MHCLG 'needs new regulator' to oversee council audit work

Call from independent Redmond Review comes after Audit Commission was scrapped by the coalition government

By Jim Dunton

09 Sep 2020

The Ministry of Housing, Communities and Local Government has been urged to set up a new regulator to oversee audit work provided for local authorities, following an independent review commissioned by the department.

Former Local Government Ombudsman Sir Tony Redmond’s call comes 10 years after the coalition government announced it was scrapping the Audit Commission in a bid to save money and cut bureaucracy. Over the following four years the commission's work was outsourced to private firms.

Redmond’s just published review says “serious concerns” have been expressed regarding the state of the local audit market and the ultimate effectiveness of the work undertaken by audit firms.

The review said stakeholders reported that the current fee structure did not enable auditors to fulfil the role in an entirely satisfactory way, and that MHCLG needed to consider fee hikes for their work.

It added that 40% of audits had failed to meet the required deadline for reporting in 2018-19, signalling a “serious weakness in the ability of auditors to comply with their contractual obligations”.

Redmond said the “underlying feature” of the current local-authority audit framework was the “absence of a body to co-ordinate all stages of the audit process”, which was a necessary factor for providing the right degree of assurance over performance and accountability.

He concluded: “Consequently, a key recommendation is to create a new regulatory body responsible for procurement, contract management, regulation, and oversight of local audit.

“The new body will liaise with the Financial Reporting Council with regard to its role in setting auditing standards. The engagement of audit firms to perform the local audit role would be accompanied by a new price/quality regime to ensure that audits were performed by auditors who possessed the skills, expertise and experience necessary to fulfil the audit of local authorities.”

Redmond said the regulator should be supported by a stakeholder liaison committee that was chaired by MHCLG.

He suggested that the new regulatory body should be “small and focused” and would “not represent a body which has the same or similar features as the Audit Commission”.

The Audit Commission was held up as a beacon of waste by the coalition government which claimed reforming local authority audit would save taxpayers £1.2bn over the course of a decade.

In 2014, then-local  government minister Brandon Lewis said the commission was being scrapped because it was “wasteful, ineffective and undemocratic”.

“What should have been a voice for taxpayers became a creature of the central state,” he said at the time.

“Instead of just auditing accounts: it was regulating, micromanaging, and inspecting, forcing councils to spend time ticking boxes and filling in forms rather than getting on with the business of local government.”

At the time, Lewis said the abolition of the Audit Commission had reduced the cost of council audit fees by 40%.

According to the Institute for Government’s Dying to Improve report,  using the Audit Commission’s services cost councils a combined £50m a year at the organisation’s peak.

An impact assessment accompanying the Local Audit and Accountability Act 2014, which introduced the new audit regime, said the government had been funding the Audit Commission's work to the tune of £28m a year in 2009-10 – the financial year before the coalition government came to power.

The Redmond Review  said it expected the cost of setting up the new regulator to be “approximately £5m” a year, after taking staff transfers into account. However it noted the costing excluded increased fees that authorities would have to pay.

Housing secretary Robert Jenrick said Redmond had delivered a “comprehensive and important” review.

“I will consider the findings and recommendations carefully and remain committed to strengthening the local audit system so that it works more effectively for taxpayers and councils,” he said.

“This government remains committed to a locally-led audit regime, alongside robust local scrutiny and local accountability by the press and public.”

Redmond also called for  improvements in the way councils communicate with taxpayers  to empower local people and improve transparency and accountability.

One such move is a simplified statement of costs to allow taxpayers to measure performance against their council’s achievements.

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