Draft Local Audit Bill: Pre-legislative Scrutiny - Draft Local Audit Bill ad hoc Committee Contents

1  Introduction


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 functions—previously carried out by the Commission which would be retained in the new regime—would 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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Prepared 17 January 2013