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January 17, 2013

UK Draft Local Audit Bill too risky, warn MPs

UK MPs have warned that the Draft Local Audit Bill still contains risks and gaps which require serious attention.

The Draft Local Audit Bill ad hoc Committee (DLABAC), which was appointed by the House of Commons to examine the Draft Local Audit Bill, said the legislation intended to deliver a more efficient and transparent local audit system may not save money, potentially undermines the integrity of the audit system and may fail to deliver accountability.

DLABAC chairman MP Margaret Hodge said the legislation has some "gaping holes that pose significant risks".

"Unless stronger safeguards are put into the legislation, whistleblowers might not be able to draw attention to serious failures in local governance. In particular, we call for the comptroller and auditor general of the National Audit Office to be named in the Bill alongside the appointed auditor, as another prescribed person who may be contacted by any whistleblower," She warned.

In its report the committee also warned that the Financial Reporting Council does not currently understand its proposed new role or the characteristics particular to public sector audit and criticised the Department of Health for failing to provide information in sufficient time for MPs to properly scrutinise the proposed audit and accountability arrangements for Health trusts and commissioning groups.

Lastly, before any bill is passed by the Government, DLABAC has called for:

The draft bill to be amended to provide the comptroller and auditor general with a duty to publish detailed mandatory guidance to accompany the code and to report annually to Parliament on the Code’s effectiveness;

The DCLG to establish a publically accessible register to identify 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;

The DCLG to provide clear indemnity provisions for auditors and take advice from the comptroller and auditor general on this issue where necessary; and,

The Cabinet Office to take responsibility for the National Fraud Initiative (NFI) and for all possible uses of NFI, to be set out on the face of the bill.

Added complexitiesHodge said there is a concern the "proposed new arrangements as set out in the draft Bill will result in a more complex and fragmented audit regime. We believe 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".

"It will become more difficult to ensure value-for- money if provisions in the Bill are not strengthened so that appropriate data which enables proper analyses and comparisons to be made are required by statute," She continued.

"We call on the Government to listen to our concerns and ensure that legislation is revised to impose a statutory requirement on local bodies to form strengthened audit committees and for any decision to remove an auditor to be made only in agreement with full council or the relevant governing body."

Both the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Association of Chartered Certified Accountants (ACCA) have welcomed DLABAC’S calls for a rethink of public sector audit plans after individually expressing concerns when the Governments proposals were announced in 2010.

"There are so many issues to address as highlighted in the committee’s report that it is apparent major surgery is needed to make the new audit framework fit for purpose, particularly in ensuring there are adequate arrangements for auditing health bodies and strengthening audit committees," ACCA head of technical John Davies said.

CIPFA said public audit is a "critical element of strong Public Financial Management, alongside the ability to compare the performance of public bodies. Previously the Audit Commission facilitated comparison of this data, the report highlights some of our concerns this may not continue following the Commission’s abolition".

CIPFA’s director of policy and technical Ian Carruthers urged the Government to "consider these issues seriously and work with us to address them."

Related linksDraft Local Audit Bill ad hoc Committee: scrutiny report

Draft Local Audit Bill ad hoc Committee

Chartered Institute of Public Finance and Accountancy

Association of Chartered Certified Accountants

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