89 The growth in partnership working means that organisations face increased financial, legal and reputational risks if problems arise. A few cases have resulted in a significant loss of public funds when things have gone wrong in partnerships.
90 Risk management is the least developed of the three critical systems and processes within corporate bodies and therefore within partnerships. Risk management is inherently tied to decision-making processes; these are less clear in partnerships than in corporate bodies, so this creates a 'double bind' for partnerships seeking to assess risks.
'If the partnership is large enough and therefore is making decisions collectively, rather than individual decisions as separate organisations, those collective decisions are potentially leaving yourself open to future risks, claims, liabilities. You may need to determine whether that partnership needs to be formalised as a legal entity in itself.'
Head of cabinet, district council
'I think where the partnership is a service delivery partnership with a formal and structured agreement to pool resources and staff etc, then there will be a very robust risk assessment done as we enter into the partnership. Where the partnerships are more about bringing existing service providers together . . . then I don't think that we have got a robust risk assessment process in place yet.'
Head of corporate performance, metropolitan borough council
91 We have identified the following weaknesses in the way that public bodies address the risks involved in working in partnerships:
• Failure to understand the extent of their involvement in partnerships, or its implications, including their financial and legal liabilities. Partnerships can operate in isolation, duplicating effort and activity. Partners may not be adhering to the standards and protocols expected of them in the corporate sphere.
• Absent or insufficient corporate criteria to enable public bodies to assess whether to form a partnership or participate in one, what the appropriate level of involvement should be and what resources to invest. They may lack formal procedures for assessing the suitability of partners, the legality of the proposed partnership arrangements and standards of financial regularity or conduct.
• Insufficient thought given to planning an exit strategy. Partners should clarify the management of any continuing financial liability, the ownership of assets and arrangements for disposal in order to avoid the risk of future legal disputes, or of the accountable body (often a council) becoming liable by default.
• Lack of clarity on insurable risk, such as indemnity cover for partner members or public liability.
• Lack of formal systems for recording conflicts of interests or for assessing the risks of funding proposals.
92 In one shared-service delivery partnership, a community NHS trust managed a shared- services operation, providing financial services for its own purposes and to its NHS partners. One audit report found that:
'…There has been a failure in the arrangements for administering the financial affairs of the partner organisations due to a collapse in the controls that should have been in place over the core financial systems provided by X. This has resulted in:
• a breakdown in financial control;
• an increased risk of undetected fraud, corruption and error;
• inadequate financial reporting; and
• the risk of inaccurate financial data, which cannot be relied upon for preparing the annual accounts.'
93 All public sector organisations must now have a Statement on Internal Control. This document requires them to describe how their systems of internal control manage the main risks to achieving their objectives. Although partnerships do not have to be explicitly mentioned, their activities should be considered and any internal control issues highlighted if they fall into one or more of the following categories:
• the issue has seriously prejudiced or prevented achievement of a principal objective;
• the issue has resulted in a need to seek additional funding to allow it to be resolved or has resulted in significant diversion of resources from another aspect of the business;
• the issue has led to a material impact on the accounts;
• the audit committee, or equivalent, has advised that it should be considered significant for this purpose;
• the head of internal audit has reported on it as significant, for this purpose, in the annual opinion on the internal control environment;
• the issue, or its impact, has attracted significant public interest or has seriously damaged the reputation of the organisation; or
• the issue has resulted in formal action being taken by the chief financial officer and/or the monitoring officer.
Source: The Statement on Internal Control in Local Government: Meeting the Requirements of the Accounts and Audit Regulations 2003