The abolition of the Audit Commission and the outsourcing of its contracts is set to save councils £150,000 a year on average, according to government estimates.
Details within the draft Local Audit Bill published on Friday show councils are set to face increased procurement costs as they take over responsibility for tendering audit contracts, but these will be offset by the scrapping of the Comprehensive Area Assessment and the associated compliance costs.
The draft bill and impact assessment, out for consultation until the end of August, also detail new powers to be granted to the National Audit Office and the establishment of independent panels to advise councils about their relationships with auditors.
While the LGA welcomed the move to local audit, it criticised the independent audit panels as “bureaucratic”.
Although communities secretary Eric Pickles has repeatedly trumpeted the estimated £1.1bn saving gained by abolishing the Audit Commission, including £650m in the next five years, the impact assessment is the first time the costs and benefits to local authorities have been set out in detail.
The average total saving per year per local body is estimated to be just over £150,000 by 2019-20, based on assumptions about future audit fees and additional procurement costs as the Audit Commission loses its 70% market share.
|Annual costs of audit for local bodies||Total||Average per local body|
|2009-10: Audit Commission costs||£218,530,000||£250,034|
|2018-19: Audit fees, including cost of regulation||£74,500,000||£85,240|
|2018-19: Compliance costs, incl. procurement & independent panel members||£4,430,000||£5,069|
However, the Department for Communities & Local Government admitted there is “little evidence” to inform estimates of what procurement costs would be and said a number of uncertainties make future fee levels, and the financial impact on audit firms, difficult to predict.
“The department intends to work with the sectors to refine these assessments and would welcome evidence in this, either as part of pre-legislative scrutiny or directly, in this regards,” the impact assessment stated.
Also in the bill are new powers for the NAO, which is set to carry out a small number of value for money reports into local government following the demise of the Audit Commission.
As previously reported by LGC, there have been fears within the sector that there could be “mission creep” with the NAO adopting more of an inspection role.
While the draft bill does allow for the secretary of state to appoint an inspector to examine council’s best value, documents published alongside the bill make it clear the NAO’s role will be limited to studying the “economy, efficiency and effectiveness” of councils.
“These powers do not enable examinations of individual authorities and are not designed to enable assessment of the performance of individual councils or comparative analyses,” the documents state.
The draft bill also requires councils to appoint an auditor panel with a majority of independent members and an independent chairman, the cost of which has been estimated by DCLG to be £4,000 a year on average per council, although it also suggested councils could share panels with other councils or use existing committees.
This requirement has been criticised by the LGA, with the sector seeing it as yet another new requirement set by central government.
Peter Fleming (Con), chairman of the LGA’s improvement board, said: “Allowing town halls to appoint their own auditors is positive and a step in the right direction. However, while there is a need for appropriate safeguards, we have concerns that the proposals for independent audit panels’ would be bureaucratic and we would ask the government to look again at this.
“Audit makes an important contribution to providing reassurance about how public money is spent. However, the new system must be based on allowing local people to hold town halls to account, rather than through central prescription and red tape.”
A DCLG spokesman said: “Replacing the centralised Audit Commission with a more streamlined and transparent system will save the public purse £650m over the next five years, whilst maintaining the same high standards of auditing that the public expects.
“The benefits of these reforms are already visible, with local bodies seeing audit fee reductions of 40% following the outsourcing of the commission’s in-house practice to the private sector.”