1 Introduction
Background
1. 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[3]
after terminating the Comprehensive Area Assessment (CAA) on 28
May 2010.[4]
2. The Draft Local Audit Bill was published on
6 July 2012.[5] The
provisions contained in the draft Bill will have a profound impact
on the arrangements for local audit in England. The Government
invited Parliament to conduct pre-legislative scrutiny of the
draft Bill in recognition that local audit is an essential tool
for providing assurance to both the electorate and Parliament
that local bodies are spending public money efficiently and effectively.
Ensuring that these bodies are held properly to account for their
spending of taxpayers' money in the new audit landscape is vital.
3. 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. We comprise Members of four select
Committees with a direct interest in the draft Bill's provisions.
The Motion agreed by the House required us to report by 20 December
2012.[6]
The draft Bill
4. The draft Bill proposes a legal framework
to replace the current regime which is managed by the Audit Commission.
Since its abolition was announced, the Commission has completed
a competitive procurement exercise where, for the first time,
the entirety of the Commission's in house audit practice was outsourced.
The Government plans to introduce the new regulatory regime in
2015/16 and from 2017/18 local bodies would be able to appoint
their own auditors by means of an Independent Auditor Panel. Those
functionspreviously carried out by the Commission which
would be retained in the new regimewould be distributed
among a number of organisations including the National Audit Office
(NAO), Financial Reporting Council (FRC), Recognised Supervisory
Bodies (RSBs) and sector based organisations like the Local Government
Association (LGA).
5. On publication the draft Bill failed to address
how its provisions would apply to Health bodies. It was not until
19 November 2012, at the end of our evidence gathering, that the
Department of Health provided us with this detail. The
Department of Health failed to provide the Committee with appropriate
and timely information in advance of our pre-legislative scrutiny
of the draft Bill. It is very disappointing that the Department
of Health acted in this way. As a result, we have been unable
to consider this evidence properly and remain very concerned that
proper scrutiny of the audit and accountability arrangements for
Health trusts and commissioning groups should be carried out by
Parliament. Nevertheless, we welcome the opportunity to look at
the draft Bill in general.
Projected savings
6. The Government has 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.[7]
This equates to a net total saving of £1,151million over
ten years[8], with £650
million worth of savings recorded over the next five years.
7. However, other witnesses argued that the actual
savings projected to be made from the implementation of the draft
Bill were unclear. Some witnesses argued that the figures in the
impact assessment were misleading. According to Marcine
Waterman, Comptroller of Audit at the Audit Commission, "99%
of the £650 million has been banked already".[9]
She argued that abolishing the Audit Commission in its residual
form would result in a saving of approximately £1.5 million
a year from 2015/16. The impact assessment shows that the total
annual cost of the audit regime in 2014/15, the final year of
the Audit Commission, will be £85.1 million and the total
annual cost of the new regime in 2018/19 is expected to be £82.73
million.[10] This suggests
that the draft Bill will achieve a modest annual saving of approximately
£2.4 million a year. We heard evidence that these savings
could be subsumed by regulatory and local body compliance costs
associated with the new regime which the impact assessment estimates
will be approximately £4 million and £4.43 million a
year respectively.[11]
Furthermore, we heard concerns that some of the aspects of local
body compliance, such as staff time, are difficult to quantify
and may exceed the cost estimates made in the impact assessment.
8. We note that the Government's use of 2009/10
as a baseline means that data for that year will include aspects
of the Audit Commission's work, including the Comprehensive Area
Assessments and the Commission's in house audit practice, which
are either no longer being undertaken or are areas where savings
have already been achieved. This area is complex. The
Government should include in the impact assessment an assessment
of the savings made from abolishing the Audit Commission in its
residual form. In order to make accurate assessments of the total
savings made by the draft Bill itself, the Government should use
figures from 2011/12 as a baseline. 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.
Secondary legislation
9. Throughout the draft Bill there are instances
where regulations are to be made through secondary legislation
by negative rather than affirmative procedure. These include the
development of different audit regimes for different bodies[12]
and the power for the Secretary of State to make alterations
to the operation of the Bill, and provisions made under it, in
relation to authorities other than local authorities and the police.[13]
We
are not convinced that subjecting such regulations to negative
procedure only is satisfactory; and neither has the Government
provided any justification. In the interests of proper Parliamentary
scrutiny, regulation should be subject to the affirmative procedure.
Our inquiry
10. On 20 September 2012 we issued a call for
evidence to individuals and organisations with an interest in
local audit and we are grateful to the organisations and individuals
who provided evidence to our inquiry.[14]
We were advised throughout by Gillian Fawcett, Head of Public
Sector at the Association of Chartered Accountants and Tony Travers,
Director of British Government, London School of Economics and
Political Science.[15]
3 "Eric Pickles to disband the Audit Commission
in new era of town hall transparency", Department for Communities
and Local Government press release, 13 August 2010 Back
4
The Audit Commission worked with five independent inspectorates
(Care Quality Commission, HMI Constabulary, HMI Prisons, HMI Probation
and Ofsted) to introduce Comprehensive Area Assessment (CAA) in
April 2009. CAA looked at how well public services like education,
waste and recycling, health and social care, the police and the
fire service were performing and how well they worked together
to achieve better results for their communities Back
5
"Queen's speech set out parliament plans for Local Audit
overhaul" , Department for Communities and Local Government
press release 9 May 2012 Back
6
Committee of Public Accounts, Communities and Local Government
Committee, Health Committee, and the Home Affairs Committee Back
7
Draft Local Audit Bill, Cm 8393, July 2012, p 17. Back
8
Total Net Present Value Back
9
Q 84 Back
10
Written evidence from the Department of Communities and Local
Government; also see Draft Local Audit Bill, Cm 8393, July
2012 p 18 Back
11
Draft Local Audit Bill, Cm 8393, July 2012 Back
12
Clause 2(5) Back
13
Clause 10 Back
14
A full list is provided on page 39 Back
15
See formal minutes: http://www.parliament.uk/business/committees/committees-a-z/commons-select/draft-local-audit-bill-ad-hoc-committee/ Back
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