Thanks for drawing my attention to this report. The decision to abolish the Audit Commission was done too quickly and with little if any consultative process. As Professor David Heald's written submission to the Parliamentary Select Committee pointed out "Parliament has stood aside for too long. The required involvement and influence cannot be secured through after-the-decision inquiries; the Audit Commission should never have been subject to abolition or reconfiguration without advance Parliamentary involvement. The fact that this has happened, and has been treated as a fait accompli, is highly disturbing". He goes on to point out:
1. The Audit Commission had a key role in appointing auditors and setting the framework for local authority audit, including how that differs from, and extends beyond, the financial certification audit undertaken in the private sector. The transparency that has been created by the Audit Commission’s framework, beneficial to local authorities, private sector audit suppliers and external stakeholders, is likely to be lost. Some substitute will have to be devised....in the absence of a specific-purpose arms-length body.
2. The privatisation or dissolution of the ‘District Audit’ (ie audit supplier) function of the Audit Commission will result in all audits to be undertaken by private sector firms. One of the stated advantages of a mixed model, as also adopted by the NAO, is that having an in-house provider allows for benchmarking against external providers and also provides the operational knowledge base on which the performance of private sector audit suppliers can be evaluated. This will now be lost, giving more market power to the private sector firms (an extremely concentrated market) and putting great demands on contract specification and management, wherever these functions are performed. Heald cites Australia as an example where similar reforms have been rolled back but he leaves it to others to judge the abilities of local government contractors to manage private sector auditors. Without the Audit Commission to devise a Code of Audit Practice and operate a framework agreement under which private sector auditors are commissioned, the market power of those of the Big 4 that wish to do public sector audit will increase.
3. The abolition of the Audit Commission puts centralised functions such as research, performance improvement and performance evaluation functions at risk. As Heald notes these "capabilities are easy to destroy but will at a later date prove difficult and expensive to rebuild. Moreover, it is needed in the present, when a long period of strong public expenditure growth is followed by large real-terms expenditure reductions".
TI have picked up on the corruption issue because that is their raison d-etre. The broader concern is the erosion of the framework of public accountability in the UK with little or no ex-ante thought about the consequences. In an environment with district councils facing the brunt of expenditure cuts the opposition knives have been sharpened by the coalition when (not if) a major governance backdown takes place.