Work carried out by the Audit Commission’s in-house audit practice is likely to be outsourced to the private sector from 2012/13, councils have been told today.
A range of firms would be allowed to bid for the work, including an employee mutual made up of the current in-house practice if this goes ahead following the watchdog’s disbandment.
The Department for Communities and Local Government has written to all council chief executives today stating that ministers’ ‘initial view’ is that the best way of securing value for money from the Audit Commission’s abolition would be to outsource all the audit work to the private sector.
The department has now asked the commission ‘to begin substantive preparatory work for outsourcing the 2012/13 audits’. By the end of 2012 only a small residual body would be left to oversee contracts until local public bodies are in a position to appoint their own auditors.
Local government minister Grant Shapps said: ‘We are working closely with the Audit Commission on options to transfer the audit practice into the private sector. Our initial view is that outsourcing could prove the best value for money and we have asked the commission to start work on paving the way for outsourcing the 2012/13 audits to keep this option open before we make a final decision.’
A decision on whether or not to mutualise the in-house practice will be announced shortly. This is the commission’s preferred option.
Audit Commission chief executive Eugene Sullivan
said: ‘As Grant Shapps said, we have been working closely with the department
on options to externalise the work of the in-house audit practice. We have
agreed to the permanent secretary’s request to start preparatory work for the
potential outsourcing with effect from 2012/13 audits.
‘We have been asked to design a procurement process that allows a range of
firms to bid, including the possibility of an in-house bid, which could form the
basis of a new and distinctive provider in the market, possibly a mutual.’
Ian Carruthers, CIPFA's director of policy and technical, said: 'Today's announcement on the transfer of Audit Commission’s in-house audit practice brings some clarity over the timing for the process. But it underlines the complexity of winding down the Audit Commission and leaves a number of significant questions unanswered.
'The timetable is certainly challenging, both for the Audit Commission to manage an outsourcing project of this magnitude and for the market to respond adequately. It is crucial that the new arrangements offer good value for money at a time when public finances are stretched. CIPFA is also concerned that the skills and experience of the current audit staff, many of whom are our members, are not lost.'
Tony Travers, director of the Greater London Group at the London School of Economics, told Public Finance that today’s letter to councils was ‘an unusual form of government action’, which was ‘designed to create pressure on the market to form itself’.
‘It’s a letter that’s trying to force a solution of some kind which the government is not certain about,’ he said.
Travers said that if the Audit Commission in-house practice were to enter the market it would need to establish itself as a stand-alone organisation or mutual ‘very rapidly’.
He added: ‘It’s quite hard to see how unless they were well down the route to doing that, how the in-house people would compete.
‘That begs the question of whether the government is hoping or expecting that some or all of the in-house auditors will be taken over by any of the other big companies.’
Simon Parker,
director of the New Local Government Network, said it was ‘very important’ that
a fifth player entered the private sector audit market, currently dominated by
the Big Four accountancy firms (KPMG, Deloitte, PricewaterhouseCoopers and
Ernst & Young) to keep fees down.
‘We would support the Audit Commission [in-house audit practice] being part of that market,’ he added.
