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.’
