On 13 August 2010, communities and local government secretary Eric Pickles announced the Audit Commission’s forthcoming demise. He claimed that the commission had ‘lost its way’, moving from being a watchdog championing taxpayers’ interests to a ‘creature of the Whitehall state’.

Public audit has had a long history going back to the days of Oliver Twist and Mr Bumble. But local authority audit as we currently know it arrived on 1 April 1983 when the Audit Commission (established by the Local Government Finance Act 1982) commenced operations. Subsequently, the majority of the commission’s functions were consolidated into the current constitutional statute – the Audit Commission Act 1998, which has itself been amended considerably over the years. It is now a substantial measure, dealing not only with the accounts and audit of local authorities and other bodies audited under the commission’s aegis, but also with data matching, studies, performance standards and the provision of information to the commission.

But Pickles apparently does not regard the commission as a Good Thing. He aims to save the taxpayer £50m a year by replacing ‘bureaucratic accountability with democratic accountability’. Among the measures announced will be the moving of the commission’s audit expertise to the private sector, leaving councils ‘free to appoint their own independent external auditors from a more competitive and open market’. The new regime is envisaged to be in place from 2012/13.

Currently, external auditors of local authorities and other relevant bodies are appointed by the commission under section 3 of the 1998 act, which prescribes eligibility and enables the appointment of commission officers, other individuals or firms. In practice, most audit appointees are either commission officers (still widely designated and referred to as district auditors) or private accountancy firms. Pickles wants the commission’s ‘in-house audit practice’ to be transferred out of public ownership. A ‘range of options’ will therefore ‘be developed for converting the audit practice into a business independent of government which could be sold or otherwise transferred into the private sector’. And instead of the commission appointing council auditors, ‘councils will be free to appoint their own independent external auditors from a more competitive and open market’.

But what will happen to sound corporate governance if audited bodies are given the whip hand of appointment over their auditors? Wasn’t it precisely an unhealthy coziness between auditor and audited that produced the Enron and WorldCom debacles? Government ministers do admit that they face a ‘big challenge’ to ensure the ‘integrity of the audit function’, which is ‘crucial’. However, they are ‘absolutely sure’ that this can be done through the National Audit Office while ‘safeguarding against potential conflicts of interest’.

Following Pickles’ announcement, Audit Commission chairman Michael O’Higgins vigorously defended the track record of the commission. In a statement issued on 13 August, O’Higgins noted the commission’s ‘very significant successes’ including the investigation of the Liverpool and Lambeth rate-capping rebellion in 1985/86, the uncovering of the ‘homes for votes’ scandal at Westminster council, and the 2010 corporate governance inspection of Doncaster Council. And in an open letter to Pickles on 16 August, O’Higgins rebutted accusations of wasting public money. He pointed out that while racecourse facilities had been used for conference and meeting purposes, there were never any ‘days at the races’. Neither, he added, did the commission hire a PR firm to ‘lobby’ against shadow ministers. What it actually did was spend £9,000 on a ‘perceptions audit and influence map to help staff better understand the expectations of the forthcoming Comprehensive Area Assessment’. But, speaking on BBC Radio 4’s Today programme on 23 August, local government minister Bob Neill said that, while the commission had been ‘behaving as a large corporate’, it was nevertheless in the public sector, ‘and in the current circumstances that was not acceptable’.

So there follows a period of uncertainty for local government audit while the government decides how to balance the complex equation of ensuring proper stewardship of public resources while extracting maximum value from public money in a time of severe financial austerity. But unless the Coalition falls apart and a very different government emerges in its place, it does look like the Audit Commission is set to disappear, with its various functions reconfigured, removed or reassigned. Nevertheless, public confidence in the integrity of the audit process is indeed ‘crucial’. So whatever mechanisms the government creates to replace the current system it is vital that these are robustly effective to secure and maintain public trust in the audit of local and other public authorities.

Legal professional privilegeLegal advice privilege arises out of the relationship of confidence between lawyer and client. It exists where there have been confidential communications between a client and their lawyers for the predominant purpose of giving or receiving legal advice. The privilege gives the person entitled to it the right to decline to disclose or to allow disclosure of the confidential communication in question. In Balabel v Air India [1988] 1 Ch 317, Taylor LJ pointed out that for the purposes of attracting legal advice privilege: ‘...Legal advice is not confined to telling the client the law; it must include advice as to what should prudently and sensibly be done in the relevant legal context.’ If the privilege exists, it is absolute and cannot (as Lord Scott pointed out in Three Rivers District Council and others v Governor and Company of the Bank of England (No 5) [2004] UKHL 48) ‘be overridden by some supposedly greater public interest’. However, in cases of doubt as to whether the advice was actually framed in a ‘relevant legal context’, Lord Scott indicated in Three Rivers that ‘the judge called upon to make the decision should ask whether the advice relates to the rights, liabilities, obligations or remedies of the client either under private law or under public law.’ If it does not, then legal advice privilege would not apply.

The client of a solicitor employed by a local authority is of course the authority. But what of local authority communications produced by a qualified solicitor but in the capacity of ‘monitoring officer’? This was an issue in the appeal to the First Tier Tribunal (Information Rights) in Surrey Heath Borough Council and Kevin McCullen v Information Commissioner (EA/2010/0034).

McCullen complained to the council concerning its decision to permit the felling of 200 trees within a property and also contended that in relation to the grant of planning consent a council planning officer had been treated more favourably than an ordinary applicant. The council’s monitoring officer (Karen Whelan) had produced a report into this and other concerns of which McCullen was provided with a precis. On his request for a full copy of the report the council refused, arguing that this was exempt from disclosure under section 42 of the Freedom of Information Act 2000 (legal professional privilege).

The tribunal considered that the information in question was environmental information and fell to be considered under the Environmental Information Regulations 2004 (SI2004 No3391). Regulation 12(5)(b) was considered in this context. This is one of the exceptions to the duty to disclose environmental information contained in regulation 12 and (subject to conditions) provides an exemption from disclosure to the extent that such disclosure ‘would adversely affect... the course of justice, the ­ability of a person to receive a fair trial or the ability of a public authority to conduct an inquiry of a criminal or disciplinary nature’. The limiting conditions are that ‘in all the circumstances of the case, the public interest in maintaining the exception outweighs the public interest in disclosing the information’ (regulation 12(1)(b)). Also that a ‘public authority shall apply a presumption in favour of disclosure’ (regulation 12(2)).

The tribunal rejected the council’s contentions that the report was exempt under these provisions. It noted that the test is whether disclosure ‘would’ and not ‘might’ or ‘could’ adversely affect the course of justice etc. In addition, the tribunal found ‘no evidence, beyond assertion... that Ms Whelan was acting in her professional capacity as a solicitor’. Submissions from McCullen were noted including that the monitoring officer does not have to be a lawyer and that the current incumbent of the post is not legally qualified. The tribunal also did not accept that the report had been created in order to advise the council in relation to McCullen’s complaints. And the tribunal was not satisfied that any trial or legal proceedings were in contemplation when the information request was being considered. In the circumstances, it considered that the exemption was not engaged but in any event it was ‘satisfied that the public interest lies strongly in favour of disclosure’.

While the privilege issue was determined in relation to the 2004 regulations, in terms of Three Rivers it seems the tribunal found no relevant legal context concerning the report in question. Following Surrey Heath, lawyer monitoring officers wishing to give privileged legal advice to their employing authorities will wish to make the nature and context of the communication clear and explicit. But the case may also serve as a cautionary tale for authorities merely wishing to avoid disclosure. Given that public authorities exist only to serve the public, transparency of operation is now generally expected, in the absence of good reason.

Dr Nicholas Dobson is a senior consultant with Pannone specialising in local and public law, and is also communications officer for the Association of Council Secretaries and Solicitors