There’s no doubt the Audit Commission made a big mistake in commissioning a public affairs company to help improve relations with the coalition’s ministerial team and, specifically, communities secretary Eric Pickles. But the punishment inflicted by Pickles, abolition of the watchdog by 2012, seems excessive and unreasonable.
While I can’t condone the commission’s actions, I’m not sure that structural reform should be the first reaction. The activity did not undermine the constitutional role of the organisation. It called into question the decisions of people within the commission. Surely, internal reform and some change in personnel would have been more appropriate.
The early reports on abolition appear to highlight ‘extravagance’ and ‘lack of focus’. Again, this feels like a case for change of approach and, perhaps, management rather than organisational mayhem.
Constitutionally, the Audit Commission will need to be reinvented in some similar guise, even if it were to be externalised. Audit is something you might externalise as a first step, but, as shared services and externalisation progress, you would want to bring audit back inside as part of overall risk management and good practice.
Abolition leaves a gap that breaches the implicit relationship between central government, local government and the citizen or elector. It’s like a Borromean knot – three interlinked circles that provide strength and unity. However, if one of the circles is removed the whole structure falls apart.
The commission became part of this knot, linking the citizen with central and local government, both as the historic external auditor and, latterly as the driver for Comprehensive Area Assessments (CAA) and as the lead inspector in the inspection regime.
In a rational world, the partnership between central and local government would be underpinned by an appropriate tax base. As both central and local government are directly elected, there should be no issue about legitimacy. Some services are delivered by Whitehall and some by town halls, and there are choices about how this is done. The citizen would receive services and would pay for them through a mixture of direct charges, local property taxes and central taxation. He or she then expresses satisfaction or otherwise through the ballot box at both national and local level.
But the rationale changed under New Labour. Central government saw itself as responsible for all public services, choosing to deliver some directly, some through agencies and some through local government. This was a big extension of the concept of positive government.
The introduction and proliferation of the inspection regime was one indication of this. Through this mechanism, the government imposed quality control and performance measurement on local government, clearly seeing itself as the piper calling the tune. We have become used to hearing ministers saying that they will not hesitate to step in at local level to ensure that standards are maintained. We now have league tables showing the ‘best’ and the ‘worst’ authorities according to the current criteria.
In one newly-created unitary authority I worked in, we set up a secondary emergency control room complete with all the strategic documentation, maps, ITC links and coffee machine. So many inspectors arrived unannounced and unexpected that we formulated a rule that whichever inspector arrived first on Monday morning got the room for the week.
I became a firm advocate that the Audit Commission should co-ordinate the inspection regime. They understand local government and have professional relationships with client authorities. They are truly independent and can see the whole picture of the challenges facing local authorities. Hitherto, they have provided the overall support and challenge through the annual external audit process, including the management letter.
But with the abolition of CAA and, now, the commission, this will not be possible. The net result of all of this is to create a break in the continuum of the relationships in our Borromean Knot. Without the Audit Commission between government and local government, the relationship with the citizen needs reassessing. The knot is broken and will need to be remade.
A strong and independent Audit Commission is essential to the stewardship and probity of local government. Its record speaks for itself. We need to get past this and get on with the next stage of improving public services in a time of declining resources. This is a knotty enough problem as it is, without these political complications.
We must remake the relationship based on an equal partnership of central and local government, with the Audit Commission as referee. And in that analysis, we must include the citizen: the elector, who seems to have got lost in all these claims about who represents whom.
Jim Brooks is an independent consultant (brooksjim@live.co.uk)
Part of the problem for, and with, the AC was that it was an external unelected critic of elected local authorities and, crucially, controlled by central government. An alternative would have been to make it accountable to parliament – in this case the CLG Select Committee – in the same way the NAO is accountable to the PAC. And in both the AC and NAO cases they should have been freed up to criticize policy openly when necessary (like the GAO in the USA). Whatever the specific arrangements, we need strong independent performance and evaluative audit to support the scrutiny role in central and local government.
The Audit Commission was always vulnerable as a creature of the Minister responsible for local government. Remember it was created in a typically British ad hoc way prior to the overall reform of our UK Exchequer and Audit Department, the latter resulting in the National Audit Office (NAO) – which is of course independent of the Government and reports to the House of Commons Public Accounts Committee. So it would be in any event much healthier if the NAO took over the functions of the Audit Commission. The House of Commons Commission is even able to cover any associated costs, if necessary without Treasury permission. But of course the other task then is to preserve the present independence of the NAO and to protect it from a Treasury take-over; something the original architects of the NAO always feared.
However the immediate danger is for the Local Government Minister to weaken and allow – or even encourage! – councils to rely on their own private sector auditors. Of course that would breach long standing principles of public audit. And “cosy relationships” could then all too readily develop between councils and their private sector auditors. We should remember this is precisely and famously what happened in the Enron disaster – which in turn led to the global collapse of confidence in corporate reporting. The accountants then simply jumped ship. Since then the highest levels of our own public service have not been immune to the blandishments of such expertise.
But crucially, too, public audit has yet to find a formal and systematic role in our supply procedures – by formally contributing to the estimates going forward – as happens in most well organized countries but still not in the UK! So at all costs we must now avoid throwing the baby out with the bathwater.
Does Des McConaghy really believe that there were no examples of ‘cosy relationships’ existing between the Audit Commission and councils?