By David Hencke | 7 July 2011

MPs today published a report revealing that the government faces a £120 million bill to abolish the Audit Commission. The House of Commons communities and local government committee says that the government has already put aside £56 million to cover costs for redundancy payments and closing down the Audit Commission.

The report, citing figures from the commission, says: “The cost of redundancy payments resulting from abolition is already £27 million and will rise to between £40 million and £105 million.”

“The government is proposing a departure from the established practice that public bodies should not appoint their own auditors”
– House of Commons communities and local government committee

“In addition, there will be £15 million for early termination of leases. Pension liabilities would be additional and depend on whether or not the Audit Commission continues to be classified as a going concern.”

The Department for Communities and Local Government estimates that it will save £50 million a year by abolishing the Audit Commission, but MPs call that into question in the report.

The parliamentary committee says that Grant Shapps, housing and local government minister, “presented no detailed evidence of how the £50 million saving would be achieved.”

The minister had told MPs: “There is nothing that I have seen since the announcement of the abolition and the headline £50 million figure that leads me to suspect that the number is any smaller.” But he declined to provide any details. The figure represents the £50 million charge every year by the Audit Commission to local councils to cover its costs for audits and ‘value for money’ services.

However, councils with annual expenditure of more than £6.5 million would still be audited and would have to pay fees to the private sector. Indeed, councils would face extra costs because they would have to indemnify auditors and set up independent audit committees.

The MPs are worried about maintaining the independence of auditors, who would be appointed by councils. Under the proposals, councils will adopt a business model for appointing auditors.

Their report says: “The government is proposing a departure from the established practice that public bodies should not appoint their own auditors. The proposals place a great responsibility on the government to create adequate legal safeguards and assist local government in establishing local audit committees that are, and are seen to be, capable and independent.”

The MPs also want the government’s proposals for audit committees strengthened and lay down specific safeguards. “Audit committees must be chaired by independent persons of proven competence, and should have a majority of independent members.

“These requirements (including the avoidance of conflicts of interests for independent members) should be defined in law. Chairing of audit committees will be a significant responsibility and should be remunerated, and allowances should be payable to other independent members. The law should require full transparency for audit committee proceedings.”

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