New arrangements for local authority audits must uphold auditor independence say MPs

8 Jul 2011 02:55 PM

Local authority control of audit and performance provides opportunities to improve value for money and to focus more closely on local priorities. However, there are significant risks to accountability for public money unless new legal and practical arrangements are put in place to uphold the vital principle of auditor independence, warn MPs.

Launching a report examining the future shape of local authority audit and inspection, Clive Betts, chair of the Communities and Local Government Committee, said, 

"The Government is proposing a departure from the established practice that public bodies should not appoint their own auditors. It therefore bears a great responsibility to create adequate legal safeguards and to help local government establish capable and independent local audit committees.

Ministers and the NAO must move rapidly to establish a new audit framework for local government in the future that is effective, efficient and robust.

Once such new arrangements are in place, the Government should also instigate a wide-ranging review of public sector audit.

The government must help the Audit Commission's own audit practice to realise a smooth transition to becoming a stand-alone body that retains its skilled staff and remains a major player driving best practice in the public audit sector. 

In a crowded market already dominated by too few players, we favour the establishment of a stand-alone company, preferably a mutual, and firmly oppose one of the "Big Four" commercial audit firms taking over the Audit Commission’s audit practice."

The Government has already stated it plans to introduce a public audit bill in the autumn. The committee argues this legislation must set out a number of key principles to govern public audit arrangements in the future:

Inspection

The Committee acknowledges that with costs now exceeding benefits the end of Comprehensive Area Assessment with "command and control" targets and inspection has been widely welcomed,. It calls on local authorities to focus on local priorities. 

"The over-burdensome inspection regime clearly made the Audit Commission very unpopular with local government,"

 Adds Clive Betts,

"but it did provide the public with a means to compare and assess the relative performance of their own council.

Under the new regime we believe councils should focus on comprehensive local reporting against local objectives. However, the need or a broader perspective will remain so we also recommend that the need for comparative performance data be reviewed two years from now, once the new arrangements have bedded in."

The committee also welcomes the LGA's proposals for sector-led performance management, but calls on the Government to clarify arrangements for intervention in the exceptional cases of serious corporate or service failure.  It also repeats the call made in its Localism report, published last month, for the Government to examine the contribution which robust local government scrutiny arrangements could make to improving local government performance.

• Report: Localism

Background

Until now the Audit Commission has been the regulator, commissioner and major provider of local government audit services (undertaking 70% of the local government audit and commissioning the remaining 30% under contract from five private audit firms). Under the changes proposed, local government will in future appoint their own auditors, via independent audit committees, and some Audit Commission functions – not least the responsibility for drawing up the scope of audit (the Code of Audit Practice) and national value-for-money studies – will pass to the National Audit Office.