear of ending up in a prison of an unrecognised statelet with which Britain has no consular relations!

The YPLA and plans for nationalising schools funding

Tucked away in yesterday's Financial Times article about plans for a national schools funding formula was a clue to the fate of the Young People's Learning Agency:

Officials are preparing for the transition to a new funding system to begin in 2012, with a new independent Education Funding Agency taking over finance for “all schools and sixth form provision” from 2013.

Of course, this may not happen. Councils and councillors - not least Conservative ones - may be most unhappy about the policy which may appear to run contrary to "localism" rhetoric. The Conservative backbencher Douglas Carswell has already voiced doubts on his blog. The plans would create a super quango dispensingover £30billion each year. Moreover, there are many practical obstacles to a more rational and transparent allocation of resources to schools.

School heads may welcome the move now but not necessarily when they realise that many of their schools may be losers - 60% of secondary schools according to research by the Institute of Fiscal Studies in the Spring (a pdf of the research paper is available).

Michael Gove may be in for another bruising battle.

Interesting times: school federations, new markets and blurred boundaries in education

Working over the years in colleges I have noticed that there has been a slightly casual use of the term “federation” – sometimes to mean merger of colleges. In schools there is a precise meaning to the term. On the Teaching Expertise website there is an excellent survey of the legal meaning and implications of the term from two education lawyers at Veale Wasbrough Vizards.

A clear and useful exposition of the legal and other issues around federations is particularly timely at a time when the education landscape is in a degree of flux. In this week's New Statesman, Dr John Dunford (former general secretary of the Association of School and College Leaders) surveys what he sees as the “two different, but related, markets are being created by the Academies Act 2010”:

The first is the government's push for so-called "free" schools to be created by parent and teacher groups. The second, and potentially much larger, market being created is the provision of a range of services, from human resource management to school improvement capability, to both the new academies and to the free schools.

He concludes:

Schools are being offered by the coalition government a more autonomous way of working, with the additional funding that accompanies academy status looking very attractive at a time of economic retrenchment. Some of these academies will continue to buy services, where they are efficiently run, from the local authority, but many more will look outside the authority to the new market of entrepreneurial schools and commercial providers for their human resources and school improvement support, or even for federation under a single governing body. It is hardly surprising that so many organisations are looking at providing these services in what could become a lucrative new market

The revolution is not limited to the schools sector. The financial constraints on colleges and universities – as well as the pressures likely to flow from the market model proposed by the Browne review for higher education – may lead to an interesting reconfiguration of providers plus the growth of new entrants like the new private sector BPP University College. This may see some blurring of boundaries – a recent Financial Times article speculated on whether colleges might soon own their own university.

Pay and productivity: freezes and unforeseen consequences

On the Civil Society website there is a short article on XpertHr’s annual review of pay trends. It finds that for 2009-10 the highest median basic pay award was in the general manufacturing and food, drink and tobacco sectors with median pay rises of 2 per cent. However, in the charity sector the median pay rise was only 1 per cent. The median pay award for housing associations was nil.

On the Viewpoint blog of Centre for Market and Public Organisation a Bristol University there is a discussion of where public sector productivity is likely to go in the age of austerity.

Interestingly it suggests:

With the prospect of public sector pay freezes, quality decreases may arise through talented staff leaving for the private sector. Research suggests that remuneration over the lifetime is roughly similar in the public and private sector with a small public sector premium. Hence there is a risk, with public sector pay frozen, and if jobs become available, that quality will decrease if some of the most able employees go private.

This impact has been overlooked and/or ignored in the debate about public sector pay. Of course, the pay freeze is accompanied by the pension levy which will amount to a 3% pay cut for most public sector workers. Voluntary redundancy programmes may well allow some of the best staff to leave - the "muppet retention scheme" syndrome.

Whether deteriorating quality is reflecting in productivity yardsticks hinges on how accurately public sector productivity is and can be measured.

Women, diversity and board quotas

At the weekend The Guardian reported that the Lord Davies is considering gender quotas as part of his review for the Department of Business, Innovation and Skills into the obstacles that prevent more women from reaching senior positions in business.

The suggestion of quotas will raise howls of protest. In the summer the Institute of Directors’ queried the way that the revised UK Corporate Governance Code highlighted gender as an important factor in making appointments to the board. It said: “By including gender in the Code, there is a risk that the Code will increasingly become seen as a tool of social policy rather than good governance.”

While I do not share the IoD’s concerns over the UK Corporate Governance Code, I do fear that quotas may lead to tokenism.

Business should, of course, work harder at finding suitable female board members. As women thin out in the higher reaches of business, maybe corporate boards should look further afield and outside the corporate sector for candidates for non-executives.

Generally changes in the corporate sector flow through to the public and third sectors. These organisations are generally more diverse at board level: for example, one-third of college governors are women compared with less than one-twelfth of FTSE250 board members.

Pensions, programmes, Paul Mason and public services

It is great that normal service has been resumed at the BBC. But the NUJ’s strike may be a foretaste of pensions disputes to come.

I was surprised to read Paul Mason – the Economics Editor on Newsnight – quoted in The Guardian suggesting a solution to the pension dispute would be for the BBC to sell assets, securitise them (as some local authorities are doing), or spend less on programmes. While asset disposal and securitization may be appropriate, I doubt the idea of spending less on programmes will be popular – will that be making staff redundant or opting for cardboard Crossroads-style sets?

I am sure that some people will be posing the issue of public sector pensions in terms of pensions versus pupils, pensions versus patients, etc but I was strange for a union activist to suggest that a trade-off should resolved at the expense of public services.

The significance of the benefits cuts controversy for the rest of the public sector

The kerfuffle over the changes to Child Benefit and Housing Benefit must raise doubts over how viable the path set out by the Spending Review will be. Both sets of “reforms” may not survive coming into contact with the real world. There are serious practical problems with their implementation. The numbers involved are significant – as always the losers from any change are very vocal but in this case there are no apparent winners; in the case of the Housing Benefit caps the media will be able to show emotionally charged footage of families and pensioners being evicted. (For a fascinating look at the numbers involved, the Data Blog of the Guardian has an interesting analysis.)

This is only the start. Hardly any media coverage has been devoted to the changes to Council Tax Benefit. From April 2013, CTB will be replaced with grants to councils who will be able to set their own local criteria for payments. The central government funding is being reduced by 10% - saving £0.5bn a year by 2014/15. Tom Clark on the Guardian has pointed to echoes of the Poll Tax.

In last week's Public Finance Ian Mulheirn of the Social Market Foundation set out how the difficulties of implementing reform will blunt the blade of George Osborne's axe.

In addition to the political challenges of cuts, there is the inevitable uncertainty surrounding the macro-economy.

So might the Spending Review be jettisoned? Probably not given the political priority given to deficit reduction. (Interestingly there is speculation about another Spending Review in 2012 and then a pre-election one in 2014. Nevertheless these are more likely to see only a tilt on the tiller.)

If deficit reduction is here to stay but some of the welfare savings are not tenable – what takes the strain? The Spending Review gave several spending departments more generous departmental expenditure limits than expected as a result of headroom created by “welfare reform”.

Good and bad news about the college sector and its financial health

The fog may be clearing after last week's Spending Review - or at least being displaced by new fog.

This week’s Times Education Supplement suggested that the £500 savings on Education Maintenance Allowances would be recycled into 16-18 funding. However, it raised doubts over whether this would be sufficient to fully fund the increase in the participation age aka “the school-leaving age”. The former Department for Children, Schools and Families estimated the cost would be £774 million, while the education economist Professor Alison Wolf has estimated that the figure might be £1.5 billion.

The TES article reported that George Osborne had promised that the 16-18 budget would increase in real terms although it would be spread over greater numbers of students.

Yesterday’s Financial Times had more depressing news for general FE colleges. It highlighted government estimates that deep cuts would lead to three-quarters of FE colleges becoming “financially inadequate”. The government now hopes that plans for increased fees – with more student support via loans – will ease the pain. The proposed framework parallels the Browne proposals for higher education and builds on the report by Christopher Banks which proposed greater co-payment in further education.

Deciphering the Spending Review for sixth form colleges

The Spending Review is somewhat challenging to interpret in some areas. Yesterday’s Financial Times editiorial accused George Osborne of “obfuscation” and said that “what should have been a sober presentation was cheapened by political spin”. I am not going judge on that - partly because I am more concerned and somewhat perplexed by what the SR means for sixth form colleges.

There was no mention of 16-18 funding in the SR speech. But it was in the SR report. The Department for Education (DFE) press release states:

As we move towards full participation by 2015 we will secure reduction in individual unit costs

What does that mean exactly? It clearly implies increased numbers will mean lower funding rates. But will those rates be lower in real terms or – more worryingly – in cash terms?

How big is the overall 16-18 pie? I guess it may shrink by something like the 12% real reduction for non-schools DFE spend. It may be a little less as DFE and quango administration costs are being reduced by a third and Educational Maintenance Allowances are being replaced by a scheme costing 90% less.

If the pie is shrinking in real terms by perhaps one-tenth and then it is spread over a larger number of learners, are funding rates likely to fall by about one-fifth in real terms?

There is also the issue of who gets the 16-18 pie. Will general FE colleges get more as their offer may be more attractive and appropriate to many of those currently not in education and training? These colleges will certainly be very keen for funding given the severe cuts in the FE budget.

It certainly seems like many sixth form colleges will be facing a hard times, if not as bleak as general FE colleges. It will be reminiscent – but perhaps much worse – than the efficiency gains required of colleges during the 1990s.

The Spending Review and public sector pensions

In all the media coverage of the Spending Review there has been little on the extra 3% of pension contributions implied that public sector workers will have to bear.

I did a highly unscientific piece of research. By putting the words SPENDING REVIEW PUBLIC SECTOR PENSION into Google News Search I got 834 results, whereas SPENDING REVIEW got 23051. Does that mean that less than 4% of news articles do not mention the new 3% “pensions levy”? Perhaps. I found one mention in yesterday’s 10 page Spending Review special in the Financial Times. It is perhaps inevitable that the media coverage should focus on the broad macroeconomic impact and the implications for public services and those who rely on them.

The pension levy is not a surprise. In Ireland they have had introduced one as part of the austerity programme. (Their levy rates go from 5% to 9.6%.) Lord Hutton’s interim report on public sector pensions passed the issue of employee contributions over to George Osborne rather than deferring it to his final report on structure and entitlements.

Nevertheless, the pension levy is significant. It will ease a small part of the frontline impact of the real spending cuts being applied across the public sector outside schools, overseas aid and (arguably) the NHS.

The impact will be felt by public sector workers – many of whom face a two year pay freeze.

How will the trade unions respond? The UNISON press release on “For CSR read Cuts Strange Recovery” omitted all mention of the pension levy. Maybe the public services union realises that public sector pensions is not an issue that will win hearts and minds. Perhaps UNISON did not spot the rather unclear references in the speech and report.

I think this issue will gain profile in the Spring when the government acts on the Hutton Report. By then the imminent local government pension scheme valuations may have pushed public sector pensions further up the news agenda.

Axe Wednesday – what it means

Today promises to be interesting, to say the least. The Independent has branded it as Axe Wednesday. According to Mike Smithson on Politicalbetting.com it will determine the outcome of the next election.

In today’s Financial Times, Andrew Adonis - former Labour minister and now director of the Institute of Government – warns:

The downsizing unveiled this week represents one of the biggest challenges faced by British government since the second world war. Without fundamental changes on these lines, it will simply be about cuts not improvement.

The government’s plans involve the biggest cuts since the Geddes Axe of the early 1920s.

The National Institute for Economic and Social Research believes that the government’s plans for public spending cuts are unachievable. It suggests that the government will end up raising taxes by 2% of national income – more than £30 billion a year – close to the 2015 election. This echoes earlier skepticism from the Social Market Foundation.

Prophecy and the Spending Review

I was intrigued to see a firm advertising for a “Prophet Modeler”. Apparently Prophet is a liability forecasting system. Nevertheless, at this time there is a need for foresight.

While double-dip fears seem to have receded, no one can tell what a huge fiscal retrenchment (significant public spending cuts and maybe a step change in pension contributions for public sector workers) will do to consumer confidence. The optimists promise a "choppy recovery".

These concerns plus the practical issues with cutting spending and contracts in the short-term explain speculation about some re-profiling (aka delay) in the fiscal squeeze. Likewise, Chris Huhne's suggestion of Plan B from within the Cabinet.

Looking for a silver lining, the ferocity on fiscal policy is likely to be offset on the monetary policy. (While the bankers to a college that I work with love to send me terrifying articles from the Daily Telegraph warning of 8% base rates, I suspect that base rates will say low for a couple more years. Of course they can only go in one direction but I am less worried about interest rate risk than six months ago. There are plenty of other things to worry about and highlight on the risk register.)

I will be interested to see the Office for Budget Responsibility's forecast next week - the first under its new chair, the respected former head of the Institute for Fiscal Studies, Robert Chote. It may be overshadowed by the cuts but it will give some clues to the whole economy impact.

Post-16 alphabet soup – who survives and how?

Maybe I was naive but I thought we might learn today something of the new regulatory landscape in post-16 education. However, today's quango hit list merely notes on the Young People’s Learning Agency:

Under Consideration - Subject to education structural reforms

I thought that the Skills Funding Agency and Higher Education Funding Council might merge. It was in the Liberal Democrat manifesto. But according to the Times Education Supplement this is now unlikely. Vince Cable has changed his mind. On today’s list HEFC survives as a quango.

So maybe the YPLA and the SFA may merge? The SFA was not mentioned on today’s list as it is an Executive Agency rather than a quango.

TSA (and other quangos) - fate announced

It was not a very well-kept secret after being leaked in Inside Housing. But the Cabinet Office list is out (pdf available) and it officially announces the Tenant Services Authority is being scaled back and absorbed into the Homes and Communities Agency.

The list says:

No longer an NDPB - Abolish body. Regulatory functions passed to Homes and Communities Agency. Independent economic regulation safeguarded. Consumer regulation slimmed down

While a focus on financial viability and governance is welcome, there will need to be adequate safeguards for residents.

Internal audit in a new world for local authorities

Today I attended CATs - Cipfa’s Audit Training in the Midlands – as someone who more than dabbles in internal audit and sits on an audit committee. The session started with a overview of internal audit and governance by Robin Pritchard, Professor of Internal Audit at Birmingham City University. Professor Robin stressed the importance of stakeholders in governance and hence for internal audit.

As over 90% of the audience at CATs were local authority internal auditors it struck me how they were about to face a tsunami of change. A couple of the speakers touched on cuts and “transformation” in local government. What was not mentioned was the likelihood of new models of local government.

In Lambeth there is the John Lewis Council – a Labour council seeking to become a “co-operative council” by hiving-off functions to mutual organisations and community ownership. Then there are the easyCouncil models with Conservative councils adopting the budget airlines as a template.

Recently there was Suffolk County Council which is developing a vision of an “enabling council” with many activities (and almost all staff) divested. This clearly chimes with the Big Society rhetoric of central government.

In all of this there are new models of local government with a scaled back core and a series of out-sourcing relationships going far beyond past and partial contracting out. Of course thrown into the mix are shared service centres and even shared management teams.

So where are internal audit in all this? Does it shrink? And just look at contract compliance and performance? I suspect that will not be enough.

If governance and internal audit is as much about stakeholders as Professor Robin says, internal audit has a key role. It will need new approaches and skills – probably more training and seminars too.

Free schools – numbers, expectations and reality

Today there is bad news for the free schools movement and its highest profile exponent, Michael Gove.

The Financial Times warns that the first wave of free schools might consist of only eight schools or fewer. An assessment by Department for Education officials says that the “majority” of the 16 proposals for free schools that have been approved to open in September 2011 are “likely” to miss five of the 14 deadlines that officials believe must be met.

There appear to be issues with the appointment of Principals by the December deadline and having in place fit-for-purpose buildings in time. There are also uncertainties over transport-related planning requirements.

This revolution – like so many in history – may have raised expectations that it will struggle to deliver.