Audit Commission: An opportunity missed

by Kevin Reed

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05 Apr 2012

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NOW THE DUST has settled on the privatisation of local government audit work, I thought it was worth taking stock of what communities' minster Eric Pickles expects the strategy to achieve, the deals struck, and placing it in context of the audit market.

Pickles wants savings of £50m a year from private auditors undertaking the work in place of the Audit Commission. Whether that occurs is highly contentious. There are the traditional concerns that auditors, wanting to keep hold of work, will be so minded to put the boot into councils if they find problems. The firms of course are at pains to point out that rigour and objectivity is at their core.

What I find most disappointing about this whole affair is that in context of the House of Lords' vocal condemnation of the workings of the audit market, driven by Lord Lawson, the tender process has failed to make any headway in opening up the audit market at all.

The big guys have got bigger.

As FRC chairman Baroness Hogg said during the Lords' audit market enquiry, if the Big Four picked up the Audit Commission work "that will be, at the very least, a big missed opportunity to increase the strength of work done by the non-Big Four firms."

Whether she, or the Lords, would be pleased with how that process went is moot.

Grant Thornton isn't a big Four firm, but pretty big all the same.

Picking up the biggest slice of the Audit Commission's work (more than £42m annually) doesn't really make any headway into competing for other audit work against the Big Four.

In fact KPMG and E&Y scooped £43m of audits between them in the process.

And smaller firms? Littlejohn picked up £700k of work. DA Partnership, which was launched out of the Commission, picked up a £5m contract. Not enough for it to operate standalone, it has become a subsidiary of Mazars and will trade as Mazars DA.

What would DA have achieved with £50m, or £100m, worth of Audit Commission work?

Maybe at that size it could have looked into expanding into private sector services, perhaps pushing the Big Four regionally. But that's all conjecture.

Was the contract tender process carried out fairly? I've no reason to suspect otherwise.

It just feels like an opportunity missed to have shaken things up a bit. But that's the free market for you - just don't tell Lord Lawson.

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