Scottish Government relationships with public bodies: progress review

4 Accountability

4.1 The differences in governance and accountability between NDPBs, NMOs and agencies are not always fully understood, although there is a good awareness amongst public bodies themselves. Even within these categories, there are in practice many variations in governance. Interviewees speaking about a variety of public bodies described governance arrangements for that body as 'unique', and with good reason. There are differences of opinion about the need for more standardisation. While in general there is a strong appetite amongst public body senior leaders interviewed for more consistency of approach from SG in managing its relationships with public bodies, there is also a recognition that there is no one model that will fit all circumstances.

4.2 Relationships with the different categories of public body are handled differently. NDPBs typically have a sponsor team in Scottish Government, and that team may or may not also have related policy responsibilities. Public corporations, although not interviewed for this review, typically have a relationship with a policy team that has some of the same characteristics as the relationship between an NDPB and its sponsor team but reflecting the different financial arrangements for the public corporation. NMOs do not formally have a sponsor team, but their Chief Executives and, for the newer NMOs, Chairs usually work with a lead Director or Director General in SG to manage the relationship and some NMOs have policy teams in SG who are active in managing the relationship. Agency Chief Executives report directly to Ministers but in practice will also have a close working relationship with a relevant Director or Director General.

4.3 Since the staff of both agencies and NMOs are civil servants, Chief Executives of these bodies usually have a line management relationship to a senior figure in SG, although for some NMOs the Board Chair is the line manager and the senior SG figure acts as countersigning officer. One important difference is that senior sponsors for an agency or an NMO do not typically have the equivalent of the sponsor team to support them in this task, although an alternative approach with a designated post to support the relationship between SG and an agency now exists in at least one directorate and is being considered elsewhere. It is important that SG officials line managing an agency or NMO Chief Executive still respect the proper lines of accountability.

4.4 When SG has created a public body, it is important that the subsequent management of the relationship with the body balances a unified and coherent approach to delivery of key outcomes – 'Team Scotland', in the common shorthand – with a recognition of the reasons why a separate public body was created. Establishing a separate body and then managing it too closely risks undermining the benefits of separate status. Public bodies are often described as being at arm's length to government, but many interviewees commented that the length of the arm varies considerably between bodies. Although executive agencies are directly accountable to Ministers and in theory are closest to SG, interviewees even from similar categories of public body reported very different levels of contact with Ministers and SG senior officials, and one commented that 'the arm is as long or as short as SG wants it to be'. There are variations in practice in how far public body leaders see relevant advice and briefing sent to Ministers, with some bodies noting that they did not see advice or briefing even when they had contributed to it. It was also noted that there are now several agencies which have lead responsibility for policy as well as operations in their areas of responsibility and so are advising Ministers directly. Some interviewees thought this was a useful model. Most chief executives of public bodies interviewed were very keen to be involved in development of policy and to be part of collaborative arrangements for implementation.

4.5 NDPBs and some NMOs have boards which are appointed by Ministers to provide 'active, healthy and effective direction, support and guidance'^[4] to the body and to take overall responsibility for successful delivery of its functions. In agencies and some older NMOs (where the chief executive is a statutory office holder), the delivery responsibility lies with the Chief Executive, usually supported in practice by a management board that will include some non-executive members. All public bodies have an Accountable Officer, designated by the Principal Accountable Officer (the Permanent Secretary of the Scottish Government) under section 15 of the Public Finance and Accountability Act 2000 (the PFA Act). In addition, each Director General in Scottish Government is designated as a Portfolio Accountable Officer, also under section 15 of the PFA Act. Memoranda setting out the responsibilities of public body and portfolio Accountable Officers are published in the Scottish Public Finance Manual (SPFM). For Portfolio Accountable Officers, this includes responsibility for sponsorship arrangements within the directorates which report to them and specifically ensuring the financial and management controls applied by the sponsoring directorate are appropriate and sufficient, that there is an adequate and regularly reviewed framework document in place and that there is compliance with the framework document.^[5]

4.6 Although there is no single agreed definition, various dimensions of public accountability are acknowledged in academic literature. Koppell (2005)^[6] sets out five dimensions ('conceptions') of accountability that are fundamental for public organisations, along with associated key questions based on the US public sector context.

Table 1: Koppell (2005) Conceptions of Accountability

Conception of accountability: Key determination

Transparency: Did the organization reveal the facts of its performance?

Liability: Did the organization face consequences for its performance?

Controllability: Did the organization do what the principal (e.g., Congress, president) desired?

Responsibility: Did the organization follow the rules?

Responsiveness: Did the organization fulfil the substantive expectation (demand/need)?

4.7 Table 2 below looks at these dimensions of accountability in the Scottish public body context and who is accountable for each dimension in the different types of public body. One potential point of confusion is the role of the 'Accountable Officer'. As Table 2 shows, the Accountable Officer role in a public body relates to ensuring that the body follows the relevant legislation and guidance in the way it carries out its work. This is distinct from the accountability for overall delivery, meeting Ministers' expectations and responsiveness to customers and stakeholders. Agency Chief Executives are usually also designated as Accountable Officers for their public bodies and so have the full set of accountabilities; in other public bodies, the accountabilities are split.

Table 2: Accountability roles and responsibilities for Scottish public bodies

Dimension of Accountability: Transparency

Scottish Public Body Context

• Meeting accounting, reporting and Freedom of Information requirements.

Who is accountable?

• Public Body Accountable Officer

Dimension of Accountability: Controllability

Scottish Public Body Context

• Meeting statutory functions (all bodies)
• Delivering on objectives, targets and performance measures set by Scottish Ministers (NDPBs and agencies)
• Delivering in line with overall corporate plan priorities agreed with Ministers (NMOs)

Who is accountable?

• The Board (NDPBs and those NMOs where the Board has statutory responsibility) or
• The Chief Executive (Agencies and those NMOs where the CEO is a statutory office holder)

Dimension of Accountability: Responsibility

Scottish Public Body Context

• Meeting all statutory requirements (overlaps with transparency above) and guidance, including the SPFM. This includes ensuring the propriety and regularity of the body's finances, Best Value and internal control arrangements.

Who is accountable?

• Public Body Accountable Officer

Dimension of Accountability: Responsiveness

Scottish Public Body Context

• Understanding and meeting stakeholder and/or customer needs

Who is accountable?

• The Board (NDPBs and NMOs where the Board has statutory responsibility) or
• The Chief Executive (Agencies and NMOs where the CEO is a statutory office holder)

Dimension of Accountability: Liability

Scottish Public Body Context

• Consequences of failure in any aspect of delivery of the public body's functions or compliance with legislation and guidance.

Who is accountable?

• Decisions will rest with Ministers in the case of NDPBs and agencies or Parliament (or Ministers with Parliamentary approval) in the case of NMOs. In all cases Ministers are likely to seek advice from Portfolio Accountable Officer and/or their teams.

4.8 Within SG, Portfolio Accountable Officers – Director-Generals – are accountable for SG's relationship with public bodies in their areas of responsibility, and this added accountability also often causes confusion about roles and responsibilities. It is important to note that Portfolio Accountable Officers are accountable for the overall relationship, including communications and the assurance framework, but they are not directly accountable for the public body's performance. In practice the Portfolio Accountable Officer will delegate much of the work on this within their team. Table 3 below attempts to summarise the key principles of the Portfolio Accountable Officer Role in each type of public body. Part of the requirement is to establish an appropriate Framework Document that is formally agreed between Scottish Ministers and the body, and this Framework Document captures the variations in governance arrangements for each individual body.

Table 3: Portfolio Accountable Officer responsibilities for each type of public body

Type of Body: NMO

Primary accountability of body to: Scottish Parliament

Portfolio Accountable Officer Role

Performance

• Advice to Ministers on priorities to be agreed in Corporate Plan.
• Advice to Ministers on the performance of the NMO if required and, in the extreme situation, advice on the consequences of any significant failure in the NMO's delivery of its functions, with Parliamentary involvement as required by the relevant legislation.

Compliance

• Ensure an appropriate Framework Document is agreed for the NMO, that this is reviewed regularly and that the relationship between SG and the NMO complies with the Framework Document.
• Advice to Ministers on the consequences of any significant failure in the NMO's governance, with Parliamentary involvement as required by the relevant legislation.

Type of Body: Agency

Primary accountability of body to: Scottish Ministers

Portfolio Accountable Officer Role

Performance

• Advice to Ministers on objectives, targets and performance measures and budget requirements for the agency to deliver on these.
• Monitoring of performance on the agency's operations.
• Where an agency has a policy function, ensure that policy advice meets the same standards of quality and collaboration with other bodies and/or SG teams as it would if the policy were developed by a team in core SG.
• Advice to Ministers on the consequences of any significant failure in the agency's delivery of its functions. (The agency would usually provide performance information to the Minister directly).

Compliance

• Ensure an appropriate Framework Document is agreed for the agency, that this is reviewed regularly and that the relationship between SG and the agency complies with the Framework Document.
• Ensure that the financial and other management controls applied to the agency are appropriate and that the agency itself has controls which meet statutory requirements and guidance, including propriety and good financial management.
• Advice to Ministers on the consequences of any significant failure in the agency's governance.

Type of Body: NDPB

Primary accountability of body to: Scottish Ministers

Portfolio Accountable Officer Role

Performance

• Advice to Ministers on objectives, targets and performance measures and budget requirements for the NDPB to deliver on these
• Monitoring of performance.
• Advice to Ministers on the performance of the NDPB and, in the extreme situation, advice on the consequences of any significant failure in the NDPB's delivery of its functions.

Compliance

• Ensure an appropriate Framework Document is agreed for the NDPB that this is reviewed regularly and that the relationship between SG and the NDPB complies with the Framework Document.
• Ensure that the financial and other management controls applied to the NDPB are appropriate and that the NDPB itself has controls which meet statutory requirements and guidance, including propriety and good financial management
• Advice to Ministers on the consequences of any significant failure in the NDPB's governance.

4.9 Interviews demonstrated that these roles are not always fully understood and that the way that SG works with bodies in practice does not always follow the lines of accountability mapped out above. One aspect that came up frequently at interview is that in many situations, SG manages communications with public body Boards via the Chief Executive and senior management team, and that there can be difficulties if the Board and SG do not have a shared understanding of priorities. Interviewees generally spoke of regular contact between Chief Executives and SG sponsors but there is widely varying practice in how SG manages its relationship with Boards. Most interviewees reported regular meetings between the public body Chair and a senior sponsor, although there appeared to be variations in how far the Chairs then shared the content of those discussions with other Board members. Other practices that were mentioned included: regular meetings between the Minister and the Chair (with or without the Chief Executive); occasional Ministerial or senior sponsor attendance at Board meetings; members of the sponsor team attending Board meetings routinely as observers; or some combination of these. Interviewees also reported variations in practice in the way in which Chairs are appraised, sometimes by a senior sponsor and sometimes by a Minister. If the Chair and other Board members are to address the 'controllability' dimension of accountability, they need a very clear understanding of the Minister's expectations and of how the public body's performance on these will be judged. Several public body interviewees emphasised the importance to them of having sufficient direct contact with the Minister to establish a good working relationship. As part of their overall responsibility for establishing the Framework Document, keeping it under review and ensuring that it is complied with, Portfolio Accountable Officers have a key role in ensuring that public bodies have appropriate Ministerial contact.

4.10 Koppell (2005) introduces the concept of 'Multiple Accountabilities Disorder', which can arise where the different dimensions of accountability 'present conflicting imperatives'. Several Chief Executives interviewed described the large amount of work they do to try to build a shared view of priorities amongst their Board, SG officials and other public bodies with related responsibilities. One Chief Executive mentioned the 'constant need to nudge' to manage relationships. The ability to keep the different aspects of accountability in view and to find ways to address them all is a key skill set for a successful Chief Executive, but organisations will achieve the best results when not being pulled in very different directions by the various accountabilities. SG can get the very best performance by ensuring that the role which Ministers have appointed the Board, Statutory Office Holder or Agency Chief Executive to carry out is as clear as possible.

4.11 Every public body should have a framework document which should set out clearly the roles and responsibilities in overall governance in the public body itself and SG sponsorship. SG sponsors, on behalf of the Portfolio Accountable Officer, must ensure that an appropriate framework document is in place and that it is followed. Interviewees were divided about the value of the current approach to framework documents: some interviewees were actively using them as a reference, while others would have preferred the roles and responsibilities to be set out differently. One interviewee suggested that text describing 'what you can expect from us' and 'what we expect from you' covering each of the key people or teams and the Board would be a more helpful way of thinking about roles and responsibilities. There are already model templates for framework documents for different types of body, and the appropriate template is an important starting point for all sponsors so that they can have confidence that the framework document covers all of the necessary points. Since there was no consensus in favour of a different style of framework document, there does not seem to be an imperative to update the templates at this stage. What is important is that officials in SG and each public body have a shared understanding roles and responsibilities. The drafting of the first framework document for a new public body and the revision of the framework document for an existing body should always be done collaboratively between SG and the public body, and that should help ensure that a good, shared understanding. There would, however, typically be three years or perhaps more between revisions of a framework document and in that time there can be significant changes of personnel in SG or in the public body, or both. Some interviewees described workshops or other discussion with their sponsors after personnel changes or in other situations where it was thought necessary to establish a new, common understanding of roles and responsibilities and reported that these were effective.

Recommendation 1: Portfolio Accountable Officers should ensure that sponsor teams work with public bodies and the public body Accountable Officers to make roles and responsibilities as clear as possible, discussing the wording in the framework document to ensure a shared understanding.

4.12 There is a cost both in setting up a public body initially and in its ongoing operation. A public body will have to comply with a range of legislation, publish plans, establish policies, prepare accounts and support a Board, and much of this activity which would be removed or much reduced if the body operated as a team within Scottish Government. There is also the overhead cost to SG of sponsorship or equivalent activity. There are, of course, also significant potential benefits from creating a public body, which include building up specialist expertise, a sharper focus on service delivery, a stronger relationship with service users and stakeholders and, in some cases, an important separation between Ministers and operational decisions. The business case for a new body needs to take account of these costs and benefits.

4.13 Establishing the right accountability for a public body and establishing effective relationships from the start will avoid problems later. Some interviewees reported that evaluation of options for establishment of new public bodies could be improved, particularly on analysis of costs and benefits of different governance options. Ensuring that the options appraisal carried out before setting up a body is kept for the corporate record, and particularly that it is available to all sponsor teams and senior sponsors who may work with the body in future, would be helpful in ensuring that there is a clear understanding of the reasons behind decisions about the body's governance. Public Bodies Unit should always be consulted on analysis of options and advice to Ministers on the creation of a new public body, and Portfolio Accountable Officers should pay particular attention to ensuring that overall sponsorship arrangements and the relationship with the body are clear from the very start.

4.14 Interviews highlighted that the costs to both SG and the body are proportionately higher for small bodies, and small bodies can face particular challenges of resilience given dependence often on only one or two key staff for essential functions. Costs can be reduced and resilience increased through shared services, and a number of interviewees commented that there was still a lot of scope to realise savings through developing extended shared service arrangements, but these are outside the scope of this review. It is particularly important that options including operating a function from SG itself or creating an agency with full shared services are considered carefully before reaching a decision to create a small NMO or NDPB. There should be a strong presumption against creation of small public bodies, given the proportionately high overheads. If the creation of a small public body is considered essential and in line with Best Value, the Portfolio Accountable Officer should ensure that arrangements are made for the body to access corporate functions, including finance systems, IT, HR and legal advice, through shared services or collaborative contracts. Such an arrangement will not guarantee the resilience of a small body, but it reduces the likely number of single points of failure.

4.15 There are important central teams which should be consulted on the business case for the establishment of any new public body to ensure that key issues are covered including: finance, legal, procurement, classification, pay and pensions, HR and subsidy control. The Public Bodies Unit should be consulted in all cases and can advise on other contacts.

Recommendation 2: Portfolio Accountable Officers should ensure that a full business case and evaluation of different governance options is carried out, drawing on advice from Public Bodies Unit and other central teams including Finance and SG Legal Directorate, before any new public body is created, that advice reflects a presumption against the creation of further small public bodies, and that all of the analysis and eventual decision are retained to inform future sponsorship of the body.

Recommendation 3: If there is a decision that the creation of a small public body is essential, the relevant Portfolio Accountable Officer should ensure that arrangements are made for the body to access corporate functions through shared services or collaborative contracts, to increase the resilience of the body.

4.16 It is always possible to review governance arrangements for existing bodies, of course, and in particular to review whether the function is still best carried out by a public body and, if so, which of the public body governance models (NDPB, NMO, agency) is most appropriate. A review makes most sense when there has been a significant change in the role of the body or overall policy in its area of responsibility, or when there are indications that the body is not meeting expectations on one or more of the aspects of accountability discussed above. Where a review is being considered, advice should be taken from the Public Bodies Unit and it may also be helpful to seek advisory support from Internal Audit.

4.17 The role of NDPB and NMO Boards (where the Board of the NMO has the statutory responsibility) is clearly key. There were no interviews with Chairs or Board members as part of this review. The recommendations made are based entirely on the current role and accountability of Boards and recognize that much of the day-to-day management of the working relationship between SG and its public bodies will fall to officials on both sides. However, a really important next step in improving SG's overall relationships with public bodies would be to seek views from Chairs and Board members on any changes they would want to see in how SG manages its relationship with the Board itself.

Recommendation 4: Public Bodies Unit should coordinate work with senior sponsors and sponsor teams to seek views from Chairs and Board members on how SG manages its relationship with the Board.