A new report from the National Audit Office is warning that the current requirements for oversight and assurance of Internal Drainage Boards are not sufficient to ensure they are able to meet the expectations associated with public expenditure, leaving them vulnerable to potential conflicts of interest.

The issue is among of potential concerns flagged up by the National Audit Office NAO  in the report, which has been produced in response to concerns over Internal Drainage Board governance.

The Internal Drainage Boards (IDBs) are local independent public bodies responsible for managing water levels in low-lying areas where there is a special drainage need and contributing to flood risk management and the protection and enhancement of biodiversity in urban and rural areas.

The NAO report addresses concerns about IDBs’ activities and practices that were brought to its attention which were focused on three issues:

• governance and oversight arrangements for IDBs;
• processes for raising concerns about IDBs; and
• the potential for conflicts of interest.

Introducing its report, the NAO said it had explored the concerns with the Department for Environment, Food & Rural Affairs (Defra), the Environment Agency and the Association of Drainage Authorities, a sector-based membership organisation.

The 112 IDBs in England cover 1.2 million hectares (9.7% of the total land area of the country), where they seek to reduce the risk of flood to homes, industries of national importance and much of the UK’s critical infrastructure. However, the IDBs are independent public bodies and, under the relevant legislation, no government department has a direct oversight role in their day-to-day activities or operations.

It is not within the NAO’s remit to investigate the affairs of an individual local body – it has therefore reviewed concerns at a sector level and focused primarily on Defra's role.

The IDBs raise their funding mainly through drainage rates paid directly by farmers and landowners and through special levies on district councils and unitary authorities. During 2015-16 IDBs’ budgets ranged from as little as £7,000 to £3.7 million - together, they spent more than £61 million in 2015-16.

There is no statutory governance standard for IDBs and the government has no legislative powers to ensure that IDBs, as public bodies, meet expectations for good-quality internal governance and sound financial management.

Similarly, although IDBs have to comply with relevant local authorities’ Local Flood Risk Management Strategies and local authorities may review and scrutinise the exercise of IDBs’ risk management functions, local authorities have no legal powers to directly influence IDBs’ governance and administration.

Limited oversight of IDBs' operations

With the support of Defra, the Association of Drainage Authorities (ADA), a sector-based membership organisation, has developed non-statutory governance standards.

According to the NAO report, there is currently limited oversight of IDBs’ operations. IDBs’ annual reporting requirements consist of summary financial statements and compliance declarations which are reported via a standard form to Defra. Defra then reviews the information provided, identifies any issues arising and shares them with ADA.

ADA may carry out its own analysis of the returns and determine any actions it may feel are required. Where an IDB does not declare compliance in its report to Defra, or is given a qualified opinion by its external auditor, the Department initiates a follow-up investigation, working with ADA and the Environment Agency to encourage and support IDBs to address issues.

However, the information is not routinely subject to detailed analysis and is not used to engage with IDBs or to trigger activity by Defra itself. It is likewise not subject to any standard checks or verification for consistency with other information that is held on IDBs.

The Department does not use the data in the statements and declarations to identify areas where IDBs need support or guidance.

Although there is no memorandum of understanding or documented agreement, the NAO says Defra and ADA have developed a good working relationship. However, Defra cannot compel ADA to take action against any IDB and ADA, as an advisory body, does not have authority or powers to compel an IDB to implement good practice.

Skills in environment expertise lacking in IDBs

The report says most IDBs do not have board members with appropriate environmental expertise, instead accessing the skills they need through consultants. Almost three-quarters of IDBs report that they have no board members with appropriate environmental expertise, while 81% report having no directly employed staff with environmental expertise.

“More widely, it is a challenge for IDBs to find willing individuals with appropriate knowledge and experience of key matters such as public finance, environmental regimes or legislative controls. It is not always possible for IDBs to identify these skills gaps and fill them… “, the report says.

ADA has acknowledged the need for IDBs to have access to the right specialist expertise on environmental as well as other relevant local issues and has produced a best practice guide on accessing environmental skills.

IDBs vulnerable to potential conflicts of interest

The NAO is warning that the current  requirements for oversight and assurance of IDBs are not sufficient to ensure that IDBs are able to meet the expectations associated with public expenditure and leaves them vulnerable to potential conflicts of interest.

THE NAO says potential conflicts of interest may arise, for example, if a board’s elected members pursue their own local interests or if appointed managing agents are part of a wider group of companies that can bid for contracts specified by the agent.

ADA has encouraged IDBs to adopt a register of interest, and all but one IDB reports having now done so. However, the report says that because IDBs rely so much on bought-in expertise, there is a risk that they will not get the best advice to achieve value for money. IDBs can seek advice or guidance from ADA, but this is at their discretion.

Neither Defra nor the Environment Agency has a statutory role in addressing these possible conflicts of interest, but both support the work that ADA has done to draw attention to the potential for such conflicts to arise. The report concludes that increasing use of public sector cooperation agreements between IDBs, the Environment Agency and local authorities is helping to improve transparency and should allow IDBs to get better assurance of value for money.

Click here to download the NAO Report in full