Stay of execution for Audit Commission raises fresh fears

23 Feb 11
The future of local government audit has been thrown into disarray after it emerged that the Audit Commission is likely to remain open well beyond its planned abolition in 2012.

By Lucy Phillips

23 February 2011

The future of local government audit has been thrown into disarray after it emerged that the Audit Commission is likely to remain open well beyond its planned abolition in 2012.

The Audit Commission has confirmed to Public Finance that a memo was sent last week from chief executive Eugene Sullivan to all staff saying that the spending watchdog might remain open until 2014. Local Government Secretary Eric Pickles originally announced that the commission would close in 2012.

A spokesman for the watchdog today added: ‘The timetable for the Audit Commission’s abolition and the introduction of a new audit regime for local public bodies rests with ministers and Parliament.

‘We understand the timetable for the necessary legislation to abolish the commission, and put in place a new local audit framework, means we are likely to keep some powers until at least December 2013.

‘We have had to make some internal assumptions about what this might entail.’

PF now understands that the uncertainty is creating ‘a difficult task’ for the Audit Commission management, who are in the process of substantially slimming down the organisation. About 300 of the commission’s 2,000 staff have left since the abolition was announced in August and another 300 are working out their notice.

Staff morale is reported to have plummeted while there has been little progress towards achieving the commission’s ‘preferred option’ of transforming the in-house audit practice into a mutual.

A working group, which includes Audit Commission representatives, the Department for Communities and Local Government, CIPFA and the Institute of Chartered Accountants in England and Wales, is meeting in private to look into the consequences of the watchdog’s abolition.

This is running alongside an inquiry by the Commons communities and local government select committee in which experts have slammed Pickles for his ‘hasty’ and non-evidence based decision to close the Audit Commission.   

But relations between the DCLG and Audit Commission look to have reached a new low as a source from the department accused the commission of ‘making a desperate move to keep going for longer’.

Audit Commission chair Michael O’Higgins replied: 'The commission is working with government to ensure the transition to a new audit regime that is fit for purpose is completed in the shortest timescale possible. We have no desire to continue going, following our abolition announcement, any longer than is necessary.'

Fresh concerns have also been raised about the costs of abolishing the commission. The £50m of annual savings that the government expects to make from its closure is dwarfed by the £450m costs that are expected to be incurred through staff redundancies, pension liabilities and breaking property leases – although fees for the latter are likely to be less if the timetable for closure extends beyond 2012.

Lord Beecham, former Labour chair of the Local Government Association, told PF that the decision to abolish the Audit Commission was ‘another example of the government deciding to do something and then looking into the consequences, financial and otherwise’.

He added: ‘It’s ideologically driven and based on a narrow view of what the commission is about.’ There had been no prior consideration of what would happen to the watchdog’s remit aside from financial audit, he said. 

Beecham said that he hoped there was a ‘rethink’ going on but things had probably gone too far for a policy u-turn.  ‘I can’t see him [Pickles] backing off this one,’ he said.

A DCLG spokeswoman said: ‘The government has stated that reforms to the local audit regime are likely to take effect from 2012/13. A first consultation on the details of a new audit framework is planned for late March. Following this consultation, the government will then publish a draft Bill for pre-legislative scrutiny. Following such consultation and scrutiny it is the government’s intention to introduce the necessary legislation at the earliest opportunity.’

For more on this issue, see David Walker’s PFblog.

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