Ensuring robust audit in the future

5 Nov 14
Peter Fleming

A company set up by the Local Government Association will pick up statutory functions after the closure of the Audit Commission

After three decades of monitoring public spending, the Audit Commission is preparing to close on March 31 2015 and transfer continuing functions elsewhere.

One body picking up previous statutory functions of the commission will be Public Sector Audit Appointments, set up by the Local Government Association but wholly independent. PSAA will be taking up the key responsibilities of appointing auditors and prescribing scales of fees for audit – ensuring that councils, the emergency services and health bodies continue to enjoy high quality external audit at a cost-effective price.

The appointment of Steve Freer, former chief executive of CIPFA, as PSAA's chair is an important first step in demonstrating the required stature to make decisions on audit appointments that will uphold the highest standards of independence and good governance.

A Tupe-like transfer will enable experienced staff from the commission’s audit compliance team to make a seamless transition to the new company. Statutory functions transferred to PSAA will include maintaining analysis tools such as value-for-money profiles and the fee comparators that enable audited bodies to check whether they are getting value for money, as well as, for the time being, responsibilities for specifying the arrangements for certification of Housing Benefit subsidy claims.

While we at the LGA have set up PSAA, it is independent and its remit extends beyond local government. The PSAA’s staff and board will seek to ensure that it properly understands the needs of key stakeholders, including health organisations, fire and the police, and other smaller bodies, as well as local councils.

PSAA is a transitional body. Under the ‘saved’ provisions of the Audit Commission Act 1998 it will manage existing contracts with appointed private sector firms until at least 2017. In due course, ministers will decide whether to exercise an option to extend these contracts to 2020. The commission has secured highly competitive rates in these contracts and we are keen to see these preserved for as long as possible for the benefit of all local public sector bodies. PSAA will have a key role in ensuring that standards of financial accountability are maintained. Its priority will be to ensure the maintenance of local audits reflecting the very highest standards.

Once these transitional arrangements come to an end, local public sector bodies will have the power to appoint their own auditors. However, the LGA has successfully lobbied for a change to the Act, as a result of which local bodies can together continue to procure audit at a national level. We believe that this will continue to deliver competitive prices and avoid the necessity for each audited body to establish its own independent audit appointments panel.

For now, the priority is setting up PSAA as a genuinely independent company through which robust and cost-effective auditing can continue to monitor and scrutinise the spending of public money.

Peter Fleming is chair of the Local Government Association’s improvement and innovation board

This opinion piece was first published in the November edition of Public Finance magazine

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