Public audit will soon need a spring clean

By John Tizard and David Walker | 19 February 2019
  • David Walker

In austerity, how public spending is audited has come to feel secondary, even irrelevant. If councils have no money, what’s the point of accounting for it? Local authority audit committees are shadowy and ill-attended. Councils have handed over external audit to private firms and it’s now ‘weak and limited’, according to Sir John Kingman’s recent review of accountancy regulation.

The collapse of Northamptonshire CC may not be down to a single factor, but the failure of its auditors to shout from the rooftops years ago is a telling part of the story.

Yet audit is meant to help ensure public money is spent honestly and according to the norms of good financial management. One day (soon!) money will flow again and when it does – this may even be a precondition of taxpayers’ agreeing to pay more – public audit will need a thorough spring clean.

Now is a good time for that clean. Later this year Gareth Davies will succeed Sir Amyas Morse as head of the National Audit Office (NAO) and he brings substantial local government experience to the role. The review called for the abolition of the Financial Reporting Council and exposed the anomalous role this private sector body has had as supervisor of local public audit quality.

There is another compelling reason for review and reform, which we outline in our new Smith Institute report: Spending fairly, spending well: time for a radical overhaul of value for money and public audit. Citizens are now telling pollsters they want more spending. But, before the taps are turned on, they also want assurance money will be well – and fairly – spent. This will require big changes.

Audit and the pursuit of value for money (VFM) overlap, but they are different disciplines. In local government, assessing VFM is shared untidily between scrutiny committees, peer review and service regulators such as Ofsted and the Care Quality Commission. In the NHS, VFM work is ad hoc, squabbled over by NHS England and NHS Improvement. In Scotland, Wales and Northern Ireland things are clearer, with single accounts offices responsible for the whole public sector.

It’s not just about rationalising this lumpy landscape. It’s also about inserting another ‘E’ into VFM’s holy trinity of efficiency, effectiveness and economy. The latter we can surely take for granted, especially in local government. What traditional audit never looked at was the E of equity: who gets the spending and, crucially, where. Arguments about grant distribution from the Key Cities group and the northern metropolitan authorities could be made with all the more force if VFM studies encompassed fairness and identified who gets the benefit.

Reform starts at the centre. Brexit has held up the comprehensive spending review due to start this spring. HM Treasury is good at control and at tight allocations to departments; it has a poor record at assessing spending, joining ends up and ensuring objectives are met. It rarely asks who benefits from the spending and about the detail of delivery. Absence of answers to those critical questions helps explain the debacle that is Universal Credit.

Our recommendations start with a Public Interest Appraisal Unit to mobilise evidence before spending decisions are made – local government participation in this is an absolute necessity. Next, we propose unifying the examination and assessment of value for money across the whole public sector in England, in a new office of the ‘3Es’ (efficiency, effectiveness and equity).

The NAO should be repurposed as the supervisor of public audit. It could harmonise standards in such vital areas as sustainability, accounting for IT, definitions of capital and intra-public-sector transfers.

The NAO is currently answerable to the House of Commons and local government might rightly jib at the idea of MPs interfering in their business. But we are now in constitutional flux and post-Brexit there will be major alterations to the balance of powers.

Councillors should seize any opportunity of gathering evidence about service effectiveness – our office of the 3Es would be empowered to collect cost and performance data, allowing comparison and contrast, not just among local authorities, but between them and NHS trusts, police and fire and – for the first time – between them and government agencies.

These agencies and their performance analysis would be invaluable to local authorities adopting a place-based approach and/or establishing local public accounts committees aiming to scrutinise, not just council-provided services, but the array of public services in an area.

Councils say they have become lean and efficient relative to other parts of government; let’s have an impartial and rigorous agency that will prove it.

John Tizard is a strategic adviser, former council leader and former director of Capita; David Walker is a former director of the Audit Commission

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