Lost in the accountability maze

As poet and cleric John Donne once remarked: ‘… certainly is there nothing… perfect in this world’. James Stephen’s philosopher in his Irish comic novel The Crock of Gold would agree. For he wisely declared that (like his stirabout left on the hob): ‘Nothing is perfect. There are lumps in it…’ 

Local authority audit is perhaps a case in point. The former Audit Commission, established under the Local Government Finance Act 1982, started life on 1 April 1983, but (like Monty Python’s dead parrot) finally ‘ceased to be’ on 31 March 2015. This followed its abolition under section 1 of the Local Audit and Accountability Act 2014. Sentencing the commission to death on 13 August 2010, communities and local government secretary Eric Pickles said: ‘Ministers believe that the work of the commission has increasingly become less focused on accountability to citizens and more on reporting upwards to government.’ So: ‘The new government will set in train measures to radically scale back centrally imposed, bureaucratic and costly inspection and auditing, saving council taxpayers money.’ And: ‘A new decentralised audit regime will be established, replacing the Audit Commission and providing genuine support for local democratic accountability.’

Following the 2014 act, the audit regime currently includes the following maze of different players with distinct but complementary roles. The Ministry of Housing, Communities & Local Government (MHCLG) has local authority sector oversight and responsibility for maintaining a set of statutory codes and rules requiring councils to act prudently in public spending. The Chartered Institute of Public Finance & Accountancy (CIPFA) issues guidance on the required content of local public body financial statements. The Comptroller and Auditor General/National Audit Office sets standards for local audit by maintaining a Code of Audit Practice for audit of local public bodies and issuing guidance to auditors. The Public Sector Audit Appointments Ltd has responsibility for securing efficient and effective arrangements for the independent appointment of auditors on behalf of local bodies and for setting audit fees. External audit firms have responsibility for reporting their opinion on whether local public bodies’ financial statements give a true and fair view, and for concluding whether the body has made proper arrangements for securing value for money. As to quality review, the Financial Reporting Council (FRC) monitors (among other things) the quality of major local audits in England. Sat nav, anyone?

For, as T.S. Eliot once said: ‘Between the idea/And the reality/Between the motion/And the act/Falls the Shadow.’ And some dark shadows have certainly appeared in the brave new post-Audit Commission world. Particularly trenchant criticism of the current audit regime is found in the April 2021 Research for Action report: Democracy Denied: Audit and accountability failure in local government. This presents evidence of citizen experiences of using the Local Audit and Accountability Act 2014. It ‘demonstrates serious accountability gaps, reveals the significant role played by private auditors in disempowering residents, and shows a concerning lack of accountability on the part of local authorities’. The report found that residents’ requests to inspect the accounts are often obstructed by councils demonstrating ‘a striking lack of awareness of the legislation and – as it seems to those attempting to exercise their rights – often deliberate attempts to conceal information. This has a chilling effect on local democracy’. In the report’s view, the 2014 act ‘enables corporations to act as unaccountable gatekeepers for residents’ concerns’ where ‘objectors encountered a variety of obstructions when asking auditors to produce a public interest report or make a High Court referral’.

However, in June 2019, the former chairman and chief executive of the Commission for Local Administration in England and past president of CIPFA, had been asked to undertake an independent review of the effectiveness of local audit and the transparency of local authority financial reporting. Sir Tony Redmond’s report in September 2020 (Independent Review into the Oversight of Local Audit and the Transparency of Local Authority Financial Reporting) highlighted market fragility, where the current fee structure does not enable auditors to fulfil their roles ‘in an entirely satisfactory way’ with, for example, 40% of audits failing to meet the required reporting deadline in 2018/19. So a key Redmond recommendation was the creation of a new regulatory body, responsible for procurement, contract management, regulation and oversight of local audit. This was envisaged to be ‘small and focused’ and would not represent a body having the same or similar features as the Audit Commission. Also recommended was better communication by each local authority of service information and costs to ensure access for all sections of communities.

But while many of Redmond’s recommendations were agreed, the government was less enthusiastic about a new body, remarking that: ‘We do not wish to recreate the costly, bureaucratic and over-centralised Audit Commission.’ Nevertheless, on 19 May 2021, MHCLG announced (among other things) that the Audit, Reporting and Governance Authority (currently being established) will replace the FRC and ‘bring all regulatory functions into one place, to better coordinate a new, simplified local audit framework’. MHCLG will also ‘set up and chair a Liaison Committee, which will comprise senior stakeholders across the sector that will oversee the governance of the new audit arrangements and ensure they are operating effectively’. The measures, announced on 19 May, ‘finalise the government’s response to Redmond’s independent review into local audit, carried out last year’.

Local audit is at least as old as Aristotle. But while the government agrees that a ‘robust local audit system and transparent local authority financial reporting are key to delivering value for money for taxpayers, and for sustaining public confidence in our systems of local democracy’, that is easier said than done.

Nicholas Dobson writes on local authority, public law and governance