Written evidence from HJC Acturarial Consulting
Ltd
SUMMARY OF
MAIN EVIDENTIAL
POINTS
— The
audits of my work carried out by the Audit Commission were inefficient,
missed the key risks facing the local authorities, and incurred
unnecessary costs and disclosure requirements.
— The
audits could not be said to have met the main aims of the Audit
Commission:
— Audit
of local authority expenditure.
— Oversight
and inspection of local authority performance.
— Value
for money (of insurance arrangements), ignoring c£300m of
potential cost savings.
RECOMMENDATIONS
— Future
audits, oversight and value for money reviews should be carried
out by private sector companies who have "more skin in the
game" ie more at risk of being sued for failing to ask the
difficult, informed questions.
— These
companies should have demonstrable expertise, up-to-date skills
and benchmarking facilities (which the Audit Commission does not
seem to have in this specialist area of insurance arrangements
for public bodies)
EVIDENCE
I provide actuarial opinions on the adequacy of local
authorities' reserves in their self-insurance funds/Reserves;
the authorities' auditors often ask for further clarifications.
In this regard, I have come across the Audit Commission a number
of times.
In the case of one client (a local authority), the
Audit Commission asked questions (exhibit
1) to which most of the answers could
be found in my accompanying actuarial report. This entailed an
unnecessary fee from the local authority to me to answer the questions,
which created disclosure requirements for that small additional
item of expenditure.
I subsequently wrote to the Audit Commission (exhibit
2 - email pdf attachments not included due to issues of commercial
sensitivity), pointing out more useful questions which could
have, and should have, been asked; for the following year's audit
of this same client, the Audit Commission ignored these suggested
improvements, asking exactly the same questions as before (exhibit
3), incurring the same unnecessary fees.
In respect of another local authority, the Audit Commission asked
the same questions (exhibit 4),
even though the key issues were different for that authority.
RECOMMENDED APPROACH
In a typical private sector audit firm, the process
of auditing of a specialist external report (compared to the process
which seemed to be followed by the Audit Commission) would be:
| Efficient Approach
| Apparent Audit Commission Approach
|
| Read the specialist report | Report not apparently read
(answers to most questions were in the report)
|
| Identify further issues not mentioned/clarifications required
| Minimal further issues raised other than those in report, no wider issues/strategy issues raised
|
| Document these issues/clarifications and assess (and document) their potential materiality
| All issues raised, however immaterial, no sense of importance/relevance to audit opinion
|
| Decide which issues are material enough to raise with the client/report author
| |
| Raise the issues; assess the comfort provided by the responses, to identify any further questions required and degree of reliance which can be placed on the report.
| No evidence of how responses were assessed/further issues considered
|
Such an approach minimises additional costs on the client (public
sector), reducing the potential for future
negligence claims against the auditor and makes the audit a valuable
benchmarking process for the authority's spending and strategy
decisions.
This supports my recommendations above.
John Birkenhead
HJC Actuarial Consulting Ltd
January 2011
| 
