ACCA - The global body for professional accountants
a key question that the Government needs to address is whether it is satisfied that its proposals for local government audits won’t place significant amounts of public money at risk or would not fail to provide assurance about value for money. Right now, we’re not convinced the Department of Communities and Local Government [DCLG] could give a justifiably positive answer
—John Davies, head of technical, ACCA

ACCA is not satisfied that all of the checks and balances required for strong public audit are being fully addressed by DCLG; A vibrant audit market is needed to deliver both choice and competition; Public audit needs to be consistent across all public bodies, easily understood by the public and fit for the future

Commenting on the Communities & Local Government Select Committee's report on the Future of Local Government Audit, John Davies, head of technical at ACCA (the Association of Chartered Certified Accountants), said:

'We support the recommendation for a fundamental review of audit covering all public services in the longer-term. Such a review is long overdue. What is important now is that the Government actually acts on these recommendations; the chances of a vibrant audit market that delivers choice and healthy competition would be hindered without government action. Also, a number of remaining fundamental design principles for the audit of local authorities need to be addressed, while serious attention should be paid to how these recommendations would be implemented.

'In our view, a key question that the Government needs to address is whether it is satisfied that its proposals for local government audits won’t place significant amounts of public money at risk or would not fail to provide assurance about value for money. Right now, we’re not convinced the Department of Communities and Local Government [DCLG] could give a justifiably positive answer.'

The Committee’s report raises a number of serious concerns that ACCA shares, particularly concerning how the decision to abolish the Audit Commission was made. 

John Davies explains: 'The Audit Commission decision has implications for the approach to evidence-based policy-making across government. There is little excuse for policy that is made on the hoof, unsupported by robust financial and qualitative information and a rigorous cost benefit analysis. It was disappointing to read that the Minister could not provide any evidence to support the predicted £50m of savings that were announced by the Government eleven months ago in August 2010.'

John Davies adds: 'ACCA agrees with the Committee’s key recommendation that the Government undertake a more considered review of public audit in the long-term. In ACCA’s view, a 'big picture' review will help to build a framework for public audit which is consistent across all public bodies, easily understood by the public and fit for the future.'

A better designed framework is needed

ACCA is disappointed to see so many missed opportunities to potentially build a better designed audit framework, such as the lack of consideration of the establishment of a residual Audit Commission. 

ACCA shares the report’s concern about on-going uncertainty regarding the future of the Commission that may jeopardise the chances of a smooth transition, noting that the report highlights an opportunity for the Government to establish the Commission’s Audit Practice as a significant player in the local government audit market. ACCA supports the option for a stand-alone company as this would be the best possible outcome for increasing competition and choice in the market place. 

In ACCA’s view the Committee’s report describes a local government audit framework that is developing in a piecemeal fashion and will require rigorous attention to detail to avoid gaps in accountability, fragmentation and increased costs to the tax payer.  

Gillian Fawcett, head of public sector at ACCA, who also advised the Committee during its inquiry, concludes ACCA’s comments on the report by saying: 'Above all, ACCA wants to see a proportionate and risk-based approach to public audit, which delivers accountability and promotes public trust. Both the Select Committee’s report and the DCLG’s own consultation highlight shortcomings in existing proposals. We are at risk of losing an approach that uses the skills and experience of auditors to ensure the efficiency and effectiveness of public services.'

Taking into account both the Select Committee’s report and the DCLG’s consultation, ACCA is not satisfied that all of the checks and balances required for strong public audit are being fully addressed.

Background

In ACCA's recent (30 June) response to the Department of Communities & Local Government (DCLG) consultation on the 'Future of Local Public Audit' we noted a number of outstanding issues caused by the demise of the Audit Commission that still haven't been addressed:

  • Arrangements for national value-for-money studies undertaken by an auditor with the agreement of the audited body or identified by the National Audit Office (NAO) for a national study.
  • Arrangements for anti-fraud and corruption work, in particular, the national fraud initiative (NFI). The Commission has had a valuable role in protecting the public purse through data matching and surveying local government. In 2010 the Commission’s survey identified £135 million of local government fraud.
  • The audit and co-ordination of grant certification work. Currently, local authorities receive around £46 billion of grants and funding from government departments.
  • The co-ordination of the whole of government accounts (WGA) and how this will work in practice e.g. the role of the National Audit Office (NAO) and audit firms.
  • The transfer of the in-house audit practice of the Commission, although we understand that a Ministerial decision is imminent.
  • A holistic picture of how the regulatory framework will be administered.
  • Details of how other sectors and ad hoc organisations which currently fall under the remit of the Commission such as health, police and fire and emergency authorities and the London Pension Fund Authority (LPFA) etc will be treated for audit purposes. However, we understand that some but not all sectors, such as health will be addressed as part of the wider health reforms.
  • The Commission’s inspection and research activities. 

ACCA also commented that while a number of proposals set out in DCLG’s consultation appear to fulfil the design principles of public audit, there are others which need clarifying such as the regulatory regime for small audits, the appointment process and scope of audit to name but a few.

A fundamental design principle that is missing from the DCLG consultation is how the Government intends to create a framework for a vibrant audit market going forward. England needs a diverse, competitive market for local government audit work that includes firms of all sizes; the DCLG’s current proposals do not achieve this.