Audit and inspection of local authorities

The Government has announced the abolition of the Audit Commission and substantial changes to the way in which audit of local government is to take place. It has already terminated comprehensive area assessment (CAA) as part of its commitment to cutting inspection of local authorities. These changes raise significant questions of principle and implementation in regard to public audit and performance management.

Until now the Audit Commission has been the regulator, commissioner and major provider of local government audit services. Under the Government proposals, local authorities will, via independent audit committees, have responsibility for appointing their own auditors. Some of the Audit Commission’s functions—responsibility for drawing up the scope of audit (the Code of Audit Practice) and for national value-for-money studies—will pass to the National Audit Office (NAO). Other functions will transfer to other bodies or cease entirely.

The changes are part of the Government’s localism agenda, devolving powers to local government and a move away from the “command and control” approach that, the Government argues, has characterised central-local government relations over the past decade.

It is clear that these proposals involve both opportunities and risks. We heard concerns that some fundamental principles - particularly that public bodies should not appoint their own auditors—were being breached. However, on the advice of the Comptroller and Auditor General, we are prepared to accept that the vital principle of auditor independence can be safeguarded, provided that adequate legal and practical arrangements are put in place. We emphasise the heavy responsibility this places on the Government and the NAO to ensure that the new system delivers the key objectives set out in the Department for Communities and Local Government’s consultation document. Devolving powers to local government means that central government must ensure that it first establishes an audit framework that is effective, efficient and robust.

The Government intends to introduce a public audit bill in the autumn. This will provide the proper opportunity for scrutiny of the detailed proposals. In our Report, we set out the principles that we believe should govern public audit arrangements in the future, including:

(cid:120) Auditor independence must be strictly maintained;

(cid:120) Local audit committees must have a majority of independent members; (cid:120) Additional safeguards are needed to ensure the continued effectiveness of public interest reporting, and (cid:120) The scope of local government audit should be proportionate and risk based. It should allow for local innovation and application, particularly with regards to local value for money work.