Arms-length organisations can bring benefits but need “careful consideration” – Accounts Commission

Arms-length external organisations (ALEOs) can bring benefits to Scotland’s communities but councils must use them with “careful consideration”, according to the Accounts Commission.

ALEOs can take many forms, such as companies, community organisations or charities and most run sports and leisure centres or cultural services like museums and theatres.

Others provide social care services, property management and commercial activities.

A report published by the local authority spending watchdog looks at how councils are using the estimated 130 ALEOs in Scotland, which have an annual spend of more than £1.3bn.

Graham Sharp, chair of the Accounts Commission, said:  "ALEOs can and do provide significant benefits. But they are not without risk and changes in tax relief may make the creation of an ALEO a less attractive option for the future.

"This is highly complex area. Councils need to give it careful consideration to ensure they make the right decisions for their own communities."

In the past councils have faced criticism for failing to hold their ALEOs properly to account.

The commission found that councils have strengthened their oversight of ALEOs and are showing improving practice in evaluating them as an option.

However, local authorities could do more to involve the public and wider stakeholders in that process.

The report also highlights issues surrounding councils' use of ALEOs.

It stresses the need to continue to follow the principles of the code agreed by the Accounts Commission and the Convention of Scottish Local Authorities (COSLA).

The commission has since published updated guidance on governance, accountability and potential conflicts of interest.

Around half of ALEOs are registered charities and this allows them relief from non-domestic rates, however, the Scottish Government has indicated this will not be available to new ALEOs.

The commission said councils see ALEOs as a half-way house between providing services themselves and contracting out entirely to the private sector.

They can operate flexibly to improve services for local people and bring in more income and benefit from tax breaks while allowing councils to retain some control and influence.