What is an ALEO – and does it matter?

In June, Douglas Sinclair, Chair of the Accounts Commission, and I were asked to present at Holyrood Events’ Making the most of arms-length external organisations.

Arms-length bodies feature across the public sector. We’ve heard about non-departmental public bodies, executive agencies and so on. They provide public services but are somehow one step removed, or arms-length, from government – a bit like Audit Scotland!

ALEOs can be thought of as councils’ version of these bodies. As Douglas outlined, there has been steady growth in their use. First seen as sports trusts in the 1980s, ALEOs are now widely used for property, transport, economic development, and more recently, care services. You may be surprised to know there are around 130 ALEOs in Scotland, with a turnover of £1.3 billion, employing over 28,000 people.

It’s fair to say that the public can be wary of such bodies. The term ‘quango’ is often used in a less than complimentary way – not to mention ‘bonfire’. So what is an ALEO? There is no legal definition. They are separate from the council but subject to its control or influence. They take many forms including companies, charities, and community enterprises.

And why do councils use them? A common reason is to save money. About one-third of ALEOs have charitable status and this attracts business rates relief. They can generate income through selling services more widely, and it is argued their independence helps them really focus on the business at hand and be more responsive to customers.

I mentioned accountability as a concern. This is a factor councils should consider carefully. When used well, ALEOs can help to put the spotlight on the service – with the ALEO board, council committee, and importantly, service users, providing oversight. But there have been cases where ALEOs have gone wrong, putting services and public money at risk, for example Caithness Heat and Power being a past example the Accounts Commission has reported on.

Councils must of course put safeguards in place. The Accounts Commission and COSLA’s Following the Public Pound Code expects councils to spend public money wisely and be clear what is delivered in return. The Code applies regardless of how our money is spent – be it through partnerships, contracts or outside bodies such as ALEOs. And we have an important role to assure the public that councils follow the Code’s broad principles. So perhaps the exact definition of an ALEO is not so important after all.

The Accounts Commission has a strong and continuing interest in ALEOs. It plans to build on the work it has already done through the Following the Public Pound Code and its How Councils Work series of reports. From October, annual audit work in councils will become more integrated with the audit of Best Value, including a focus on councils’ compliance to the Code and their use of ALEOs.

Peter-Worsdale_CROPPEDAbout the author

Peter Worsdale is an Audit Manager within Audit Scotland’s Performance Audit & Best Value (PABV) group. He joined the organisation in 2004.