DCLG to publish draft local audit laws in spring

4 Jan 12
Draft legislation to abolish the Audit Commission and allow local public bodies to select their own auditors will be published this spring.

By Nick Mann | 5 January 2012

Draft legislation to abolish the Audit Commission and allow local public bodies to select their own auditors will be published this spring.

The Department for Communities and Local Government yesterday said it planned to bring forward the legislation ‘as soon as parliamentary time allows’ as part of a change local government minister Grant Shapps said would create a ‘better, more efficient and transparent audit service’.

Responding to feedback on its June 2010 consultation on the future of local audit, the DCLG confirmed that the new system of local audit would be based on the private sector audit model, with councils selecting their own auditors on the advice of independent auditor appointment panels.

Local authorities will be required to run a public competition every five years to appoint an audit firm and there will be restrictions on the length of time certain senior external audit staff can participate in the audit. The ‘audit engagement partner’ will be limited to seven years work from the award of the initial contract, while the audit manager will be limited to ten years.

The DCLG response raises the potential for the secretary of state to intervene should a council fail to appoint an auditor. The local public body could also be subject to a ‘sanction’, it adds.

The Financial Reporting Council will have overall responsibility for regulating the new system, in the same way as it does for the private sector, while the National Audit Office will produce a code of practice for local audit. This new role for the NAO will be subject to parliamentary approval, the DCLG notes.

Shapps said: ‘The plans set out today will see Whitehall take another step back so that councils can begin to take ownership of their new audit system.

‘Robust and independent external audit will continue. We want councils to be part of how we create a better, more efficient and transparent audit service that offers best value for money and properly serves taxpayers.’

The department now plans to undertake ‘intense discussions’ with councils and audit firms to shape the practical details of the new system.

As part of this, the department said it would carry out further work on the audit arrangements for smaller local bodies in light of the potential burden the locally appointed auditor system could place on them.

The government’s proposed approach for these organisations will be set out in spring 2012, it said.

The DCLG also confirmed that contracts for outsourcing the Audit Commission’s existing in-house audit practice are set to begin in 2012/13.

The contracts, which were put out to tender in ten lots in September, are expected to run for between three and five years while the transition towards the new locally appointed system is completed.

They will be overseen by the commission as it is downsized in preparation for its eventual closure. This would minimise costs to local bodies during the transitional period, the DCLG said.

Ian Carruthers, CIPFA's policy & technical director, said: ‘The government's response is helpful in providing a firmer outline of the proposed new arrangements for local public audit.

‘However, there remain areas for concern, and considerable further work is required to develop the detailed practical guidance necessary for individual bodies to implement the government's proposals consistently and cost-effectively.’

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