Local audit plays a vital role in assuring both the electorate and Parliament that local bodies are practising sound financial management and spending taxpayers' money effectively. The draft Local Audit Bill confirms the Government's commitment to abolishing the Audit Commission and outlines a new local audit regime. The proposed audit arrangements are shaped by four design principles: localism and decentralisation; transparency; achieving lower audit fees and; securing high standards of auditing.
This ad hoc Committee was established on 17 September 2012. The House asked us to consider the draft Bill which we interpreted to mean to consider whether the draft Bill would meet the Government's objective of creating a more efficient and transparent local audit system with appropriate safeguards for protecting the integrity of the audit system, and ensuring accountability to local people.
The Government argued that the proposed audit regime would result in substantial long- term savings to the taxpayer. The impact assessment, published alongside the draft Bill, estimated that, on average, £137million a year would be saved as a result of the proposed new regime. However, we heard conflicting evidence about the actual savings that would be realised. Given uncertainties about the figures in the impact assessment and the cost of local body compliance, we recommend that a new financial impact assessment is published alongside the Bill.
The draft Bill would provide a more complex and fragmented audit regime than exists currently, representing an awkward compromise between independent audit, a principle which has guided public sector audit for the last 150 years, and localism. We have a number of serious concerns regarding the practicability, workability and completeness of the proposals outlined in the draft Bill.
The draft Bill fails to provide adequate safeguards to guarantee the independence of audit, it falls short in addressing many of the technical aspects of audit and is silent on how high quality statutory local audit will be obtained and reviewed in the new regime.
The vast majority of our witnesses expressed strong support for the retention of a procurement capacity and we recommend that should be included in the Bill when it is presented to Parliament.
The draft Bill contains a number of risks and gaps which require urgent attention. It is clear that if the new regime is to be successful the Department for Communities and Local Government, along with other Departments, will have to be proactively engaged in its management. We are concerned that the draft Bill provides insufficient safeguards to whistleblowers that have drawn attention to serious governance failure. We strongly recommend that in addition to the appointed auditor, the Comptroller & Auditor General of the National Audit Office should also be named in the Bill as a prescribed person for whistleblowers to contact.
We welcome the Secretary of State's stated openness to "reasonable" recommendations. The conclusions and recommendations contained within this Report would help ensure that the Bill better safeguards auditor independence and bridges the gaps within the proposed regime.