At a time when public confidence in political institutions is low, audit is arguably more important than ever. So what should replace the Audit Commission?
When the coalition government decided to abolish the Audit Commission, it argued that a new local government audit system would be cheaper, more localist and just as accountable.
Competition, choice and freedom were to be the driving forces of this new regime, replacing a centralised, top-down system.
So far, the debate has been dominated on the one hand by allegations of commission extravagance and on the other by accusations of political decisions.
However, this was a bold move for very different reasons. While the commission was criticised for its Comprehensive Area Assessments (with the Use of Resources being especially unpopular), the audit function has not witnessed the same level of disapproval.
Furthermore, the recent financial crisis has highlighted to policy-makers the dangers that can arise when the relationships between auditors and auditees become too cosy. The clear lesson from the demise of Arthur Andersen following the 2002 collapse of Enron is that auditing must be regulated and scrutinised, lest the whole system collapse.
Audit provides confidence and legitimacy, whether we are talking about the financial market, the retail sector, or governing a country. It creates certainty that the foundations are solid and trust in the organisations being audited and in the whole system.
At a time when public confidence in political institutions is low, audit is arguably more important than ever. And, if the government strips out a proper level of scrutiny and assurance, localism itself might suffer. Citizens need to know that their money is being spent legitimately and efficiently so that they can hold their elected representatives to account. Therefore, audit must be cost-effective, independent and adhere to strict guidelines.
But what is the best way to provide all this? On the surface, the most effective way to ensure independence might be to bundle the audits together and let a centralised body or commission auction them to private firms. This commission could even undertake audit itself, since it would be funded by the state and be independent. A Commission for Audit, if you will. This, however, runs counter to moves to increase the financial self-sufficiency of local authorities and their accountability to their residents.
Budget cuts, transformation of service provision, shared services, the Big Society and a general drive towards localism will also affect audit as there will be far fewer resources but greater complexity and divergence of local approaches.
Perhaps the starting place should be the object of the audit itself: local government accounts and how to make these accessible to citizens. Second, we could also be more inventive about regulation. How can a system be both local and independent? How can we ensure a competitive, open and inclusive audit market, while ensuring rigour in the system? And can we find a way to engage ‘armchair’ auditors, wherever they may be, in this process?
Marrying these aims requires a new series of solutions. NLGN’s research to be published this month will set out how a new system of regulation could provide these safeguards in a decentralised state.
Olivier Roth is a researcher at the New Local Government Network. The Future of Audit is published on April 4 – www.nlgn.org.uk
