The role of boards - Audit Scotland

1 The role of boards Prepared for the Auditor General for Scotland September 2010. Auditor General for Scotland The Auditor General for Scotland is the Parliament's watchdog for ensuring propriety and value for money in the spending of public funds. He is responsible for investigating whether public spending bodies achieve the best possible value for money and adhere to the highest standards of financial management. He is independent and not subject to the control of any member of the Scottish Government or the Parliament. The Auditor General is responsible for securing the Audit of the Scottish Government and most other public sector bodies except local authorities and fire and police boards . The following bodies fall within the remit of the Auditor General: directorates of the Scottish Government government agencies, eg the Scottish Prison Service, Historic Scotland NHS bodies further education colleges Scottish Water NDPBs and others, eg Scottish Enterprise. Audit Scotland is a statutory body set up in April 2000 under the Public Finance and Accountability ( Scotland ) Act 2000.

2 It provides services to the Auditor General for Scotland and the Accounts Commission. Together they ensure that the Scottish Government and public sector bodies in Scotland are held to account for the proper, efficient and effective use of public funds. The role of boards 1. Contents Summary Part 3. The skills and expertise of boards ' ability to set the strategic Page 2 board members direction for their organisation is Page 17 changing About this report Page 3 Key messages boards ' scrutiny of risk, financial management and performance Summary of key messages The skills and expertise of board needs to improve members and how they work Page 29. Recommendations together is key to the success of Page 5 boards boards are using committees to Page 18 manage their workload but there Part 1. Introduction are risks attached to this Page 7 Scottish ministers appoint most Page 30. non-executives except to college Key messages boards Some boards need to improve Page 19 the way they operate The public sector is facing Page 31.

3 Significant challenges Fewer people are applying to Page 8 become non-executives The make-up of boards varies Page 21 across and within sectors boards have an important role in Page 32. steering public bodies through The time commitment expected these difficult times from non-executives varies Collective responsibility among Page 9 Page 23 board members is critical Part 2. The role and accountability Not all chairs and non-executives Recommendations of boards have received induction, training Page 34. Page 12 or assessment of their performance Page 25 Appendix 1. Public bodies and Key messages colleges included in this Audit Recommendations Page 36. Accountability for the performance Page 26. of public bodies is complex and Appendix 2. Audit approach lacks clarity Part 4. How boards operate Page 38. Page 13 Page 27. Appendix 3. Questions for board boards have different roles Key messages members depending on the type of body Page 39. Page 15 To operate effectively boards need to meet certain criteria Appendix 4.

4 Membership of the Relationships between the Scottish project advisory group Government and public bodies vary Guidance on leadership needs to Page 40. be clearer Recommendations Page 28. Page 16. 2. Summary Public bodies are entering a changing environment and boards will play a central role in how they respond to challenges ahead. Summary 3. 1. The public sector in Scotland is 4. Most public bodies are governed announced by the Chancellor of the made up of over 200 organisations by a board which provides oversight Exchequer in June 2010 outlining serving five million people. There of how they are performing, how the need for substantial spending are a number of different types of they spend their money and a link reductions, in advance of the UK. public body in Scotland , including through the Scottish Parliament spending review in October , 5. NHS bodies, non-departmental public to the electorate. boards are in The Scottish Government's Chief bodies (NDPBs), executive agencies, place to ensure the good corporate Economic Adviser has analysed the non-ministerial departments, colleges governance of public bodies, defined likely impact on public expenditure in and Scottish Water.

5 In addition to by the Scottish Government as The Independent Budget these organisations, there are local the structures and processes for Review, which was published in July government bodies, including councils decision-making and accountability, 2010, projects a real terms reduction and joint police and fire boards , which controls and behaviour at the top of in funding of billion between have different accountabilities. organisations'.1 Scottish Government 2009/10 and 2014/15, of which guidance for board members defines billion will be in 2011 2. This landscape was mostly in the role of the board as: existence before devolution in 1999, 7. The Independent Budget Review when these public bodies operated at giving leadership and strategic also recommended the continuation arm's length from central government direction of the reduction in the number of in Westminster. Since devolution there public bodies set out in the Public have been some changes in public defining control mechanisms to Service Reform ( Scotland ) Act 2010.

6 Bodies, such as the establishment safeguard public resources and suggested that a strategic review of NHS boards in 2003/04 after of the structures that deliver public trusts were abolished. Public bodies supervising the overall services in Scotland was necessary. are now more closely linked into management of the body's The role played by the boards of the purpose and objectives of the activities public bodies and the system of public Scottish Government. The Scottish accountability more generally should Government's public sector reform reporting on stewardship and be part of that review to ensure that agenda has reduced the number of they remain appropriate for a smaller, public bodies in Scotland but there has devolved public sector. been no systematic review of whether 5. Despite this and other guidance these structures remain fit for purpose such as the Scottish Public Finance 8. We acknowledge that many public post-devolution. Manual, there remains a lack of clarity bodies and their boards are unique about the roles of the boards of public but this report draws out common 3.

7 In 2009/10, the Scottish public bodies, particularly the extent to which themes across the public sector. sector spent around 36 billion, they provide leadership and strategic following a decade of higher than direction. This report examines this About this report inflation growth in funding. Their issue, along with other questions activities include delivering health about the work of boards . 9. This report examines the role and and social care services, providing work of boards in 67 public sector justice services and protecting the 6. Public bodies are entering a bodies and 39 colleges which are environment. Although public bodies changing environment and boards audited by the Auditor General for receive most of their funding from will play a central role in how they Scotland and that existed on the Scottish Government they respond to challenges ahead. 31 March 2009 (Exhibit 1, overleaf). operate autonomously, allowing The recession has resulted in These 106 organisations spent almost services to be delivered without fiscal tightening and the Auditor 17 billion and employed 175,000.

8 Direct day-to-day control by Scottish General commented on the likely staff in 2008/09. This report does not ministers. Increasingly, public impact on the public sector in his consider the role of councils, advisory sector organisations are working in report, Scotland 's public finances, NDPBs, tribunals, commissioners and partnership to try to provide services in November Since then more effectively and efficiently. an emergency UK budget was 1 On board : A guide for board members of public bodies in Scotland , Scottish Executive, April 2006. 2 Ibid. 3 Scotland 's public finances: Preparing for the future, Audit Scotland , November 2009. 4 Budget 2010, HM Treasury, June 2010. 5 The next spending review will cover the period 2011/12 to 2014/15. 6 Outlook for Scottish Government Expenditure, Scottish Government, July 2010. 7 Independent Budget Review, Crawford Beveridge, July 2010. 8 An Audit Scotland report on how councillors and officers work together in local government, roles and working relationships: are you getting it right?

9 , was published in August 2010. 4. Exhibit 1. Public bodies covered by this report The six different types of public body covered by this report spent 17 billion and employed 175,000 staff in 2008/09. Organisation type Description Number Expenditure Staff (wte). ( billion). Colleges Independent institutions that provide 39 13,032. further and higher education NDPBs Arms-length organisations that deliver 29 11,705. public services on behalf of the Scottish Government NHS bodies Arms-length organisations that deliver 23 137,245. health services or provide support services to the NHS. Executive agencies Organisations that are part of the 11 7,954. Scottish Government but which operate independently of Scottish Government directorates Non-ministerial departments Independent departments, operating under 3 1,707. named office holders. They are part of the Scottish Administration but not the Scottish Government Scottish Water Commercial enterprise under direct control 1 3,737.

10 Of Scottish ministers Note: See also Appendix 1 for the bodies in each category. The figures for expenditure and staff are for 2008/09. Seventy-three per cent of expenditure by colleges ( billion) is provided by the Scottish Further and Higher Education Funding Council which is an executive NDPB. wte is whole time equivalent. Source: Audit Scotland 10. There are a number of different the day-to-day management and We carried out in-depth fieldwork terms and definitions for aspects of running of the organisation. at 17 public bodies of varying sizes, the public sector. For the purposes of covering all six types of public this report we use the following: Non-executives work part-time body, from across the country for the organisation but are and providing a range of public Public bodies include colleges, not involved in the day-to-day services (see Appendix 1). As part NDPBs, NHS bodies, executive of this fieldwork we interviewed agencies, non-ministerial over 70 chairs and non-executives, departments and Scottish Water, 11.