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Audit Commission to be abolished

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By Jaimie Kaffash

13 August 2010

The Audit Commission is to be disbanded, Communities Secretary Eric Pickles has announced today. 

The Departmentfor Communities and Local Government said that the auditing expertise of the commission would be moved to the private sector. Its responsibilities for overseeing local audit and inspections, as well as its research functions, will be stopped altogether. The government hopes this will save taxpayers £50m a year.

According to a DCLG statement, ‘ministers believe that the work of the commission has become increasingly less focused on accountability to citizens and more on reporting upwards to the government’.

Councils will be able to appoint their own independent external auditors ‘from a more competitive and open market’. The DCLG says a new decentralised approach will: give local people more power over local spending decisions; strengthen the power of the local government ombudsman; and maintain the current auditing standards through a statutory framework overseen by the National Audit Office.

Pickles said: ‘The corporate centre of the Audit Commission has lost its way. Rather than being a watchdog that champions taxpayers' interests, it has become the creature of the Whitehall state.

‘We need to redress this balance. Audit should remain to ensure taxpayers' money is properly spent, but this can be done in a competitive environment, drawing on professional audit expertise across the country. I want to see the commission's auditing function become independent of government, competing for future audit business from the public and private sector.

‘These proposed changes go hand in hand with plans to create an army of armchair auditors - local people able to hold local bodies to account for the way their tax pounds are spent and what that money is delivering.’

Following Pickles' announcement, Audit Commission chair Michael O'Higgins noted that the commission was established by a Conservative secretary of state, Michael Heseltine, and had 'more than fulfilled' Heseltine's ambitions.

O'Higgins went on: 'We have had a role in assisting in the very significant impact of local authority improvement in the last decade. Ironically, it is this improved performance – as referred to by decentralisation minister Greg Clark, when he compared it favourably to central government’s performance – that has enabled ministers to have confidence in increasing local authority autonomy.

'There are a range of options for the future of the audit practice, including sale, a management buyout, and the setting up of some sort of mutual organisation. Indeed the board of the commission mandated me last month to take soundings of potential purchasers, which has revealed significant interest in acquiring the Audit Commission’s business. I will be continuing with this process in the coming weeks, since the effective audit of local public services will need to continue, whether carried out by the commission or by others.

'It is critically important that during the coming period of uncertainty, and the transition period, that we ensure local accountability, and the accurate audit of public spending, is carried out effectively.'

In a memo to staff, acting chief executive Eugene Sullivan said he was surprised by the decision, which had been taken without any consultation with the commission itself, particularly on the principle of independent audit.

'The independence of audit, its disinterested pursuit of good value in public spending, its custodianship of best practice in financial management: these are not to be lightly cast aside,' Sullivan said.

‘We will need to work on the detail of what the government intends. This is not the end of public audit or the audit practice, even if it will be under different arrangements.’

Tony Travers, director of the Greater London Group at the London School of Economics and a former commissioner at the Audit Commission, told Public Finance that the news came as a surprise.

‘It is difficult to make a judgement on the decision before seeing the effects,’ he said. ‘Many in local government have had a love-hate relationship with the commission. I suspect even when they moaned about it, they will fear for its passing not knowing what will happen next.’

Costs of inspections would necessarily come down, but it was unclear what would happen to the quality of the audit,Travers added.

He also said that it would have a bearing on other regulators: ‘Some of them might think they can gain something from this where others will fear they will be shrunk.’


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