The external auditor role is vital for public services. Photo: Shutterstock
“If God did not exist, it would be necessary to invent him,” said Voltaire. Could the French philosopher’s famous aphorism be applied to the Audit Commission? The government decided to do away with the watchdog, but are they finding they may need it – or something like it – after all?
This summer will be the seventh since the then local government secretary Eric Pickles made his shock announcement that he was closing down the commission and winding up over 150 years of district audit. Many had expected the all-mighty Audit Commission to have its wings clipped once the Conservatives were returned to office but few were braced for full-scale abolition.
Disbanding the commission proved to be a long, complex task – its doors finally closed at the end of March 2015, almost five years after Pickles’ decision.
While the government’s original intention was to empower local authorities to appoint their own auditors – and indeed the Local Audit and Accountability Act 2014 gives them that power – a body was needed to manage the interim audit contracts once the commission had ceased to be.
Into this breach stepped Public Sector Audit Appointments, set up with precisely this short-term objective. Overseen by a board of four, chaired by former CIPFA chief executive Steve Freer, PSAA is an operationally autonomous non-profit company, owned by the Local Government Association and manned by a small team of ex-commission staff.
It has rapidly found a new purpose, however; to develop a scheme for local audit appointments and fee setting, managed again at the national level. Local bodies are free to appoint their own auditors, via an audit panel, or use PSAA’s services, as they choose. PSAA will appoint an auditor to a local authority for five years, with flexibility to extend that for a further two, and will preserve a mixed market of firms to ensure competitiveness and avoid conflicts of interest.
PSAA is certainly proving popular. At the time of writing, Freer confirmed that 282 out of 493 local authorities had already opted in, while another 128 bodies were making moves to do so.
Duncan Whitfield, finance director at the London Borough of Southwark, and president of the Association of Local Authority Treasurers, declares himself enthusiastic and excited at PSAA’s early success.
“We at Southwark have signed up to PSAA and are delighted with the progress they are making,” he tells PF.
“The role of the external auditor remains vital to the roles that we all perform and I’m very pleased to see that PSAA is moving towards a set of quality and good value audit partners.”
At CIPFA, Keeley Lund, technical manager in the standards faculty, says the popularity of PSAA is not surprising.
“For local authorities, it’s a positive thing. It’s good to have the option to go to PSAA as it gives them one less thing to worry about given everything else that they’ve got going on.”
CIPFA has prepared guidance to support local authorities planning to set up auditor panels to appoint their own auditors. However, Lund says feedback from the institute’s awareness-raising sessions suggests there’s no appetite for this among officers, although some members have expressed an interest.
“But when this round of contracts is up in five or six years, the situation might be different for local authorities,” she adds.
“Who knows what the public sector is going to look like or what form local authorities are going to be in? It might be that actually there’s more scope for authorities to take on the procurement of their own auditors next time round.”
Gareth Davies, who previously headed the commission’s audit practice and is now a partner at accountancy firm Mazars, calls the popularity of PSAA a “major achievement”.
“It’s a persuasion job – there’s no compulsion here. They’ve made the case well and I think it’s good for local governance,” he says.
PSAA is also helping to preserve the principle of independent appointment of auditors, Davies adds, something that’s good for the public interest.
From the point of view of firms, however, the picture is more mixed, he adds. While dealing with a single appointing body will make the process of winning work far more efficient for firms, and they can be confident the procurement is being run properly, “the downside is your long-established relationships with clients count for less … in the sense of individual choice”.
Another concern is the potential loss of rigour and consistency in local audits. While the Audit Commission was able to hold subcontracted firms’ feet to the fire and prescribe how audits were carried out, is there a danger that this consistency is being lost? Could the pressure on costs affect quality?
Freer acknowledges that this is a “hot topic” and “right at the forefront” of PSAA’s thinking.
“We’ve adopted a new model, the International Auditing and Assurance Standards Board Framework for Audit Quality,” he tells PF.
“It represents the standard setters’ very latest thinking about what constitutes and contributes to audit quality. It is helping us to apply the right tests in our upcoming procurement and to bring fresh thinking to the way in which we monitor and report publicly on quality once contracts have been let.
“We want the latter to include a strong partnership with audited bodies and to tap into their frontline experiences and perceptions of the quality of the service and the performance of the provider.”
Far from being a “light touch” appointing body, Freer says “there is every prospect that the new arrangements will add up to a firm grip on audit quality”.
So is the PSAA a reincarnation of the Audit Commission in embryo form? Many lamented the loss of the sector-wide overview it provided, for example, with its annual reports on local authority accounts.
Freer suggests that PSAA may be able to move into this space.
“That’s exactly the sort of area we would like to remain active in for no other reason than it has the potential to be really helpful to the bodies concerned and it helps spread some of the learning and the good practice that inevitably we pick up during the course of our role,” he says.
One insider told PF that the Department for Communities & Local Government had recently woken up to the value of some of the benefits that were lost with the Audit Commission; minds are beginning to turn to how both councils and their auditors can be better supported, although this thinking remains in its very early stages.
However, others are sceptical that the PSAA will be allowed to move beyond its tightly defined appointing and fee-setting role, and some suggest that any attempt to use PSAA as a vehicle through which to rebuild the Audit Commission will very quickly alienate local authorities.
Whatever happens, the landscape of local audit has certainly shifted from Pickles’ vision of hundreds of local bodies making hundreds of individual appointments. National and independent appointment is set to remain a feature, at least for the medium term.
