Exclusive: Accountancy Age news analysis – KPMG slates district audit

In its evidence to the Commons environment subcommittee investigating the work of the Audit Commission, the firm blames District Audit for the situation. In no uncertain terms it claims the arm’s length agency of the commission has reduced the number of trainees to ‘maximise its income’ and uses ‘short-term contract employees, many on temporary working visas from overseas’.

It says the inspection of Best Value Performance Plans will increase demand for experienced people at a time when the supply ‘is in danger of drying up’. ‘A reduction in the supply of new UK public sector audit specialists will have serious potential long-term disadvantages to the UK public sector,’ according to KPMG’s hard-hitting report.

The inquiry into the commission, the first of its kind, has prompted heavy criticism. In previous committee sessions harsh words have also come from the Local Government Association, CIPFA and senior local government officers.

The uprising marks a sharp change of attitude towards the commission which has enjoyed something of a charmed life in recent years. In turning itself back into a potential party of government in the run up to the 1997 election, Labour’s plans to reform public services relied very much on the commission. ‘Quality’ became the watchword of both Labour and the commission in the drive to improve economy, efficiency and effectiveness in public sector service delivery.

By sharing Labour’s core themes the commission, and its controller Andrew Foster, has been able to expand its remit into new areas in the health service and housing world, as well as consolidating its position in its traditional stronghold of local government.

KPMG will appear before the committee next week to give evidence, but has been among the most vociferous critics of the commission and District Audit in written submissions. The firm complains the market for audit work run by the commission is deterring people from entering the public sector because they believe big firms are being driven out and therefore unlikely to invest in public sector training.

Audit Commission figures show PricewaterhouseCoopers, with 14%, is the only private firm with a larger share of public-sector audit work than KPMG at 8%. District Audit currently has 71% but KPMG argues that figure should be reduced to 50%.

The KPMG report says: ‘This leaves insufficient scope for private suppliers to compete fairly against DA, to increase the volume of audit work they derive from the Audit Commission and thereby find economies of scale sufficient to justify continued investment in maintaining quality by recruitment, career development and training.’

So far District Audit and the Audit Commission have declined to comment publicly about the stinging attacks. Both are keeping a close counsel until their respective appearances before the committee on 15 February and 1 March.

They will have tough questions to answer, as Foster knows after personally attending a hearing of the committee last week. Sitting at the back of the room he heard complaints about the cost, quality and number of audits currently being carried out.

Matthew Warburton, head of strategy at the Local Government Association, told the hearing that local authorities felt they had ‘insufficient input’ into the aim of work carried out by auditors and feel strongly that despite having no influence, local authorities ‘still have to foot the bill’.

Warburton added local authorities also feel the quality of work is ‘inhibited’ because junior staff are being used to carry the technical work of audit.

And with Best Value coming on stream it was made very clear by Gordon Keymer, also of the LGA, that there are serious concerns about the cost facing local authorities.

Admittedly views are not uniform. Stephen Freer, chief executive designate of CIPFA, told the meeting large private companies may be driven away from working in public audit because fees are too low.

But with such a barrage of criticism mounting against them, the commission and District Audit, are already preparing their defence. From past performances members of the select committee will also be ready with hard questions.

The committee plans to make its initial thoughts about the commission known next Tuesday when it issues its first report. But with hearings continuing well beyond that, this debate will run and run.

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