As public services grapple with the financial squeeze, auditors will continue to focus on what matters both to audited bodies and to citizens
The shock waves of the local government finance settlement for 2011/12 and 2012/13 are still resounding and finance directors in councils are digesting the financial implications.
It will be some time before the impact on local budgets and services becomes clear. In the NHS, primary care trusts and hospitals are getting to grips with the need to find £20bn of productivity savings by 2015. What is clear is that, in all public bodies, financial systems and processes will come under severe strain. Managers across the public services will have to rise to the challenge of squeezing the most from fewer resources.
This will throw the role of the auditor into sharp relief. Auditors will have a major responsibility in providing assurance to taxpayers and others that public bodies’ financial management arrangements are fit for purpose.
They will also have a duty to report publicly where they have concerns about a body’s ability to manage with reduced resources.
To support auditors in this role, the Audit Commission has developed a new approach to local ‘value for money’ work. The details of this approach, which will apply from 2010/11 at principal local government bodies and primary care trusts, have been published alongside our recent consultation on audit fees.
The approach will focus on the arrangements bodies have put in place to secure financial resilience and to challenge how they secure value for money.
It will be sharper and less costly than the previous ‘Use of resources’ assessments and will help deliver significant cuts in fees of £11.8m (9%) in 2011/12.
In looking at ‘financial resilience’, auditors will consider whether the body’s financial systems and processes are robust enough to:
• manage effectively financial risks and opportunities and
• secure a stable financial position over the medium term.
In reviewing the body’s approach to securing value for money, auditors will look at how it is setting its priorities within tighter budgets.
For example, how is it achieving cost reductions and improving efficiency and productivity?
There will be no scored assessments against key lines of enquiry and set criteria. Instead, audit work will be risk-based, informed by the results of previous audit work and the work of other inspectorates and review agencies.
Auditors will also be able to draw on tools developed by the commission, including our VFM profile tools and national studies. Of course, these tools are also a powerful resource for audited bodies themselves, in helping them to meet the financial challenge.
As now, auditors will report their conclusions and any significant findings in their annual report to the audit committee (or equivalent) and in the public annual audit letter. But they also have their reserve powers to escalate more serious concerns about a body’s financial management. This may be through a public interest report, formal recommendations (at local government bodies) or a referral to the secretary of state (at NHS bodies).
The Audit Commission itself is heading for abolition within a few years. But the essential work of auditing public bodies continues, to assure citizens that their money is being safeguarded and properly accounted for. The government has yet to confirm the detail of the future arrangements for the audit of local public bodies.
Meanwhile the Audit Commission and its appointed auditors are continuing to focus on what matters to both audited bodies and citizens. Auditors’ independence and their ability to ‘tell it as it is’ will be more important than ever in the difficult times ahead.
Martin Evans is the Audit Commission’s managing director of audit policy
