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Local Authority Internal Audit Virtual Forum

23 March 2022

Please note:

  • All Institute responses are boxed and highlighted blue
  • Where the chair comments in that capacity this box is highlighted in yellow
  • For confidentiality, the identities of all delegates/attendees are anonymised

Institute's welcome

Thank you for joining us for this session. The topic for today is cultivating a healthy culture. We published our thought leadership report, Cultivating a healthy culture: Why internal audit and boards must take corporate culture more seriously in a post-COVID world, which you can access here.

Organisational culture and the risks arising from an unhealthy or weak culture are once again rising up the corporate agenda. This is in part being driven by changes and operational disruption brought about by the coronavirus pandemic. With large swathes of the workforce being forced to work remotely for much of the last two years, and the move towards “hybrid” working in the longer term, many organisations are grappling with the challenge of how to embed and maintain their organisational culture going forwards.

A healthy corporate culture differentiates an organisation and impacts customers, financial performance, growth, reputation, recruitment, and retention. An unhealthy or sub-optimal culture impacts all these categories. At its worst it is a critical risk to the attainment of the organisation’s aims and objectives and the sustainability of the organisation in the longer term. These facts have been widely recognised in the internal audit profession for over a decade now and are repeatedly highlighted by a wide range of events we see in the media, regulators’ commentary, and the analysis of the root cause of company collapses. Given this background, the need for internal audit engagement is clear. Culture is a risk and is fundamental to the success of every organisation.

In addition to our guest speaker, we are also joined from the Institute by:

  • Liz Sandwith, Chief Professional Practices Advisor
  • Derek Jamieson, Director of Regions
  • Piyush Fatania, Head of Audit, Risk, Assurance and Insurance Services, Gloucestershire County Council, and a member of the Institute’s Council and our Chair for today.

Chair's opening comments

Today, we’re going to be talking about something that cannot be touched but which does exist and is tangible but is difficult to turnaround - and that is culture. Culture has been called the ‘backbone’ of any successful organisation and this holds true for local government. Successful, high performing councils have a good culture and equally, unsuccessful councils have a poor culture. You only have to look at examples from Northamptonshire, or Slough, which was recently described by the government as having a dysfunctional culture. Even more recently, just this week, at Sandwell Council, the External Auditor noted the deteriorating officer and senior membership relationship – an ‘us and them’ culture.

So, what then, will culture look like as local government moves forward in a post-COVID world? What should our culture look like and how should it feel and operate especially with the move to hybrid/remote working? This presents a window of opportunity for local government to reflect on their culture and should include looking at rebuilding and redefining what a healthy and vibrant culture should look like when officers are working in a disparate manner and won’t all be working in the office at the same time

At the same time, organisations are coming under increased pressure from wider society to ensure that their corporate culture embraces and supports greater levels of equality, diversity, and inclusion (EDI). This has been driven by activists and groups such as the #MeToo and #BlackLivesMatter movements, as well as events, for example at Yorkshire County Cricket Club, which have all played out with great media attention. This has highlighted the risks associated with having an unhealthy workplace culture.

Councils and internal audit should seize the initiative now before there is a major corporate failure.

Our speaker today is Dermot Byrne. Dermot is Head of Audit in the two central finance ministries in Ireland, the Department of Public Expenditure and Reform and the Department of Finance. His role includes heading up the Audit Authority for EU Fund Programmes in Ireland.

Key takeaways

Slides from the session are attached here

The Department of Public Expenditure and Reform (DPER), Ireland was created in 2011 to monitor fiscal performance following the banking crisis. One of DPER’s strategic directives was to drive reform and innovation across the Civil and Public Service to improve delivery to the public and to enhance strategic policy making and public governance structures.

As part of the reform agenda, the third pillar – developing our people and organisations - which comprised of seven actions, included three important elements pertaining to culture:

  • Promote equality, diversity and inclusion
  • Increase employee engagement, and
  • Review public service culture and values

We suggested an audit of culture in December 2019, and it was taken up straightaway, as it aligned with the reform agenda and was fitting to take this up. This was proactive, as other organisations had undertaken reviews of culture as an emergency or as a result of negative press received.

The review was set up as joint project between HR and Internal Audit and a steering group was set up to oversee the project, which importantly contained two members who had experience of culture reviews in other organisations. 

We considered both the ‘as-is’ culture and the desired culture as part of the project.

In order to maintain a level of independence to the project, we sourced a consultant to support with the work, which we felt was particularly important. The consultants carried out the survey and interview work. We would survey the 450+ team a bit deeper but also the departments (particularly those who were ‘disappointed by DPER reactions to over- ambitious spending plans, for example).

Interestingly, the interviews/responses were balanced and helpful.

After the surveys, we held working groups to try and identify critical behaviours to the organisation. 

We considered both the ‘as-is’ culture and the desired culture as part of the project, creating an implementation plan to get to where we wanted to be.

COVID-19 naturally caused the project to pause from March 2020 following the completion of the ‘as-is’ work. When we restarted the project in January 2021, we re-surveyed the staff and asked them if the pandemic had changed their views. Responses were positive and negative but these balanced out and didn’t change significantly as a result of COVID-19. 

We identified six cultural traits from the ‘as-is’ review as documented in the slides. We then set up a Culture Working Group which included a cross section of colleagues from different divisions, roles and grades.

The Management Board attended these workshops and four behaviours to focus on were identified, tested and validated. Those four ‘critical few’ behaviours are what we are now focussing on embedding. These will help improve the culture of the organisation. We sought to align the review actions to be implemented with these four behaviours. 

We came up with what we wanted to achieve under each behaviour.

The key structure that we followed included the Management Board interacting with the Culture Working Group before the report was published. All staff were involved. We have sought to integrate the findings from the review into our strategic and business planning processes.

What are the next steps for us? A big challenge will be to sustain momentum and become the culture. It is important to weave the outcomes from the review into the fabric of the organisation. Taking the critical behaviours, we have identified eight actions to advance these, as documented on the penultimate slide. Those marked with ticks are completed, with the remaining four ongoing.

Chair's closing comments

Thank you, Dermot. Councils do have a sense of community and pride ourselves on being different to other areas and it is the diversity of our residents which makes us different and has a knock-on effect to our future employees. It is important for councils to really understand issues around culture. For internal auditors, we need to help and assess improvements in cultural behaviours. It is really good to have those lessons from your presentation today and knowing that you can already feel the difference as a result of the work completed, reinforces how worthwhile it is to undertake culture audits.  

Institute's closing comments

Thank you both. You will see from our cultivating a healthy culture report that Dermot is one of the case studies so you can find out more about the approach from the case study.

Our next LA forum on 20th April will explore how data analytics is not negotiable.

Thank you for attending. As always, if you have any ideas or suggestions for what we might include in future agendas, please contact Liz Sandwith

Q&A and chatbox comments

Q: Are there any examples where individual behaviours were not as the corporate body wanted? How were those identified and what do you do to address those sorts of behaviours?

A: It is an interesting question. The consultants had the idea of identifying those informal leaders; those who are persuasive. We found cynical civil servants who had long service/maybe come from other departments so we were very careful about informal leaders. We had good feedback and support from the Management Board, some of whom were quite senior, they were happy to be involved in a very novel exercise. This was an expensive project which required commitment. The fact that DPER said yes to the review was representative of a healthy culture as it was always going to be a potential risk given that all of our reports could be subject to an FOI (Freedom of Information) request, therefore negative comments may end up in the public arena.

Q: One of the items being regularly discussed at the moment is the board hearing the voice of the workforce. Is this something you came across during your audit? Is there a mechanism for hearing the voice of the workforce?

A: It was brought up, in fact the All Voices Heard critical behaviour really brought that out. We have a number of forums within the organisation, eg a middle management forum, a principal officer forum who felt although they met a lot, their views were not taken in a formal way and others who felt the same. The department is actively trying to devise ways to formalise these in some way, potentially through presentations to the Management Board or a seat on that Board. The Department is encouraging voices at all levels to be heard.

Q: We talk a lot about skills and knowledge required for undertaking certain audits. Did you have challenge in having the skills and knowledge in your team when completing this work?

A: Yes, I did is the short answer, which is why we needed to bring in the expertise. It really was a joint project with HR, who have the mechanisms and knowledge to pull everything together.  For example, the focus groups which were a key part of the review. I’m a public servant of almost 40 years which was why I couldn’t necessarily make the judgement on something being good or bad. We knew we needed to bring in external consultants, who gave us an idea as to how they would approach the work and identify the critical few behaviours, we needed that focus and the consultants gave us this expertise. They have stayed on for the implementation phase, which was actually the really difficult bit, as the danger was that we would lose the initiative.

Q: One of my partner councils had an LGA peer review and I mentioned that culture is tangible. You can tell the differences between the different places and how it feels. I could tell what a positive culture was. You mentioned a future audit or review, are there tangible differences you can see now compared to where you were?

A: I can certainly see the difference with the other Department I am HIA for. Going back 15 years, culture wasn’t really discussed. However, looking at the two now, I can see tangible differences. It is quite nuanced, for example, I approached them to do a similar review in the other department, it was a ‘no’ back in 2019 and in 2021, I was told maybe next year, as COVID had upset things, which gives me little clues about the culture.

Q: Will HR take responsibility for monitoring the culture in the future? It seems logical that the first line takes responsibility.

A: Very much so. In fact the Audit Committee Chair has wanted to understand why we’ve still been involved in the implementation. Once the eight actions I mentioned at the end of the presentation are pulled together, we will take a backwards step and HR will take over. We may take on a review in the future or a more detailed look at a specific topic, e.g. EDI in the future.