Author Topic: Axe falls on the Audit Commission in England and Wales  (Read 538 times)

atseacliff

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Axe falls on the Audit Commission in England and Wales
« on: August 31, 2010, 15:21:43 GMT »
One of the more interesting austerity measures to be implemented during the first 100 days of the UK Coalition Government was the decision to axe the Audit Commission; the Government quango charged with auditing local councils in England and Wales. So after nearly 30 years of checking local authority books, the commission's 2,000 or so staff will soon be out of a job. It has been argued that the Commission played an important role in improving performance, however others have argued that the burden of inspection outweighed the benefits, particularly as may failed to notice the improvements the Commission reported.

While much of the political theatre over the closure focused on alleged corporate excesses of the Commission the decision was grounded the two areas - cost and a desire to cut centralised bureaucracy in government. Now local council audits will be contracted to the private sector and competition may reduce costs.  At the same time the Government will need policy safeguards to ensure that private sector auditor conduct their work with a high degree of independence in order to tackle financial mismanagement objectively, and not with one eye on trying to hold onto work. On decentralisation the government seeks to move away from setting centralised outcomes. Instead, it argues that local people should hold councils to account.  How this will work in practice is unclear and the Government needs to act quickly to address the uncertainty left in the wake of the demise of the Commission. The previous system of comprehensive performance assessments did provide a benchmark for minimum standards and provided an incentive for improving poor performing councils. Now councils now need to develop their own systems for improving services and provide mechanisms for local communities to address poor performance. Institutionally it will be interesting to see how the necessary checks and balances can be implemented at a local level.

The audit of local authorities in the UK is a £200 million a year "business". There are some issues which have a generic interest to Boarders:

1. The linkage between the auditing profession in the public and private sector is important. In Scotland public sector audits have been sub-contracted for years and it is argued that these skills provide flexibility and reduced costs in the provision of audit services. On the other hand who audits the auditors and do private sector auditors really understand the complexity and mandate of public sector organizations?
2. Institutional arrangements will define the way that local councils are held to account.  The balance between centralised regulation and local self governance will have to change and new mechanisms will need to support the over-arching goals of the government. What are the incentives for locally elected politicians to set challenging performance targets and cut costs in the current austere economic climate?



petagny

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Re: Axe falls on the Audit Commission in England and Wales
« Reply #1 on: September 01, 2010, 12:49:08 GMT »
A very interesting post.

My feeling is that this is a retrograde step: the incentives are all wrong and I fear that private sector auditors will cosy up to local authorities. As implied in the post, there should at least be some oversight of the private sector auditors.

I imagine that the auditing firms will snap up the best of the redundant Audit Commission staff, so skills may be less of a problem than incentives.

And will there actually be a cost saving in the end? The Scottish experience seems to suggest there will, but it's hardly the most competitive of sectors so I remain to be convinced.

atseacliff

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Re: Axe falls on the Audit Commission in England and Wales
« Reply #2 on: September 02, 2010, 09:37:07 GMT »
Couple of follow points.

The head of the Audit Commission issued the attached statement stating that they are looking into a range of options including a management buy-out (link below). Not terribly sure that is likely to achieve the government's objectives - neither is moving the Commissions auditing activities lock stock and barrel to one of the Big 4 firms.

http://www.audit-commission.gov.uk/pressoffice/pressreleases/Pages/acstatement.aspx

Just linking this discussion to the concerns of developing countries where SAIs are often understaffed and lack the capacity to conduct audit work. SAI might consider sub-contracting specific audits, for example, financial audits to the private sector might help address the backlog of audit opinions and free up resources to focus on performance audits. This approach is not without its difficulties but may be worth exploring - if any boarders have any experiences of this let us know.

petagny

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Re: Axe falls on the Audit Commission in England and Wales
« Reply #3 on: September 02, 2010, 16:18:54 GMT »
I too would be interested in responses to atseacliff's last question. Elsewhere I have suggested that SAI's in transition countries might outsource performance audits of a limited number of poorly performing, major infrastructure projects as a way of kick-starting an interest in more rigorous ex ante value-for-money studies. I have no knowledge of this having been done though. Anyone else?

atseacliff

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Re: Axe falls on the Audit Commission in England and Wales
« Reply #4 on: November 04, 2010, 14:28:28 GMT »
Interesting article (link below) which gives adds some meat to earlier discussions on this post. Amongst the issues I take from this are:

1. A high risk of further concentration of the audit market in the UK.
2. Significant questions over whether the new regime will result in increased competition, reduced costs and better VFM.
3. Difficult choices over the way the capacity of the Audit Commission will be absorbed in the private sector. Several options are suggested - (a) a management buy-out; (b) absorption by a Big 4 firm or, (c) "backed into" to medium sized firm).   

http://www.accountancyage.com/aa/analysis/1868035/audit-commissions-demise-emerge

What is worrisome is that these fundamental policy issues weren't properly thought through prior to the surprise late summer announcement. If you'll forgive me mixing my metaphors is the fiscal imperative meeting the law of unintended consequences? 

atseacliff

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Re: Axe falls on the Audit Commission in England and Wales
« Reply #5 on: May 09, 2011, 12:49:27 GMT »
Follow up to past posts on the role of the Audit Commission in UK.  I've been following the Communities and Local Government Committee in the House of Commons investigation on that decision with some interest.  Sessions are available in video as are transcripts here

http://www.parliament.uk/business/committees/committees-a-z/commons-select/communities-and-local-government-committee/inquiries/audit--com/

Opening session on 7 February with evidence given by David Walker, Contributing Editor, Guardian Public, Professor David Heald, Professor of Accountancy, University of Aberdeen Business School, and Professor Steve Martin, Professor of Public Policy and Management and Director of the Centre for Local and Regional Government Research, University of Cardiff gives a nice introduction to the topic.   Others from outside the UK might find a quick viewing of a Commons Select Committee of interest.

 

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