Many happy returns?

The UK's Audit Commission celebrated its 25th birthday in May, but has the watchdog met its mission to improve local public services? And what role might it play in the future? Mark Conrad finds out

May, 1983. It is the eve of the general election in which Margaret Thatcher's Conservative government is poised to secure a post-Falklands landslide.

The local government sector is rife with ideological division and maladministration. Irked by some councils' experimentation with municipal socialism, and illegal budget-setting, ministers have pre-empted their election victory and established a watchdog to improve scrutiny of town hall spending and hold to account spendthrift authorities.

Whitehall's new baby, ostensibly independent of central government but reporting to ministers, is the Audit Commission.

Last month the Commission celebrated its 25th birthday and, my, how it has grown up. The odd mishap during its awkward teenage years aside (more of Best Value later), there is a near-universal consensus that the maturing watchdog has achieved its aim of improving local public services.

Lucy de Groot, executive director of the Improvement and Development Agency, is well placed to support this view. A former council chief executive and Treasury public policy director, de Groot was also briefly employed at the Commission.

'There is little doubt that the Audit Commission has been a success in the context of the terms upon which it was set up,' she says.

New focus

'There was then a trend in local government that led authorities to say to outsiders "you can't tell me anything, our local authority is a special case with its own aims and your way of working won't work here." That [attitude] was used, managerially and politically, to very negative effect. The Audit Commission has walked through that trend.'

The Commission's burgeoning success encouraged ministers to expand its remit throughout the 1990s, so that it now also assesses housing, police, criminal justice, fire and rescue and (partly) health bodies.

In line with the changing demands placed on local public bodies, the watchdog's audit and inspection methodology has also evolved; expanding from simple opinions on local authority accounts to wide-ranging and rigorous assessments of an organisation's policy, use of resources and search for efficiencies. This expanding job spec passed through phases: national studies of local government policy that identified and encouraged best practice, through to the unpopular Best Value regime of the late 1990s, and onto the widely-heralded Comprehensive Performance Assessment system.

Introduced in 2002, CPA allows the watchdog to assess a council's key corporate governance, policy and service functions covering everything from use of resources to the administration of benefit payments. Initially, councils were given a star rating to reflect their performance, but now they are given a descriptive grading, such as 'excellent' or 'weak', and a direction-of-travel indicator ('improving' etc).

The public incentive for councils to attain a high-grade rating has been lauded by local government secretaries as key to steady improvements in performance. In 2002, 76 local authorities were rated as good or excellent, while that number had expanded to 121 by 2006.

But Peter Wilkinson, the Commission's managing director of policy and research studies, maintains that the watchdog's success is still based on its 'bread and butter audit function'. The Commission now employs 2,500 staff, but it is the body's district auditors who are credited with exposing maladministration such as Dame Shirley Porter's 'homes for votes' scandal at Westminster.

'Even today, audit is 75 per cent to 80 per cent of our work - it's the bedrock of what we do to ensure that services operate effectively,' Wilkinson says.

New focus

Yet despite its success, the Commission currently faces perhaps its biggest challenge since its inception in ensuring that perceived improvements across local authorities are maintained and taxpayers' cash adequately protected.

According to the Commission's political masters in Whitehall, the changing nature of service delivery - councils' increasing commissioning role, wider use of the private sector through outsourcing, the growing number of arm's-length delivery agencies and charities operating in partnership with councils - means a new focus is required if the watchdog is to accurately reflect service quality, and value for money, across a locality.

Consequently the Audit Commission plans to dump CPAs from April 2009, replacing it with a Comprehensive Area Assessment that will attempt to reflect the effectiveness of a range of public bodies and their partners in 'place-shaping' (influencing, rather than simply providing, effective public services) locally.

Under the new regime, public bodies will be rated against 200 national service standards, as well as an annual risk assessment delivered jointly by the inspectorates covering each service, a use of resources judgement from the Commission, and a direction of travel assessment.

The exact CAA methodology is under development, but Local Government Secretary, Hazel Blears, recently claimed the new system will 'better reflect the realities of public services as experienced by local residents'. Senior officials also claim that CAAs will reduce the burden of inspection by merging council assessments with those in health, housing, schools, policing and criminal justice.

But many local government experts are sceptical. Colin Talbot, chair of public policy and management at Manchester Business School, says that the intensely subjective nature of the new assessments leaves the system exposed to inaccuracies. He also argues that the CAA erodes local democracy.

'The risk is that, through the indicators, the CAA system will give unelected bureaucrats more power to decide how local government, and wider public services, should be run. That should be the remit of elected local politicians - particularly when you consider the range of services to be covered,' Talbot says.

'While there's clearly a role for some sort of external criticism, I get the sense that the [Commission] doesn't understand the boundaries of its remit and oversteps it quite regularly. Given that there's a large subjective element in Commission assessments, that's worrying.'

Lucy de Groot says that potential problems are linked to one of the Commission's few weaknesses: an inability to judge when it should not undertake certain activities.

'There must be a sense of when an organisation should say "no, this isn't our remit". I think we're getting into some weird territory with the CAA: the idea that you can accurately comment on an authority's place-shaping role.

'That doesn't mean that you can't analyse it - the Commission has a track record of good analyses with its national reports. But the idea that you have to use an audit and inspection body, to comment on place-shaping across a local democracy with different levels of accountability? That's social engineering verging on the unreal. You have to ask: is that the place for audit and inspection?'

Instead of CAAs, de Groot believes the Commission should refocus on 'a realistic remit for a national inspectorate: a 21st century version of public accountability, audit and probity that reflects the breadth of organisations and governance structures now supporting public services'.

However, Clive Grace, chair of the Local Better Regulation Office, says the Commission is flexible enough to make a success of CAAs. Grace, the former head of the Audit Commission in Wales, claims that the watchdog has already overcome one major challenge: working with vastly different inspectorates - such as Ofsted and the Commission for Social Care Inspection - to produce a basic CAA framework.

He also argues that the Commission has successfully shifted focus previously; not least when the clunky Best Value inspection regime was deemed too interventionist, centralised and in need of rapid closure.

Talbot claims this flexibility reflects the fact that the activities of the Commission mirror the aims of ever-changing government policy. But Grace denies the relationship is so obviously 'Whitehall down' and argues that the watchdog often barks independently of its owner (he cites the row over last year's Commission report on the cost of flooding, which ministers dismissed).

Ageing gracefully

Which brings us to a key question facing the Commission as it looks beyond its 25th anniversary: whether it could survive further political interference?

One debate echoing around Whitehall corridors runs thus: governments increasingly make policies with accountabilities and budgets that cross departmental borders (e.g. anti-poverty policies) and move down through quangos and charities; ministers also insist that councils use a wider range of external partners to deliver and administer services; so shouldn't the nature of public audit and inspection change to reflect these new accountability models?

An accompanying argument is that local authorities have reacted well to Whitehall demands for service improvements and that it is time local government accountability was handed back to local government.

Talbot says the logical response would be to establish a powerful inspectorate that merges the NAO's national policy and audit functions with the Commission's responsibilities for local audit and inspection. But there is little Whitehall appetite for this system, not least because it would require constitutional changes to accommodate the different lines of accountability of the NAO (which reports to parliament's Public Accounts Committee) and the Commission (which reports to the executive).

Grace suggests a middle way. 'You might imagine something like this: the NAO continues to perform its broad public audit and value for money functions, looking at central government, national agencies and the NHS, and reports on those,' he explains.

'Meanwhile, the Audit Commission does the same for local government, local NHS bodies and the police etc. Above that, we could create a formal combined unit that conducts studies across all public services and reports in equal measure to parliament, the government, and to audited bodies. In this way, the work of audit and inspection becomes a national resource of information and analysis that different bodies use for different purposes.'

Privately, Whitehall officials admit that a reorganisation is inevitable. But while they dither over the system required, the Commission's admirable staff simply get on with the assessment process.

Many happy returns, Audit Commission. Let's hope your number isn't up too soon.

Mark Conrad is a freelance journalist specialising in public policy and business.