Report by pre-legislation panel of MPs slams government over council audit shake-up
By David Hencke | 17 January 2013
“We believe that the principle of independent audit… could be undermined if the bill is not amended” – Margaret Hodge, Labour MP and chairwoman
MPs today warn the government that planned legislation threatens to undermine the system to monitor spending by local authorities.
A report by a legislation committee chaired by Margaret Hodge, the Labour MP who is also chairwoman of the House of Commons spending watchdog, raises concerns that government plans to scrap the Audit Commission will fail to save money or deliver accountability.
The report out today mirrors many of the dangers raised by Exaro in a series of articles published in 2011.
Nearly 100 public bodies spending more than £1 million a year are to escape audit under the plans.
Exaro also revealed how the plans mean that up to £2 billion of public expenditure is to become exempt from audit.
Eric Pickles, communities and local government secretary, is leading the Local Audit Bill that is aimed at delivering a more efficient audit system.
The government hopes that the private sector will take over much of the work currently carried out by the Audit Commission. Key members of staff at the agency have been seeking to bid for privatised auditing contracts.
In launching its proposals, the Department for Communities and Local Government (DCLG) said: “We want to put in place a new locally focussed audit regime, which is open and transparent but retains the high quality of audit that we expect.”
Hodge, chairwoman of the panel scrutinising the legislation, warned of a “more complex and fragmented audit regime”.
She said: “We believe that the principle of independent audit – which has guided public-sector audit for the last 150 years – could be undermined if the bill is not amended.”
The report says: “The proposals for self-appointment of auditors risk compromising the independence of audit.
“The government must intervene to ensure that existing governance structures within local bodies are not duplicated; existing contracts are managed proficiently; economies of scale in audit fees are not lost; quality of audit does not diminish; value for money can be measured comprehensively and consistently; fees, especially for smaller bodies, do not increase as a result of increased tendering costs and potential limitations to the market in audit and; processes for auditor removal, whistleblowing and public interest reporting are rigorous enough.”
It says that the government had presented no proper costings on how it would save £137 million a year, as claimed, under the plans.
MPs, after taking evidence from the Audit Commission, say that the figure is likely to be £2.4 million and could even cost public bodies more when extra compliance and regulatory costs for authorities totalling £4 million a year are taken into account.
MPs on the cross-party panel single out the Department of Health for criticism in the report for “failing to provide information in sufficient time for MPs to scrutinise properly the proposed audit and accountability arrangements for Health trusts and commissioning groups.”
Four MPs on the ad-hoc committee are Labour, four Conservative and one Liberal Democrat.
Their report calls for the DCLG to set up a “publicly-accessible register that identifies when a body has not appointed an auditor, when local bodies produce late accounts and where an auditor’s opinion qualifies his conclusions about financial statement or value-for-money conclusions.”
It also calls on the department to “provide clear indemnity provisions for auditors”. Larger authorities face spending more under current plans because they would have to pay to indemnify new auditors against the possible costs of defending critical reports that later become subject to litigation.
Hodge, who also chairs the House of Commons public accounts committee, continued: “The legislation has some gaping holes that pose significant risks. Unless stronger safeguards are put into legislation, whistleblowers might not be able to draw attention to serious failures in local governance.”
She called for the auditor general, who heads the National Audit Office, to be named in the bill alongside the appointed auditor, as someone who may be contacted by any whistleblower.