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Understanding the importance of internal audit

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Faced with the ongoing challenges of the economic climate, it is of little surprise that many councils have decided to cut the services traditionally seen as back office in an effort to protect frontline service delivery.

For the most part, this has worked remarkably well. Our research published earlier this year - The (local) state we’re in - found more than 90% of respondents expected they would deliver their targeted savings for 2011-12; just over one-third were expecting to exceed their target.

Many councils, too, have been busy reshaping internally in recognition that ‘salami slicing’ won’t work over the long term. Some have been adopting innovative structures, seeing agile commissioning models as the answer. Others have been looking to use the Localism Act to delegate delivery to community groups, to unlock both efficiency and generate the kind of ‘ownership’ Big Society is all about.

Almost all have been looking to reduce headcount through natural wastage and ‘sweat’ contracts or partnerships to squeeze more from them. There is an increasing appetite for sharing services, and even leadership teams, between councils.

There is nothing wrong with any of this, and most councils recognise they have little option but to look to make savings in these ways.

But councils also need to recognise that commissioning and outsourced models can run the risk of diffracting the line of sight between the council and the end user; that is all of us.

On top of this, as councils become leaner and more activity is delivered at arm’s length, there is an increasing risk that councils’ control environments will become increasingly degraded.

Spending time, effort and money therefore on activities such as internal audit may not feel like ‘saving’ but a focus on audit and compliance can, in fact, pay significant dividends. Carrying out a wholesale contract audit, for example, can very quickly identify savings across the piece.

It’s often in safeguarding the routine controls that the true value of the ‘third line of defence’ is demonstrated. Using intelligent techniques, internal audit can provide good comfort on changing systems even with smaller overall service budgets.

Quality of service has to remain as important as efficiency and there are immutable standards of good governance that must be respected.

Yes, the ‘new normal’ of local government is a world where value for money has to be championed. But it is also one where reputation and accountability - not to mention customer experience - must not be forgotten.

Justin Martin, partner and public services leader for London

Special feature supplied by PwC


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