In the National Interest: The right to choose

22 Jun 2011 | Stephen Fitzgerald

ONE of the most important things going on in public sector finance at present is the consultation on the future of public audit.

The government is in the process of disbanding the Audit Commission and is now consulting on the future of public sector audit. This will be of particular interest to public sector finance directors.

One thing I see as a positive move in the change is that local authorities will now be empowered to appoint their own auditors, rather than appointments being handled by the Commission.

It has always seemed curious to me that private companies could be entrusted to appoint their own auditors whereas local authorities, in the past, have not had that responsibility.

The argument for external appointment of auditors has been to guarantee an independence which would otherwise not exist if the audit firms were directly engaged.

I am not sure that I entirely agree. Surely, professional integrity cannot be so weak that independence cannot be maintained within the new regime. The setting of professional standards by the accounting bodies – the National Audit Office and the Financial Reporting Council – should provide appropriate oversight of audit practice to ensure independence and integrity are maintained.

I believe that the ability of authorities to appoint their own auditors makes it possible to maintain a closer ownership of the audit agenda locally. A genuine audit partnership can be established that maintains independence of the auditor, supports the maintenance of a robust framework of internal control, and provides enhanced value for money.

A further key development for local authorities is the requirement that a majority of members on audit committees, including the chair, must be independent of the public body. This could fundamentally change the structure of audit committees in many local authorities. However, there are concerns about this: it may be a struggle to find independent members with the appropriate qualification and commitment.

There is also a risk of losing the contribution provided by elected councillors of the authority who have a detailed knowledge of the organisation. I believe that this will be a matter for a debate going forwards.

In the pressurised financial environment that the public sector is currently facing, external audit in its new regime will be very important in the future. The consultation is still open and can be found on the Communities & Local Government website: www.communities.gov.uk.

Stephen Fitzgerald is director of finance at Hounslow Borough Council.