Time for an overhaul of public audit

Time for an overhaul of public audit

The crisis in company audit has knock on consequences for public audit - and now is a good time to review the remit of the National Audit Office, say John Tizard and David Walker

Time for an overhaul of public audit

Sir John Kingman hit the Financial Reporting Council hard in his report on the professional watchdog a couple of months ago. His focus was company accounting but he also flashed amber at public audit.

The same firms he found had gone AWOL in the audit of private companies are also big players in England’s local government and the NHS. There, too, are worrying gaps in performance. Where were the firms’ public interest reports as public bodies resorted to dodgy manoeuvres; where the red flags, as austerity forced desperate measures in both revenue and capital accounts?

It’s not enough to say the public sector is different and hail the National Audit Office as everyone’s favourite backstop (to coin a phrase). For one thing, the NAO’s remit stops well short of supervising the audit of councils and NHS trusts let alone their spending in any detail. For another (as Kingman pointed out) who is watching this watchdog? Maybe, honest and rigorous as the NAO seems, its own audit work in Whitehall and its effectiveness in stopping ropey spending decisions (e.g. Universal Credit) could bear some scrutiny.

More spending, more audit

Even Tory ministers can now be heard saying that we should be spending more – on defence, housing, security, borders, you name it. That implies sooner or later the public being asked to pay more tax – the magic money tree is a bonsai compared to the rising cost of social care and ageing, the impact of job-shredding technology, filling in the holes left by austerity and reconstruction after Brexit whatever the eventual outcome.

The colour of the Westminster government might change – in present political circumstances anything is possible — and ambitious spending plans unleashed. But even on the left, the case for extra tax has to include assurance that revenues are well and fairly spent.

Fairness is a key word but it’s one that professional accountants don’t always recognise. Economy in public spending we should take for granted. But to efficiency and effectiveness as central aims we have to add equity. It’s time to bring public audit in from the cold and give it ambition and align it with the wider objectives of public policy.

In a new pamphlet for the Smith Institute*, we call for radical changes. They start with pre-screening of spending decisions. The Treasury is good at control and strict in allocating budgets to Whitehall departments. It is oddly negligent about what happens next, about how well projects and programmes are managed, about whether they achieve the stated aim. We propose a new Office of the 3 Es to examine the quality of public spending not just in Whitehall (which the NAO now does) but also in councils and the NHS, comparing and contrasting performance and procurement.

Separating the disciplines

Value for money investigation and use of resources assessment overlap with audit, but they are separate disciplines. Repurposed to focus on the probity and legality of public spending, the NAO would assume responsibility for the quality and supervision of audit across the public sector in England – liaising closely with audit bodies in Scotland, Wales and Northern Ireland. It would not necessarily itself do external audit. But it would ensure quality and repair deficiencies, such as the risk profile of outsourcing, how sustainability is accounted for, the function of internal audit, the consolidation of accounts across the public sector and the digitisation of public business.

In a report last year the ICAEW said a gap had opened between what auditors of local authorities actually do and what they should and are expected to do. But councillors are often baffled by audit and don’t expect enough. After David Cameron killed off of the Audit Commission, oversight of local and health spending has been weakened and confused.

Assent

Later this year, a new head of the NAO takes office; as the stresses and strains of Brexit play out a review become opportune. It’s cannot just be a technical exercise. Confidence in government is at the lowest ebb. But voters can be brought to assent to the taxation that will produce more of those precious public pounds, provided they are assured the money is better accounted for.

*Spending fairly, spending well: time for a radical overhaul of value for money and public audit, published by the Smith Institute Tuesday February 12th

John Tizard and David Walker. Tizard is a consultant and former director of Capita; Walker a former managing director of the Audit Commission

  • This article was amended

 

 

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