Scrap the Audit Commission

The Audit Commission has made it onto the front page of the Sunday Times this morning. The commission is not the most exciting bit of government but superficially at least they look like an important bit. They started off as in-house auditors for the government but under New Labour their role in performance assessment has come to the fore as they have been used by Labour to try to drive their agenda through to the local level. They started off under the Thatcher administration, created as a result of the 1982 Local Government Act, as a tool to impose some financial discipline on local councils from the centre.

According to the Sunday Times:

ENGLAND’S local government spending watchdog has paid a lobbying firm with links to Labour for advice on how to undermine Tory frontbenchers who challenged its activities.

The Audit Commission, which is supposed to be politically neutral, paid nearly £60,000 to the lobbyists, who advised it to “combat the activities of Eric Pickles”, the Tory party’s chairman.

The story is essentially how ex-GLC Labour councillor head of the Audit Commission has been illegally using £60,000 of public money to pay a Labour insider public affairs company to lobby the government. Why? The reason is organisational self-preservation. The Tories see the Audit Commission as being largely unnecessary and will certainly curtail it, if not destroy it entirely. The organisation employs 2,000 people and costs £216 million per annum to run, see their annual report and accounts here. Most of their income comes from fees they levy on public bodies so it is easy for the central government to dictate an increasingly onerous oversight regime on local government as they don’t pick up the bill – councils and the NHS pay. This all means that the red tape is paid for by ordinary people in the form of higher council tax or worse services.

If you go to Ealing statement of accounts (page 27) here you will see that Ealing spent £533K last year and £681K the year before on audit costs. If you compare with the private sector you will see how costly the Audit Commission is. Take WH Smiths. Their turnover is £1,340 million, compared to Ealing’s £1,107 million. But they only spent £200K on audit last year and £300K the year before. It is straightforward to argue that our one council is paying a premium of over £300K for the Audit Commission’s “added value” service over regular plc auditing practices. (If anyone wants to argue that local government accounting is more complex I would merely say let’s make it simpler and more comprehensible for everyone involved!) This is not the only cost of the Audit Commission. It costs us at least the same again to jump through the Audit Commission’s hoops, to collect the metrics they want, to prepare and take part in their assessments, etc. The total bill for the whole central control mindset imposed by the Audit Commission is in the order of £500-1,000 million per annum. Losing this cost is one of the main points of the Tory’s localism agenda.

Laughably in their annual report the Audit Commission claim to be the 5th biggest audit firm in the UK. You wonder how big they would be if they had to compete with real audit firms?

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5 Responses to Scrap the Audit Commission

  1. Eric Leach says:

    Ealing’s audit costs are truly mind boggling.

    Also the previous head of the Audit Commission (Mr Bourne) was a ‘trougher’ of gargantuan proportions who often flew around the world with his wife in 1st Class. ‘Private Eye’ exposed this terrible misuse of public money and he was eventually turfed out.

  2. Chris says:

    I have audited both public sector bodies and private sector companies and in my experience the higher bills will stem from two requirements – firstly additional auditiing requirements. Local government finances are decided based on statistics sent to national government – these figures are audited and there are also additional regulatory auditing requirements to ensure the council is in compliance with various laws. There are also the value for money audits where you have officers scream at you if they do not get top ratings. Usually members on all politics sides are very grateful for our services as they view us as telling the truth they can’t get out of the officers.

    The second reason for higher bills is that the councils take twice as long to provide information to us, thus as we are kept waiting and we bill more for our time. The culture in private sector is also that everyone understands everyone job, in the public sector, the staff generally only know their bit of the process which makes tracking down information and answers a lot harder.

    It has come down to me actually having to explain basic accountancy principles to a “senior accountant” on 60k a year (we get to see the payroll) when really all they are is a glorified purchase ledger clerk when a company would employ one instead of two at about half the pay.

    Also they come in at 9:30 and leave at 4:30 and never tell you when the department has a meeting or training or seminar so no-one will be there to get information from (this has happenerned ata companies too, but not a often and usually with a fair bit of warning and an effort to ensure the auditors are not idle when they are gone).

    Public sector audit is vital as we need to know where the money is spent, but the value for money is too subjective and there is no box to tick to say the principle behind the project is flawed, just how well money is being spent to achieve that aim.

  3. Phil says:

    Eric,

    As usual you exagerate and get your facts wrong.

    All councils’ audit costs are higher than the private sector but they include a lot of performance management stuff that is centrally imposed and of dubious value to taxpayers. So I might argue they are double what they should be and the extras that are paid for in terms of performance management are not worth it. You have no credibility describing them as “truly mind boggling”.

    Sir John Bourn was chief of the National Audit Office not the Audit commission.

    Chris,

    Thanks for your insights. Just to be clear I am not arguing for no audits. I am saying that they should be done in a similar style to a PLC’s for large public bodies and that the wider, centralised performance management culture should go.

  4. Susan Carey says:

    It costs Kent County Council around £500,000 (in fees and staff time) a year to be audited. The KCC finance team is excellent (no slackers here) but I am very doubtful of the value of the work of the Audit Commission.
    This has got to be an area where major savings can be made.
    Another scandal is the cost of switching to international accountancy standards. In what way will it help transparancy or accountability? It’s a tremendous waste of resources.

  5. George says:

    We certainly need an independent watch dog to monitor and compare how our taxes are being spent. If Ealing picks up some of the advice from Chris then your bills will be reduced – I hope.

    The more scrutiny we get the less likely we will see the Hackney type situations recurring.

    I think it totally invalid to compare Smiths with a Council. They are not a statutory body run by politicians sometimes with quirky ideas.

    I see that despite Ealing having more residents than virtually all other London Boroughs, a scrutiny position is recommended for deletion.

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