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Audit committees can contribute to the smooth running of local authorities, yet are still viewed with scepticism in some quarters, as Richard Harbord explains.

Over the last few years most public sector organisations have set up audit committees. Generally these are thought to be an essential aid to a corporate overview of the control environment.

In 1996 the Audit Commission published Called to Account which discussed the need for audit committees in local authorities. In particular it saw the need for one committee to deal with the following issues in a way which ensured they were not seen as peripheral to main business:

• internal control and audit performance, which are key corporate governance components
• the integration of internal and external audit and the follow up of the implementation of audit recommendations
• raising the profile of internal control and the management of audit resources in the organisation.

Historically, adoption of audit committees in local government has not been universal, because of their unique constitutional, legal and operating environment.

Political Factors
One of the major difficulties cited for audit committees is the highly political nature of local authorities and this certainly needs to be dealt with if the committee is to add value to the running of a local authority. Most councils agree that the audit committee must act apolitically if it is to be successful. Where audit committees are in place the main business transacted by them is:

• promoting internal control – the systematic appraisal of the controls which help the authority protect its assets and resources. The audit committee can ensure these can be monitored as part of a regular process. This should extend the commitment to an anti-fraud culture in the authority. Thus reports of special investigations, reports of the extent of fraud etc should all be taken here. Within this head is also the regular review of financial procedures
• focusing audit resources – the approval of audit plans, monitoring the quality of audit delivery and performance, ensuring excellent collaboration between the auditor and officers, approving the final accounts, responding to audit recommendations and monitoring the progress on implementation of these recommendations.

The presence of an audit committee allows a corporate response to these issues which would not be available from a more general committee.

If an audit committee is perceived by the Audit Commission as delivering all these objectives why does every local authority not already have one? Objections to their creation include:

• the politics of local government and the feeling that much of what goes to an audit committee could be used politically. Practically, this needs careful resolution on an individual basis
• that somehow these committees are a private sector development, that are not appropriate for local government. This is difficult to argue because the principles behind an audit committee are valid in all organisations
• that the public accounts model – where an opposition councillor could chair the committee – cannot always work in local government. It is true that in authorities with small or divided oppositions, or where the Council is hung, this model may be inappropriate, but the Audit Commission’s research showed that the most important thing was that the Chair was well respected and enjoyed broad support
• that corporate governance is strong in local government. This is very true but an audit committee could improve this further
• that local government is already too bureaucratic. This committee can be very focused and can overall add value to the authority.

Local authorities may employ different methods to consider all key issues, but they need to be certain that they are totally effective – and an audit committee is often the best method of all.

Richard Harbord - Independent Consultant to Local Authorities

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