WIREDGOV

Developed in 2009, at a time when ‘government transparency’ was receiving considerably less attention than it does today, the Audit Commission’s Financial Ratios tool,^[1] which publishes data from local government financial accounts, has had its last update.

The tool provides details of five key financial ratios that put an organisation’s income, assets, debt and reserves into context, making it easier to make comparisons between organisations and, thereby, assisting people to hold local public bodies to account. The Commission has today published Interpreting the Accounts: A Review of Local Government Financial Ratios 2007/08 to 2012/13, describing changes in the ratios for English councils during a period of considerable change for local government finance, and is calling on local government to compile its own financial ratios data for comparison after the Commission closes in March 2015.

Jeremy Newman, Chairman of the Audit Commission, reflects:‘The Financial Ratios tool is an excellent example of how the Audit Commission assists in providing transparency in local government financial management, thereby helping the electorate keep check on the billions spent in local government every year. With the closure of the Commission and inevitably the Financial Ratios tool with it, I very much hope that someone will continue this work. We have, therefore, invited the Local Government Association to incorporate the ratios, and the data we have compiled to date, in its publicly available Local Government Inform benchmarking data service. This would enable local public bodies to compile their own accounts data in future to support continued comparison of the financial ratios in the years ahead.’

The Financial Ratios tool contains data collected by the Commission’s appointed auditors across over a six-year period. It is the only centrally compiled source of published accounts data covering all English councils, police and fire authorities and Greater London Authority bodies. The ratios covered in the Commission’s tool and discussed in the report relate:

• current assets to current liabilities – an indicator of how a council manages its short-term finances;
• useable reserves to gross revenue expenditure – which highlights how much money councils are retaining for future spending plans and to cover unpredictable spending;
• long-term borrowing to tax revenue – an indicator of the potential for debt repayments to impact on future spending plans;
• long-term borrowing to long-term assets – which provides insight into what borrowing has funded and the potential need for future borrowing; and
• school balances to dedicated schools grant – which shows whether schools maintained by the council are retaining a high or low proportion of the funding provided for spending on education.

The report provides benchmarks against which the financial ratios for individual councils and local trends can be compared by others. It also identifies issues for councils to consider as they seek to continuously improve financial management during a period of rising demand for services and reducing income. Jeremy Newman, Chairman of the Audit Commission, concludes: ‘The Financial Ratios tool does not indicate good or poor financial performance, because the ratios it describes are the products of a variety of local challenges and decisions, but it does allow comparisons to be made between local public bodies and trends to be identified. This makes it a valuable resource for local bodies and, even more so, for members of the public wishing to scrutinise local financial decision-making. For the government to achieve its aims of promoting greater transparency for public finances, and greater accountability to local taxpayers, there remains a need for tools, like the Financial Ratios tool, that make access to data easier and support ‘armchair auditors’ to make informed comparisons between organisations.’’

Footnotes

^[1] The Financial Ratios tool was launched in 2009 alongside the Commission’s national report Summing Up: A Review of Financial Management in Local Government 2005-2008

Notes for editors

1) The free online Financial Ratios tool was launched in 2009 with data from the 2007/08 accounts for English single-tier and county councils. The coverage of the tool expanded over time to include data for district councils, the Greater London Authority bodies and police and fire authorities. Following its most recent update, the tool provides a picture of the financial performance of local government in England over a six-year period.

2) Other recent publications from the Commission looking at important data include:

• Councils’ Expenditure on Looked After Children: Using Data from the Value for Money Profiles(VFM) Tool (August 2014)
• Managing Council Property Assets: Using Data from the Value for Money Profiles Tool (PDF document) (June 2014)
• Local authority waste management: Using Data from the Value for Money Profiles Tool (March 2014)
• Councils’ Centrally Managed Spending: Using Data from the Value for Money Profiles Tool (February 2014)
• Council’s expenditure on benefits administration: Using Data from the Value for Money Profiles Tool (January 2014)
• Business Rates: Using Data from the Value for Money Profiles Tool (PDF document) (October 2013)
• Income From Charging: Using Data from the Value for Money Profiles Tool(September 2013)
• Social Care for Older People: Using Data from the Value for Money Profiles Tool (July 2013)
• Council Tax Collection: Using Data from the Value for Money Profiles Tool (June 2013)

3). The Audit Commission’s role is to protect the public purse. We do this by appointing auditors to a range of local public bodies in England. We set the standards we expect auditors to meet and oversee their work. Our aim is to secure high-quality audits at the best price possible. We use information from auditors and published data to provide authoritative, evidence-based analysis. This helps local public services to learn from one another and manage the financial challenges they face. We also compare data across the public sector to identify where services could be open to abuse and help organisations fight fraud.

For further information please contact: 
Nick Rigg, Senior communications specialist
Audit Commission
Direct line: 0303 444 8284