By
Mark Smulian
29 March 2011
Costs of local authority audit could rise if
government plans to abolish the Audit Commission go ahead unchanged, CIPFA
chief executive Steve Freer has told MPs.
Giving evidence to the communities and local
government select committee, Freer said: ‘There is a risk of fees increasing.
None of us knows, but this market needs a critical mass of relevant expertise and
so there is a danger of consolidation in a small number of players.’
He noted that local authorities that were
geographically remote or suffered reputational problems might not be attractive
to private sector auditors and so would struggle to secure audit services at a
reasonable cost.
Keeping the District Audit Service in public
ownership was ‘one option [that] should be considered’, Freer said.
Another witness, Vernon Soare, executive
director of the Institute of Chartered Accountants in England and Wales, said
audit fees were ‘uncharted territory because the commission has regulated the market
for audit fees.
‘If local authorities appoint auditors it becomes
a potentially unregulated market.’
Freer also expressed concern about how auditors’
independence would be assured if they were appointed by the councils they
audited.
Committee members suggested independent audit
committees in each council could handle these appointments.
Freer said: ‘Beefing up local audit committees is
an option, but they would have to have the power to work independently, and whom
would they be independent from?
‘Who would appoint those independent persons [to
audit committees]. These are very difficult issues. I think a residuary Audit Commission
option is quite attractive in making it the body that ensures independent
appointments.’
He said such a body could also mediate in disputes
where, for example, an auditor wants to investigate a matter in the local
authority that pays their fees.
‘Public interest reports are very important and
have to be continued,’ Freer said. ‘The problem of an auditor investigating the
authority that has appointed them is a difficult circle to square. A residual
Audit Commission could mediate.’
Labour MP Heidi Alexander asked how local services
could be audited if the government succeeds in moving from conventional council
services to a plethora of mutual and voluntary sector partner providers.
Witness Gillian Fawcett, head of public sector
at the Association of Chartered Certified Accountants, admitted: ‘I don’t think
it has been considered – mutuals and partnerships raise quite difficult issues.’
Freer said: ‘There are inevitably risks in that,
and in moving into this era of austerity, there are further risks over whether
public bodies will cope.
‘This is one of the areas where Audit Commission
value-for-money studies have been very helpful in giving the big picture
overview and pointing up emerging issues.’
