By David Hencke | 7 July 2011

Larger authorities face increased costs because of the reforms to the auditing of local government proposed by Eric Pickles, communities secretary.

Hundreds of councils and other authorities spending more than £6.5 million a year face paying to indemnify new auditors against the possible costs of defending critical reports that later become subject to litigation.

Under the current regime, the Audit Commission automatically meets such costs, but Pickles is planning to abolish this body under his proposed shake-up.

The government is proposing that councils can indemnify auditors by reaching agreements with them to limit their liability. Otherwise, auditors would be allowed to charge higher fees to councils to insure themselves against liability.

“No figure exists for the estimated cost of the proposed new auditing system”

These changes would hit 353 local authorities and 215 other public bodies – including fire and rescue authorities, national parks and conservation boards – with an annual spend above £6.5 million.

And, as local councils adopt a business model for appointing auditors, they will also have to meet the cost of monitoring by the Financial Reporting Council, an independent City regulator.

Councils would, in addition, have to set up new independent audit committees, made up of elected councillors and independent people to recommend who should be appointed as auditors. This would add to the costs to councils, especially as independent members may have to be paid to do the job.

The Audit Commission says in a paper to the House of Commons communities and local government committee that it ensures auditors have the resources to carry out their responsibilities and cannot overcharge.

It says: “By underwriting costs, we ensure auditors cannot be constrained from meeting their statutory responsibilities by lack of resources. Equally, they cannot overcharge.”

The current cost to the taxpayer of auditing councils is £4 million. However, no figure exists for the estimated cost of the proposed new auditing system.

The committee today published its report criticising the costs of abolishing the Audit Commission.

Meanwhile, the 150-year-old public right to demand that an auditor launch an investigation into suspected unlawful activity or waste of public money will be abolished under the plans.

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