Driving Leadership, Performance and Quality Management in Internal Audit in Scottish Local Government Part 1

Phil Atkinson, Dave Reynolds & Janine Wilson

“The authors outline how the Heads of Local Government Internal Audit in Scotland drove an innovative programme of change to transform their role from one with a predominantly tactical focus to the much more dynamic and active role as Strategic Heads of Internal Audit.”

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Readiness for Change in the Public Sector

The serious financial pressures facing local government are proving to be a driver for change and, as change is often difficult, Chief Internal Auditors’ in Scottish Local Authorities had recognised that there was a need to act to support each other through what was set to be a difficult and unsettling period.

A Leadership, Quality and Performance change programme was identified as a development need to provide the tools and a platform for continuous improvement and a bespoke programme was commissioned from the Chartered Institute of Internal Auditors to underpin this.

The reception of this development programme initiated by SLACIAG (Scottish Local Authorities Chief Internal Auditors Group) was greeted with an optimistic and enthusiastic response by their members.  Expectations from participants were high but so were their spirits for the idea of changing and improving performance.

Phil Atkinson, Director of Learning Strategies Ltd and Dave Reynolds, Vice President of the Chartered Institute of Internal Auditors (IIA) devised the process underpinning the development programme and workshops and worked closely with the Executive Committee of SLACIAG. Phil and Dave undertook the research, designed and delivered the Workshops, and their expectations and the intellectual stretch and participation of attendees matched any they had experienced in the private sector.

SLACIAG as a Committed Client

SLACIAG is the professional networking group for Local Authority Heads of Audit. The purpose of the group is to develop and improve the practice of Internal Audit in Scottish local authorities, police, fire and public transport bodies. It achieves this by meeting to discuss issues of common concern, commissioning work to develop ideas, sharing good practice, working in partnership with other professions/governing bodies and promoting SLACIAG as the representative body for internal audit in public authorities.

In many ways SLACIAG was the ideal client with whom any consultant wants to work.  Ideal because they listened, sought guidance, the helped to increase the pace at which the change could take place, and due to this effort they further sought to explore their own role, their potential future plans and strategic focus on what they wanted to achieve and be, do and have in the future.

The SLACIAG Environment

In Scotland there are thirty two Local Authorities and all differ in how they transact business.  Because of the uniqueness of Scotland in terms of a few high population urban areas centred around Edinburgh, Glasgow and Aberdeen, the differing island communities, and the variation in geographic and administrative spread in countryside areas it makes it almost impossible to develop a one size fits all approach to managing Internal Audit.  However, what it was possible to achieve was to focus on best practise and then suggest how these ‘best practises’ could be tailored to each of the Heads of Internal Audit Authorities.   

Bespoke Approach

It is impossible to create a template that could be adapted and all Local Authorities could emulate in providing an Internal Audit service, but Dave drew on his experience as former Director of Internal Audit with a FTSE 100 global company and   Director of MorganFranklin Ltd[1], and provided much appreciated case material of how change can be implemented quickly if the ‘will to change’ is strong.  Phil complemented this with appropriate leadership methods and strategies allowing the design and delivery of a comprehensive training workshop to provide personal development opportunities for SLACIAG members to support them in making the transition to that more strategic role and to meet the challenges ahead. The workshops provided them with the impetus and input to achieve just that.

SLACIAG's Expectations

The Executive Committee were acutely aware of the importance of the exercise they were about to undertake. They had been conscious for some time that the landscape of local government internal audit was changing and HIA’s, as leaders of their teams, needed to be sure that they had the tools and the skills to steer their functions through the challenging times ahead. When the initial brief for the workshops was developed, local government knew it was facing substantial financial pressures in the way of direct budget cuts, but did not have clear knowledge of the extent. What was evident was that internal audit would not be spared their share and that the HIA's needed to look to becoming more efficient in all that they did.

At the same time CIPFA had been consulting on their Heads of Audit document and it was obvious that this would represent a substantial change to the way HIA’s delivered their service, necessitating a move to the strategic and more forward looking advisory function.

SLACIAG as a group had a strong role to play in supporting their members through this, but the Executive Committee needed a better sense from the members of the most beneficial way they could move this forward

The combination of these factors meant that the expectations of the committee and the participants were high in relation to the course content and outcomes and the committee, development group and the presenters were all committed to taking a collaborative approach to this and intent on ensuring the workshops delivered to expectations.

Internal Audit Pressures

The impacts of the financial pressures with the requirements to generate efficiencies and hard savings are likely to see audit resources reduced over the next few years, at a time when other constant changes in their organisations mean fast changing risk profiles. Even more, Internal Audit will be required to deliver a quality product meeting both  the internal client expectations, the assurance needs of members and the requirements of external audit who place significant reliance on their work in delivering their opinion on the councils’ annual accounts. In addition, performance management arrangements within internal audit were inconsistent and it was important that internal audit, where possible, developed some common performance management, measurement and monitoring systems that would allow benchmarking.

The Shared Services agenda is an area that has already been considered in  some internal audit sections with some pressures on the HIA’s to consider joint working with neighbouring authorities. No shared services currently exist but there is no doubt this is an area that will continue to be explored, along with other alternative delivery models. SLACIAG can now contemplate influencing such developments rather than simply implementing them.

Given the pressures, and the increasing challenges and expectations from stakeholders, it is important that the Heads of Audit position themselves and their function in a manner that allows them to prove their need and their worth in an environment where clients are less likely to wish to spend the resource on audit and less likely to be happy to agree to recommendations if they come at a cost. Internal audit in Scottish local authorities is not a statutory function, it is there, in all local authorities as a function of best practice to support the s95 officer in the discharge of that statutory role. It is therefore important that internal audit is seen to have a critical role to play within authorities overall governance frameworks.

Role of the Head of Audit

The CIPFA document on the Role of Heads of Audit in Public Services was issued in May 2010 and a specific version for local government is due for publication shortly. This document will become part of the best practice against which Heads of Audit and their internal audit sections will be assessed by external audit and this provided the driver behind Dave & Phil’s input.

This white paper highlighted the importance of CIA’s (Chief Internal Auditors) changing their role and skill set away from ‘tactical reporting’ to ‘strategic intervention and partnership with their top teams.  This effectively means the HIA’s (Heads of Internal Audit) occupying a vital role supporting the design, delivery and assessment and the provision of key strategic projects in the public sector. This will require  HIA’s to be skilled in management and coaching, to set quality assurance and improvement programmes and ensure performance standards are determined and met.

Central to CIPFA’s initial white paper was the importance of Leadership in driving change, in Performance Management and Quality Management.  Dave and Phil  presented their approach to how they would design the process and the resultant workshops.  Fundamental to this was the need to design a ‘bespoke process’ based on the needs and perceptions of all HIA’s in all Local Authorities in Scotland.  All Heads participated in the initial research and submitted their thoughts through an open ended questionnaire and a small group was formed to take part  in a workshop development day. This detailed research into the role of HIA’s focused on the key challenges and changes impacting the role moving from CIA’s to HIA’s in a period of financial restraint and was undertaken during the summer of 2010.  It was presented back to the group in September 2010 together with an outline workshop which was approved and tested through a pilot day. 

The requirements of this document, together with the known pressures already discussed, provided the basis for the training brief, posing a number of questions around Leadership, Quality and Performance which needed to be addressed within the workshops to give both SLACIAG as a group and its members a way forward to meet their challenges.