Audit Commission to be scrapped

Posted by John Stokdyk PM | on Sat, 14/08/2010 - 11:01 2672 3 comments

In a statement issued late on Friday 13 August, communities minister Eric Pickles announced that the Audit Commission would be scrapped.

The commission, which monitors the accounts and performance of public sector bodies, employs around 2,000 people, many of them trained accountants. Closing it will save the Exchequer £50m a year, the government claimed.

But bad news for those commission employees could spell new opportunties for the private sector, as councils and other bodies will be able to appoint their own independent external auditors "from a more competitive and open market", the Department for Communities and Local Government said in its news announcement.

Outsourcing audit expertise in this way would scale back "centrally imposed, bureaucratic and costly inspection and auditing" to save council taxpayers money.

A new auditing framework will be developed by the National Audit Office and the wider profession to ensure councils and local health bodies will still be subject to robust auditing, the department added.

"The corporate centre of the Audit Commission has lost its way," said Pickles. "Rather than being a watchdog that champions taxpayers' interests, it has become the creature of the Whitehall state.

"These proposed changes go hand in hand with plans to create an army of armchair auditors - local people able to hold local bodies to account for the way their tax pounds are spent and what that money is delivering."

The view from Audit Commission insiders was less rosy about the prospects for accountability under the new approach.

Commission chairman Michael O'Higgins told the BBC the body had "more than fulfilled" the goals set out for it by Michael Heseltine when the Conservative government set it up in 1983.

One former public sector auditor commented on Facebook, "I checked council tax claims for fraud, I checked the quality of street cleaning and rubbish collection services. I checked how your council was spending your money. How is a private company that's aim is only profit going to do this? How are they going to work for you?"

The Association of International Accountants (AIA) has also spoken out against the decision. AIA chief executive Philip Turnbull said: “Rather than disbanding the Audit Commission, it would have been better to give it a more defined role, with stronger powers and greater transparency. Outsourcing the audit function to the private sector diminishes the public accountability role and could open the process to quality and conflict issues.”

ACCA comments: danger of inconsistency

John Stokdyk | Mon, 16/08/2010 - 18:22 | Permalink

ACCA released a statement warning that ‘Armchair audits’ could lead to inconsistency and uncertainty.

Gillian Fawcett, ACCA's head of public sector, commented: “The public sector needs a coherent approach when it comes to audit and authorities need to be clear on the processes and expectations involved in it. While much of the Audit Commission’s work is already contracted out to large private sector audit firms, the experienced team at the Commission ensures there is a consistency in approach, something which will be much more difficult to achieve in future.

“Public sector officers currently look to the Audit Commission for best practice benchmarking and guidance. That source of centralised expertise was first available as the District Audit Service, which was consolidated into the Audit Commission in 2003. It will now be lost after 157 years. We would be concerned if the vast wealth of experience and skills within the Audit Commission were lost during the transition period to 2012, since this would create even greater uncertainty with nothing to take its place.

“While the Communities Secretary's idea of an army of 'armchair auditors' sounds attractive, the reality is that very few members of the public currently look at local authorities’ accounts – even though that opportunity is available to them. In many cases, where people are interested in accounts at all, their interest will be restricted to a specific issue, often to an area of personal interest. Investigating matters of this kind in future will be costly to investigate and may not be of wider financial benefit to the public. Going forward, there needs to be a some form of co-ordinating structure which replaces the Commission and which avoids a ‘post code lottery’ when it comes to public audit.”

More positive view from UK200Group

John Stokdyk | Wed, 18/08/2010 - 12:04 | Permalink

Several partners within the network were quoted in a press release sent out by the UK200Group. These comments from Critchleys direct Anthony Harris are representative of their views, which combine optimism for new business opportunities with some misgivings about the practicalities for both taxpayers and prospective auditors:

“This is potentially good news for local accountancy firms. My firm already does some parish and town council work, but they are very tight on costs,” he said.

“When matters come up to district and particularly county council level, I have a fear that if the work is ‘privatised’, local government officers will find themselves being ‘low balled’ by top four or top 12 firms. Will they know enough about local matters or even real audit to look outside?

“Will audit firms need to get councillors to look more closely at this area and put forward local firms? Will the tight ‘conflict’ rules mean that most councillors will be inhibited from putting forward audit firms they may work with in their private businesses?

“I also have a fear that all audit firms wishing to do this work may be asked to complete complicated ‘tender’ forms which may not reflect their capacity to complete a good cost efficient audit. A means of central reporting and follow-up will also need to be retained.

“Overall, this would be a good means of saving money, but it will take two or three years to bed down and begin to be effective.”

"Hooray for the closure"

John Stokdyk | Thu, 19/08/2010 - 11:18 | Permalink

We have received an even more enthusiastic reaction to the announcement from Roger Lewis, treasurer of the Justice and Anti-Corruption Party.

"The scrapping of the Audit Commission is one of the best things that the coalition has decided to do so far," writes the campaigner, who is a director of consultancy LL Corporate Solutions. "The Audit Commission claim that they were 'protecting the public purse' is the biggest load of rubbish."

The group has conducted a study of the commission’s effectiveness in auditing town and parish councils and concluded the Audit Commission was failing in its objectives. "What they did was to appoint independent accountants to audit the accounts and then wash their hands of any responsibility. If the public were dissatisfied with the financial management of their funds it was up to the auditor to decide if he/she would do anything. If they refused the public is just left to a self funded judicial review costing anything over £20,000. If the Auditor did investigate the public paid thorough their council tax," said Lewis.

Many auditors are not qualified accountants and because those who are qualified work through non-affiliated organisations, they are able to avoid compliance with any accounting standards and professional discipline, he added.

"The problems now are:

Who and how are the auditors to be appointed? Vested interest in a local authority of hospital trusts or police have shown that they only like to appoint their friends!!
Will there be any improved method for the public to demand explanations of expense and confirmation that systems are realistic. For example in one local authority a senior manager could place and order for £25,000 and then sign that invoice off. In this case there was not even an order or an email placing an order.

"So – hooray for the closure of the Audit Commission."