The Government has not done enough to ensure that governance systems in local authorities are suitable for an ‘era of financial pressure and rapid change’, MPs have warned.

A new report from the Public Accounts Committee has said that local governance arrangements are being ‘stretched and tested’ as cash-strapped councils take more risks to meet increasing service demands.

Local authorities are, the report notes, pursuing shared services, expanding outsourcing and taking on commercial activities at the same time as cutting funding for corporate activities like governance.

While the report acknowledged that governance arrangements are ‘generally robust’, it did find that in some councils there were audit committees that do not provide sufficient assurance.

The committee also found ineffective internal audit arrangements in a number of local authorities, and weak arrangements for the management of risk in commercial investments, and inadequate oversight and scrutiny.

‘This is not acceptable in the more risky, complex and fast-moving environment in which local authorities now operate,’ the report concluded.

The committee’s report was also critical of the Ministry of Housing, Communities, and Local Government’s (MHCLG) oversight of local authority governance, describing it as ‘reactive and ill-informed’.

The MHCLG has committed to enhancing its oversight role and has produced a ‘proactive work programme to deliver this change’, the report acknowledged.

However, the committee still urged the department to ensure this leads to ‘concrete actions and outcomes on a timely basis’ to help protect people from council failure.

‘On the rare occasions a local authority fails, the impact on local citizens is severe. Residents facing decimated services get no comfort from being told that their council’s dire finances were “an open secret”,’ commented the PAC chair Meg Hillier.

‘We have seen examples of local authorities which have had inadequate governance arrangements and been unable to provide assurance that hard pressed budgets are being properly spent.

‘The Government needs to recognise the extra pressure that squeezed budgets and increased commercial risks are having on local government and make sure it is monitoring the risks effectively so that it can be alert to the impact of changes on local government’

Commenting on the report, Rob Whiteman, CEO of the Chartered Institute of Public Finance and Accountancy, said that the MHCLG’s oversight of the system of governance ‘can and should be strengthened’.

‘There has been enormous change over the past decade. At a time when councils are dealing with fewer resources, governance needs to be strengthened rather than weakened,’ he said.

‘It is therefore important to consider the preventive steps that can be taken to strengthen local governance in order to avoid failures in the system.’

An MHCLG spokesperson said: 'We are pleased the committee welcomes the Government's commitment to improve oversight of the accountability system for local government.

'We regularly assess the local government governance framework to ensure it is operating effectively and last week we published new guidance to strengthen the role of scrutiny committees in councils.'