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September 10, 2012

UK local gov’t audit reform may hamper quality, warns ACCA

The Association of Chartered Certified Accountants (ACCA) has warned proposed changes to local UK government audits could result in spend not being audited properly in the future.

In its response to the Government’s Draft Local Audit Bill the ACCA said local government audit needs to be “strengthened and clarified”.

The Bill details a proposed audit framework for local public bodies, the process for the appointment of auditors, and the regulatory framework for local public audit.

ACCA is mainly concerned that a comprehensive impact assessment has not been conducted so far and the focus is “wholly on cost without reference to the impact of downward fee pressures on audit quality”.

“This lack of a comprehensive impact assessment also means costs have been understated, which make it likely that overall savings claimed as a result of the revised audit framework for local government are inflated and may not be sustainable,” ACCA’s public sector head Gillian Fawcett said.

She added the important issue for the ACCA is that the proposals would not place significant amounts of public money at risk or fail to provide assurance about the value for money, but the institute is “not convinced the proposals lay these concerns to rest”.

The institute also calls for more clarity over the threshold for public sector audits – currently at £6.5m ($10.4m) – as the Government is proposing a tiered level approach, which it thinks would confuse rather than add clarity. The current threshold means significant sums of money below that will not be subject to an audit.

According to the ACCA, the proposals as they stand will not bring a “proportionate and risk-based approach to public audit, which delivers accountability and promotes public trust”.

Contracts conundrum

The professional body is also concerned that a large proportion of local government contracts have now been let, and all contracts include a clause for a possible extension until 2020. This means there is potential for some local authorities not to appoint their own local independent auditor for a further 7 years.

“Under such circumstances, it seems irrational that a draft Bill and impact assessment are being put forward to close the Audit Commission (AC) before £89.4m a year contracts have run their course and without any clear strategy for managing them,” Fawcett remarked.

As such ACCA is calling for the regulatory function of the AC to be retained during the lifetime of the contracts. However, the institute offered another alternative of the management of contracts as being determined by HM Treasury and the National Audit Office until “locally independent audit appointments are made”.

Lastly, in its response to the consultation ACCA has suggested that local authority audit committees should have oversight of the auditors and their work.

“We’ve suggested that the Government’s proposals to establish audit panels are unnecessary and will introduce additional costs and burdens on local authorities, as well as muddy the waters for accountability and governance,” Fawcett explained.

“Instead, there should be a statutory duty in the draft Bill for local authorities to have audit committees – these would carry out the functions laid down in the Bill – using industry guidance set down by the Financial Reporting Council to enable this to happen. This would provide local authorities with a clear framework in which to operate – an essential to promote value for money for the future.”

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