NAO focuses in on local government commercialisation

1 Aug 19

It is becoming increasingly important to account for assets and liabilities in the public sector because of the rise of commercialisation, the spending watchdog has said.

The National Audit Office has also pledged to discuss the rise in commercialism in local government with CIPFA and relevant government departments. 

In a review of the Code of Audit Practice, published on Monday, the NAO pointed to the growing trend of local authorities undertaking commercial activities to raise funds. 

“The number of local public bodies entering into various arrangements with other organisations (including private companies), and the number looking into ‘commercial’ activities aimed at generating income streams in future to support the delivery of services is also increasing,” it said. 

“When entering into these more ‘commercial’ activities, the need to account properly for assets and liabilities – including those which do not directly impact on service delivery – is becoming more and more important.” 

The NAO’s review added: “We will look to continue this debate with relevant regulators and other relevant bodies, such as the Chartered Institute of Public Finance and Accountancy, the Department of Health & Social Care, the Ministry of Housing, Communities & Local Government, and the Financial Reporting Council.”

But the watchdog stopped short of suggesting this trend would be addressed in the new Code of Audit Practice, expected early next year. 

The Local Audit and Accountability Act 2014 requires the code to be reviewed and revisions considered at least every five years.

Because the current code was implemented in April 2015, a new code must be drafted and laid before parliament in time for an April 2020 start. 

The review also noted that due to financial pressures in the public sector “it is increasingly important” that audit reports are accessible to people without a finance background. 

CIPFA is also seeking views on how public accounts can be made easier to understand.

A new code will also consider the need to have “greater emphasis” on timeliness of reports, the NAO said. 

In June, the watchdog’s former head Amyas Morse hinted that the organisation would be looking into commercial investment from councils. 

PF analysis recently found that local authority borrowing from the Public Works Loan Board has increased 75% in the last year. 

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