Governance, Accounting and Local Government Reform

 

What Proposed Changes Could Mean For Parish Councils

Listening to or watching meetings and inquiries at Staffordshire County Council and Newcastle-under-Lyme Borough Council has, for some years, been a dispiriting experience.  The quality of local governance matters: it affects the services residents receive, the way public money is spent and the confidence people can have in the institutions that represent them.

Staffordshire has its own political and administrative history.  North Staffordshire has experienced changes in political allegiance, while Newcastle-under-Lyme and Stoke-on-Trent have often appeared to operate with separate identities and priorities despite their close geographical relationship.  Political rivalry may be part of local democracy, but it should not become a substitute for cooperation, effective administration or accountability.

Changes to the processes and practice of local government are therefore worth examining, not simply as an administrative exercise but as an opportunity to improve the way public bodies make decisions, manage money and answer to the people who fund them.

A review of proper practices for smaller authorities

A significant review of governance and accounting arrangements for smaller authorities in England is under way.  The Smaller Authorities’ Proper Practices Panel (SAPPP), with the Chartered Institute of Public Finance and Accountancy (CIPFA) undertaking the review and support from Smaller Authorities’ Audit Appointments Ltd (SAAA), published a second consultation on 1 September 2026. It invited comments on two proposed documents: the Proper Practices Code for Category 2 Authorities (England) and a Code of Practice for Internal Audit of Category 2 Authorities (England).  The consultation closed on 31 October 2026.

The proposals are intended to apply from the 2027/28 financial year, subject to approval and publication of the final documents.  At the time of writing, the material available from CIPFA is the consultation version.  The distinction between current obligations, proposed changes and recommendations is central to understanding what may change.

The review is important because proper practices are not optional suggestions.  They provide the standards that smaller authorities must follow in preparing their accounts and governance statements.  The proposed new framework is intended to make responsibilities clearer, improve the presentation of financial information and strengthen internal audit and public accountability.

What is a Category 2 authority?

Category 2 is a classification under the smaller-authority audit framework.  Under the proposed Code, it includes parish and town councils, parish meetings, internal drainage boards and certain other smaller authorities. The classification threshold is based on the higher of gross income or gross expenditure not exceeding £15 million for three consecutive years.

This should not be confused with the separate £25,000 threshold used in determining whether an authority may be eligible to certify itself exempt from a limited assurance review, provided it meets the other statutory criteria.  The £25,000 figure does not define whether a parish council is a Category 2 authority.

The central responsibilities of a council

The proposed Code makes clear that responsibility for governance and financial management rests with the authority as a whole. The Clerk and Responsible Financial Officer (RFO) have important professional and operational responsibilities, but councillors cannot simply transfer the council’s responsibility to the Clerk, the RFO, a finance committee or a working party.

Among the essential areas of responsibility are:

·        Accounting records: maintaining accurate, complete and up-to-date records of receipts, payments, assets and liabilities.

·        Financial controls: establishing controls that protect public money, support proper authorisation and help prevent or detect error, fraud and misuse.

·        Budget management: approving a realistic budget, monitoring actual income and expenditure against it and investigating significant variances.

·        Asset management: maintaining an accurate record of assets, their acquisition and disposal, and the council’s responsibility for them.

·        Risk management: identifying and reviewing financial, operational, compliance, strategic and information-security risks.

·        Annual governance: reviewing the effectiveness of internal control and approving the Annual Governance Statement.

·        AGAR: preparing, approving and publishing the Annual Governance and Accountability Return and the supporting information required by the applicable rules.

·        Internal audit: appointing an independent and competent auditor and considering the findings, recommendations and actions arising from the audit.

The proposed framework places particular emphasis on evidence. A council should be able to demonstrate how it reached a decision, who authorised expenditure, what supporting records exist and how identified weaknesses have been addressed.  Good governance is not established simply by completing a form or ticking a box.

Internal audit: more than checking the arithmetic

Internal audit should examine the systems and processes that underpin the accounts and the council’s governance.  It is not simply a check that the figures add up.  The proposed Code and separate Internal Audit Code place emphasis on independence, competence, a risk-based programme of work, documented evidence and the council’s response to findings.

The proposed arrangements include formal consideration of the audit programme and scope, an audit report supported by evidence, action plans to address recommendations and monitoring of those actions.  The draft also proposes that internal audit reports and the authority’s actions to remedy inadequate controls should be available on the authority’s website.

This is a significant development for transparency.  It should help councillors and residents see not only what weaknesses have been identified, but whether the authority has acted on them.  It is important, however, to distinguish this from the separate external audit process.  The draft requires members to meet to consider an external auditor’s audit letter or annual report as soon as reasonably practicable.

The proposed Code also makes clear that the internal auditor is not responsible for checking or completing the AGAR on behalf of the authority.  The council must prepare and approve its own accounts and governance statements.

Publication and public access

The proposed framework sets out more explicit publication requirements.  In outline, it requires authorities to publish the AGAR, including the unaudited Statement of Accounts and Annual Governance Statement, together with the annual internal audit report and, where relevant, a Certificate of Exemption, before 1 July.  After the external audit process, the audited Statement of Accounts, the external auditor’s certificate and opinion, and any relevant public-interest report or recommendation are to be published by the specified deadline, generally no later than 30 September.

The draft also addresses public inspection of accounting records.  Residents’ rights to inspect the records supporting the accounts are not a courtesy granted by a council; they are part of the statutory accountability framework.  Authorities need to make the relevant records available in accordance with the statutory inspection arrangements, while observing data-protection requirements.

The proposed Code says that the published material should be easy to find on the council’s website.  A noticeboard may supplement online publication, but should not replace it.  These requirements are intended to make financial information accessible and to enable residents to scrutinise how public money has been managed. It is not for a council or Clerk to refuse reasonable requests for access to this documentation which also includes cash books and receipts etc..

Digital AGAR submissions

The draft proposes that Category 2 authorities should submit AGAR data electronically through a digital portal from April 2027.  Electronic submission is proposed to become mandatory under the new proper practices from 2028/29.

The objective should be better-quality accounting information, not simply a change in the software used to record it.  Every councillor should have sufficient understanding of the budget and accounts to discharge their responsibilities; financial oversight should not be confined to one or two members.

Budgets, variances and financial monitoring

A sound budget should reflect the council’s priorities, known commitments and likely costs.  It should also provide a means of identifying cash-flow problems or overspending early enough for the council to take corrective action.  Budget preparation should follow a clear timetable and should not be rushed into the final stages of the financial year.

Councils may use incremental budgeting, which starts with the previous year’s figures, or zero-based budgeting, which requires expenditure to be justified afresh. Neither approach is a universal legal requirement.  Where a budget has repeatedly failed to reflect actual activity, however, a more fundamental review may be appropriate.

Budget monitoring should compare actual expenditure and income with the approved budget and explain material variances. One-off or exceptional expenditure should be identified clearly rather than obscured within routine budget headings.  A contingency provision can be useful, but it should not be used to disguise the true position of individual budget lines.

Recent budget-monitoring figures published by Betley Parish Council show variances against three headings: Footpaths (£862.40), Sandycroft (£1,726.33) and Subscriptions (£61.09). Together these amount to £2,649.82 overspend.  These figures raise questions about the accuracy of budget estimates, the allocation of expenditure and the explanations provided to councillors and residents.  Whilst a variance or overspend does not, by itself, establish that expenditure was unauthorised or improper, it does, however, call for a clear explanation and appropriate scrutiny.

Whilst a small council may have more than one bank account for perfectly legitimate reasons, it is important that the purpose of and reason for each account is clear, whether all accounts are included in the accounting records, whether they are properly reconciled and whether transfers between accounts are recorded transparently.

All receipts should be recorded accurately and shown in the appropriate place in the accounts.  Where a council receives a donation or grant, it should record the amount and any relevant conditions or restrictions.  Anonymous donations may raise particular questions about the source and circumstances of the money, and the council should consider whether it can lawfully and properly accept them. The accounts should not obscure the fact that money has been received or how it has been applied.

A donation or grant may legitimately be restricted to a particular purpose.  The council must understand and observe those conditions, but also ensure that the proposed use falls within its powers and remit and that a record of the transaction exists in a way that allows it to be followed.  Transparency  means that the terms and accounting treatment of every donation should be clear and uncompromising, should the council accept it.

Reserves and contingencies

Reserves are held for legitimate purposes, including cash flow, risk management and planned future expenditure.  The proposed Code requires the council to maintain a reserves strategy.  General reserves should be set at a prudent level having regard to the council’s size, circumstances, risks and expected variations in income and expenditure.

Earmarked reserves should have a genuine and clearly identified purpose.  The draft proposes that they should be reviewed at least annually and that the overall level of reserves should also be reviewed annually, including as part of the budget-setting process.

The often-quoted guideline of holding general reserves equivalent to between three and twelve months’ expenditure should not be presented as a fixed statutory rule applying identically to every council.  The appropriate level depends on the authority’s circumstances and risks.  The council should be able to explain what the money is for, why it is needed and whether the precept is set at a reasonable level.  It should also be remembered that Parish councils are not-for-profit institutions.  It would therefore be useful if, at the end of the year when the precept is being discussed, whether any surpluses made by the Council during the year should be taken into account and the precept then decided accordingly.

A reserves policy should therefore identify the purpose of each earmarked reserve, the basis on which its level is set and the circumstances in which it may be used. Movements between reserves should be authorised, recorded and reflected in the budget and Minutes.

The proposed changes to asset records 

The proposed Code requires authorities to maintain a register of fixed assets, long-term investments and other non-current assets held at the year end.  The register should include acquisitions and disposals and reconcile with the relevant minuted account and submitted AGAR figures. A record of dates of acquisitions and disposals is also important.

For assets placed on land owned by another party, the draft emphasises the importance of documentary evidence of permission to site the asset there.  More generally, councils should know what they own, where it is located, who is responsible for it and what arrangements apply to its maintenance, insurance and eventual disposal.  A maintenance schedule is sensible asset-management practice.  Hopefully, the final and accepted draft will make this a specific requirement.

What does this mean for Betley Parish Council?

The national review provides a useful opportunity to examine local practice of parish councils such as Betley. Questions have arisen about the presentation of budget-monitoring information, the relationship between budget headings and actual expenditure, the recording of receipts and grants, and the supporting documentation for particular purchases, not to mention their availability to members of the public on request.

The Footpath Gates project is one example where residents may reasonably seek a clear audit trail.  The relevant questions include: what number and type of gates were approved; what price and VAT treatment were authorised; what invoices were received and paid; where the gates have been installed; who owns them; and who is responsible for their future maintenance?  If any assets have been transferred to another body or group or individual, the council should be able to identify them and produce written evidence for any transfer and the terms on which this took place.

There are also governance questions about the status and remit of the group involved in the project, the basis on which it sought public funds and the council’s process for considering the request.  These are questions about accountability and the proper stewardship of public money which need to be asked if the position is not made clear in the Minutes or any recorded explanations.

The same principle applies to grants and donations.  Where a grant is awarded for a stated purpose, the council should record the source, amount, conditions and application of the money.  Where a budget heading is increased because a grant has been received, the accounting records and minutes should enable residents to follow that adjustment and understand how the grant relates to the expenditure.

The purpose of raising these matters is to establish whether decisions have been properly authorised, whether the accounts accurately describe what has happened and whether the council can demonstrate that it has followed the appropriate procedures.

Governance is more than compliance

The proposed framework places renewed emphasis on the relationship between good governance, risk management and internal control. Risks should be identified and reviewed rather than treated as an annual paperwork or tick-box exercise.  These include financial and operational risks, legal and regulatory compliance, strategic risks and cyber security.

Roles must be understood. Councillors are responsible for making decisions collectively and scrutinising the council’s work.  The Clerk and RFO are responsible for carrying out their functions professionally and maintaining the records and advice needed for sound decisions. Internal auditors must be sufficiently independent and competent to provide an objective assessment.  These roles should complement one another without blurring the lines of responsibility.

A council should also be able to show that it has acted on audit findings.  A recommendation that is noted and then forgotten/ignored or shelved does not improve governance.  Action plans should identify what needs to be done, who is responsible and when progress will be reviewed.  The full council should retain oversight of significant matters.

Agendas, minutes and public participation

Agendas and meeting papers should be published in good time and in accordance with the applicable statutory notice requirements and the council’s own procedures. For parish council meetings, the usual statutory requirement is at least three clear days’ public notice, subject to the relevant rules and exceptions.

Minutes are the formal record of the meeting, not a verbatim transcript.  They should accurately record decisions, resolutions and the information necessary to understand what the council decided.  They should be prepared promptly, checked and approved through the proper process.  Historic minutes are important public records and should be retained and preserved in accordance with the council’s records-management and archival responsibilities. 

Public participation is an important part of local democracy.  A council may adopt reasonable arrangements to manage the length and conduct of public sessions, but it should not confuse orderly procedure with a right to avoid difficult questions. Minutes should record the substance of public representations fairly and accurately, while avoiding unnecessary personal information.  If a speaker makes an allegation about an identifiable person, the minutes should not turn allegations into an established fact.

Whilst there is no general rule that names must never appear in minutes of public sessions, the appropriate approach depends on the purpose of the record, the context and data-protection obligations.  Accuracy, fairness and restraint are more useful principles than any blanket prohibition or attempts to malign individuals.

A Practical Opportunity for Improvement

The review of proper practices is an opportunity to strengthen local government. Parish councils may have modest budgets and limited staff resources, but that does not reduce their responsibility to manage public money properly, maintain reliable records and explain their decisions to their public.

If councils are to take on greater responsibilities and exercise greater powers, residents are entitled to expect a corresponding commitment to transparency and accountability. Clear accounts, effective internal audit, well-managed reserves, accurate asset records and meaningful public access are not bureaucratic extras. They are the foundations of public confidence.

The final 2027/28 framework will need to be read carefully once it is approved and published. Until then, the wider principle is already clear: good governance should be embedded in the everyday work of a council, not added as an afterthought when questions are asked, or when issues come to light. 

Bearing all this in mind some councils might have a lot to catch up on and some way to go.