1 Introduction
1. The audit and inspection of local authorities
may not sound like a topic to set the pulse racing. Yet for the
past decade and more it has been at the heart of the relationship
between local and central government. Whitehall has wanted assurance
that its substantial increases in funding for local government
were resulting in the outcomes that it was seeking and not being
consumed in increased costs and inefficiencies. Best value duties,
targets, performance indicators, local public service agreements,
"Gershon" efficiency savings and other mechanisms were
introduced to direct, 'stretch' and compare the performance of
local councils. These were backed up by audit and inspection.
2. The Audit Commission was the principal player
in this field. As the audit regulator, commissioner and provider
of local authority audit in England, the Audit Commission shaped
and undertook local government audit. As principal local government
inspector, it both carried out the instructions of Government—mainly
but not exclusively for Department for Communities and Local Government
(DCLG)—and also shaped the landscape within which it, the
Audit Commission, operated. Its methodology started with best
value inspections of individual services, moved to comprehensive
performance assessment (CPA) of councils, and culminated in comprehensive
area assessment (CAA) of councils and their local public sector
partners.
3. On 13 August 2010, the Secretary of State for
Communities and Local Government, Rt Hon Eric Pickles MP, announced
the abolition of the Audit Commission.[1]
Local authorities would be given responsibility to appoint auditors
of their choice. The Audit Commission's audit practice—the
fifth largest audit practice in the UK—would become a stand-alone
business that would have to compete against the private sector
for audit work. Other functions of the Audit Commission would
cease or pass to other bodies, including the National Audit Office
(NAO) and the professional audit bodies.
4. The Government subsequently published more detailed
proposals for local government audit arrangements in a consultation
paper, Future of local public audit: Consultation.[2]
This paper excluded proposals for the Audit Commission audit practice
and certain other functions undertaken by the Audit Commission,
such as the National Fraud Initiative and national value-for-money
(VfM) studies.
5. The proposals for reform of the audit and inspection
of local authorities give rise to fundamental questions about
both the principles and practicalities of public audit, the relationship
between local and central government, and the best mechanisms
to bring about improvements in local government services. Some
of our witnesses clearly felt that fundamental principles had
been breached. Others were of the view that the principles could
hold provided adequate safeguards were put in place. We address
these issues of principle in our report. The Government has said
that it intends to publish a draft Bill for pre-legislative scrutiny
later this year.[3] This
will be the appropriate opportunity to address finer points of
detail; we trust that whichever Committee carries out that scrutiny
will consider the Bill carefully in the light of the conclusions
and recommendations of this Report.
6. We are grateful to the organisations and individuals
who provided evidence to our inquiry. We were advised throughout
by Ron Hodges, Professor of Public Services Accounting at the
University of Sheffield, and Gillian Fawcett, Head of Public Sector
at the Association of Chartered Certified Accountants.[4]
1 Department for Communities and Local Government :
Eric Pickles to disband Audit Commission in new era of town
hall transparency, press notice, 13 August 2010 Back
2
DCLG, Future of local public audit: consultation, March
2011. The consultation period lasted from 30 March to 30 June
2011. Back
3
Ev 228 Back
4
Professor Ron Hodges declared the following interests: Professor
of Accounting at the University of Sheffield (paid), Member of
the ACCA International Public Sector Technical Committee (unpaid),
Member of the CIMA Research Board (unpaid), Treasurer and Trustee
of the British Accounting Association-a registered charity (unpaid),
Director and Trustee of Gedling Homes-a registered charity (unpaid),
Member of Finance Committee of the New Charter Housing Trust Group
(unpaid), I have conducted research work with numerous other researchers
in various public sector organisations (these are all temporary
projects and have not involved funding from the organisations
themselves).
Gillian Fawcett declared the following
interests: April 2009-to date: Head of Public Sector for the Association
of Chartered Certified Accountants (ACCA), Up until 2006: senior
policy advisor with the Audit Commission, ACCA has commissioned
some research with the New Local Government Network (NLGN) which
is focusing on the same areas as the Committee's inquiry. Back
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