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Audit Commission future still shrouded in mystery

Since announcing its abolition, the government has gone very quiet on its plans for the Audit Commission, as David Walker reports.

A year after communities secretary Eric Pickles decreed its abolition, the Audit Commission is still in business. It still, in principle, administers the statutory code of audit practice across the local public sector and has even re-started recruiting to its graduate recruitment scheme for auditors, which had been abandoned last autumn.

Its fate remains sealed, officially at least. The government still intends to ‘bring forward primary legislation in due course’ and remains committed to giving councils a right to choose their own external auditors.

But for at least the rest of this year, the Department of Communities and Local Government will have its hands full with controversial new laws on planning and housing and there’s precious little space in the parliamentary calendar for more contentious legislation. The House of Commons Public Accounts Committee has been promised several months to scrutinise any abolition legislation before it is presented to parliament, which would further delay proceedings.

Commission to appoint external auditors
The government said in July that the Commission will definitely appoint external auditors to local authorities in the 2012 financial years, on contracts that will run for three to five years. That must mean the Audit Commission or some public body looking remarkably like it will be needed to supervise the running of those contracts, until 2017. So the Audit Commission could stagger on, outlasting not only Mr Pickles but even the government itself.

It is not that the DCLG can’t be brutal. It is dispatching another unloved quango, finding space in its Localism Bill to decapitate Standards England, the watchdog on councillors’ behaviour. But on the fate of the Audit Commission, officials have been ambiguous, talking about keeping a ‘small residual body’, which might mean they could get by without primary legislation. Mr Pickles himself has disavowed the £50m a year cost savings he had said would come from abolition. This figure, he said sarcastically a few weeks ago, ‘came from my officials who I rely on completely in these matters’.

Bureaucratic interference
Yet much has changed. Even before he announced its death, Mr Pickles had instructed the Audit Commission to abandon comprehensive area assessment. This scheme involved the publication, jointly with education, police and social care inspectors, of annual judgements on public services in local areas of England.

Such ‘bureaucratic interference’, in Mr Pickles’ words, was unnecessary when public bodies are being encouraged – and forced – to pump out mounds of data on spending and performance, allowing the public to make their own minds up.

Value for money studies
What have also disappeared since last summer’s abolition announcement are the Audit Commission’s value for money studies – the last one it completed was about the cost of council road maintenance. The government’s plan had been that the National Audit Office would step in, and add local government to the vfm reports it writes about Whitehall. But that could not happen until the Public Accounts Committee gave its leave and MPs say they won’t debate the role of the NAO until they have clear sight of the government’s formal plans for public audit.

Earlier this year the permanent secretary of the CLG, Sir Bob Kerslake, was asked by the cabinet secretary Sir Gus O’Donnell to take an all-round look at local spending in the wake of abolition. Kerslake had said ‘we’re trying to develop an approach to accountability in this new world’. But as of early September his report has yet to surface.

Where the announcement of the Commission’s abolition has had most effect is within the Commission itself. Bob Neill, the local government minister, hinted a year ago that the audit practice – the 1200 or so Commission staff auditing councils, primary care trusts, police authorities and so on – could be hived off into a mutual or cooperative. Instead, the government seems now to favour privatisation.

Commission’s audit practice
Just as Parliament broke up for the summer, Mr Pickles instructed the Commission to appoint no auditors next year except from private firms. This effectively means the end of its own audit practice and over the autumn months it will become clearer whether staff leave to join commercial practices or move into the private sector as a fully-fledged firm. The government says it would not be against ‘an employee owned company’ provided it did not have ‘an unfair advantage’.

CLG told the Commission to appoint auditors on contracts lasting from three to five years ‘giving local councils and other public bodies the time to plan for appointing their own auditors’.

Under existing law, the Commission picks councils’ auditors from a roster of approved firms and its own practice, which till now has had about 70% of the business.

As for audited bodies, the future of audit was ‘not yet on the radar’ for over four out of ten chief executives, finance directors and council committee chairs from a sample of 70 surveyed by KPMG, though clear majorities favoured the principle of appointing their own external auditors.

Local authority concern
Interestingly the same survey found half of local authority top brass expressing concern about internal audit and control. Where internal audit is outsourced, new relationships may have to forged with new private sector external auditors – and there may well be some churn in the market as companies decide where to focus and specialise, both geographically and functionally.

Even enthusiasts for localism worry whether councils can create or reshape their audit committees to take on the muscular new roles the government seems to envisage. ‘A lot is being asked of a few councillors, who will need specialist knowledge and intellectual confidence,’ says Jessica Crowe, director of the Centre for Public Scrutiny. ‘And if councillors co-opt business people and outsiders to audit committees in large numbers, that could dilute accountability.’

Till now private sector auditors appointed to councils had the Audit Commission at their backs, checking they were being tough enough. In future, their appetite for controversy may be less. In its submission to the government earlier this year, the Audit Commission – which has refused to comment publicly on its own demise – raised this problem.

In the new circumstances auditors may choose to close their eyes. In the NHS foundation trusts are no longer subject to public audit; they choose their external auditors. ‘We note,’ the Commission said dryly, ‘that not a single public interest report has been issued since the first foundation trusts were established in April 2004’.

David Walker was formerly managing director, communications and public reporting at the Audit Commission

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