The Audit Commission has disputed ministerial claims that scrapping the organisation would save £650m over the next five years.
Using the government’s own figures the regulatory body calculates that savings will be a maximum of £1.7m a year – and even that figure is branded “optimistic” with warnings audit fees will rise once councils manage their individual contract tenders.
However, council leaders have claimed that the LGA will step in to perform one of the commission’s roles, negotiating bulk deals with auditors for smaller councils.
The £1.7m figure stands in stark contrast to the scale of the savings communities secretary Eric Pickles told the LGA conference in June would be saved by scrapping the commission.
“When I spoke to you a while ago, I said scrapping the commission would save £50m a year. I’m sorry. I got it completely wrong. It will actually save nothing like it,” he said. “It will actually save £650m over the next five years”.
The impact assessment included in the draft audit bill shows how changes to the audit regime would reduce annual costs from £246.5m in 2009-10 to £83.3m in 2014-15.
But in its response to the draft audit bill, the commission claims the majority of these savings relate to policy decisions already taken such as the abolition of the Comprehensive Audit Assessment and the outsourcing of audit work agreed by the commission earlier this year – policies that don’t require the body’s abolition.
The draft bill gives the commission’s residual running costs in 2014-15 as £9m. But the commission says it estimates the figure is actually £7.5m and once the transfer of costs to the Financial Reporting Council and the National Audit Office are taken into account, the saving to the taxpayer of abolishing the commission is a mere £1.7m.
Even this figure “is likely to be an optimistic estimate, given the risk that [audit] fees will increase…[because] the competitive prices secured through the commission’s bulk buying in 2012 will be eroded and possibly eradicated when these audits are next tendered in 2017-20” the response says.
A departmental spokesman said: “We disagree with these claims. The facts are clear for all to see closing the Audit Commission and introducing a new local audit framework will save taxpayers £650m over in the next five years.”
“The government has already taken significant steps to secure this saving by ending Comprehensive Area Assessments and asking the commission to outsource the work of its in-house audit practice to the private sector and downsize in preparation for closure.”
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Conservative councillors also cast doubt on whether any savings would have been made without the abolition of the commission.
“The figures they are talking about are spurious,” said Gary Porter, leader of the LGA Conservative group. “The 40% savings [on audit fees] would not have been achieved if the commission hadn’t been under the cosh.”
He also cast doubt on the commission’s claims that savings would be lost when the current outsourced audit contracts came up for renewal. He said that the LGA would perform the role of negotiating bulk contracts to achieve efficiencies of scale.
“The LGA will most certainly step into that space to renegotiate those contracts,” he said.
The impact assessment of the draft bill summarises the costs associated with the Audit Commission framework in the baseline year 2009-10 (ie the last year in which in was running in its fullest form) and 2014-15 (the last year before it is abolished). The savings break down like so:
|Type of cost||Total cost in baseline year (2009-10)||Forecast costs in 2014-15 (final year of residual AC)|
|Paid to firms for outsourced audit work||£40.15m||£73.8m|
|Paid to researchers, contractors and consultants||£14.31m||-|
|Costs of in-house auditors (minus overhead)||£97.27m||-|
|Cost of assessment/inspection (minus overhead)||£21.31m||-|
|Audit Commission statutory responsibilities, support and overhead costs||£48.00m||£9.0m|
|Surplus: contribution to reserves||-||£0.7m|
|Cost to local bodies of compliance||£25.5m||-|
In short, by the time it is abolished, running the commission will cost £163.24m a year less than it did when the coalition took power. The saving from taking the next step, abolishing the commission outright, will be £9m. The commission now claims that its running costs in 2014-15 will actually be £7.5m. Once it is abolished, the impact assessment acknowledges that £2m of this cost will transfer to the FRC “and may be passed back to audited bodies in the form of fees through the [audit] firms” while another £3.8m will transfer to the NAO and be met from the public purse. Therefore the total saving to the taxpayer of the final step will be just £1.7m.