By Kieran Neild-Ali, grassroots assistant
Time and time again, local authorities are caught red handed by the TaxPayers’ Alliance wasting taxpayers’ money and raising taxes - giving ratepayers a rotten deal. So when the Department of Housing, Communities and Local Government commissioned Sir Tony Redmond to review the transparency and quality of councils’ external audits, we had high hopes for a report that would make both holding councils to account, and taxpayers' lives, a whole lot easier.
Instead, we received a package of recommendations which would only add another defective government regulator to the quango bonfire. The flagship recommendation of the Redmond Review is the establishment of a new organisation, the Office of Local Audit and Regulation (OLAR), to regulate external audits. Simply, a new quango is not a measured response to the problems facing local authority audits.
There are, however, two recommendations that are highly conducive to improving council transparency and accountability, and do not rely on a regulator to enforce them. These are the proposal of a new deadline for audited accounts and the publication of a simplified financial statement.
But how did we get to these recommendations?
The review’s findings had two prongs: quality and transparency. Redmond found that in 2018/2019, 40 per cent of external audits missed the 31st July deadline for publishing audited local authority accounts. The review determined that there are systemic problems with the local audit market, claiming that there is “a serious weakness in the ability of auditors to comply with their contractual obligations”. It claims that local authorities have failed to attract new audit firms to their areas of responsibility, and as such, there is a “risk that the firms currently holding local audit contracts will withdraw from the market”. Furthermore, it was said that councils’ audited accounts were “impenetrable to the public”, suggesting current arrangements failed to offer public transparency.
The findings of the report shed a light on major defaults in the audit system. Most importantly, Redmond rightly detected serious problems with financial transparency. Auditing must be improved to ensure the public can hold councils’ spending to account.
1. Costly trojan horse
Redmond argued that the local audit framework is so damaged, that a new “system leader” is needed to regulate every aspect of the auditing process. The review recommends giving the OLAR ‘tools’ to oversee everything including producing annual reports summarising the state of local audit; managing local audit contracts; monitoring and reviewing local audit performance; and determining the code of local audit practice. Effectively generally regulating the local audit sector. In addition, the quango will swallow up additional auditing responsibilities from organisations like the Public Sector Audit Appointments (PSAA) and the Institute of Chartered Accountants (ICA).
Despite prescribing the quango with such a large brief, Redmond insists the regulator will be “small and focused”. It simply doesn't add up. With the review prescribing the OLAR such large oversight over the auditing process, it’s erroneous to suggest the quango will be small and cheap. The report claims the new organisation would cost a relatively small £5 million a year. We should not take this figure at face value - I ask you: which quango has kept to the same budget now as when it was first established? Which public body has entirely avoided mission creep, or even reduced its cost and scope as functions were no longer required? The truth is that quangos rarely stay small. Financial burdens almost always grow. By setting this up, we would be creating a rod for our own back.
2. Renationalisation of auditing
The establishment of another quango is no silver bullet to the audit problem. The existing framework is already littered with a long list of alphabet agencies with the job of overseeing the process.
Redmond’s call to top it all off with a ‘system leader’ is simply adding to the bureaucratic mess. By its design, the OLAR will eventually consume the majority of auditing responsibilities, sending us back to a super quango like the Audit Commission.
Ministers’ alarm bells should ring, because the recommendations amount to nothing less than a reinstatement of the Audit Commission in all but name. The parallels are obvious. The Audit Commission was responsible for the majority of the external audit framework and ballooned in size from its inception in 1982. It won't be long until the OLAR begins to appoint auditors, taking over the PSAA and other organisations who’ve already expressed concerns about the new regulator. Ministers ought to be aware that the Audit Commission cost the government £28 million in 2009 - a sign of things to come if the OLAR is given the green light.
Although “fragmented and piecemeal” as Sir John Kingman rightly described, the breakup of the Audit Commission has allowed the creation of smaller autonomous organisations which in the long run has saved taxpayers money. The PSAA relies on revenue from audit fees charged to local government bodies. The Financial Reporting Council (FRC) is also funded by the auditing profession, not the state. We cannot go back to a ‘nationalised’ external audit framework with big wig bureaucrats running another expensive arm of the state.
3. Positive recommendations
The review did produce some common-sense recommendations that taxpayers will support. To rectify the late submission of audited accounts, Redmond suggested extending the deadline from the 31st July to the 30th September. If the auditing market is failing to meet their contractual obligations to councils, extra time will standardise the publication of local authorities’ audited accounts. With a standardised system, comparisons between council spending will be easier and faster - allowing taxpayers to see how well their council runs their finances relative to neighbouring authorities.
The report also suggested that councils should publish a simpler financial statement in conjunction with their audited accounts. This way, financial detail may be more easily accessible and understood by the public - increasing transparency and allowing residents to hold their local government to account without having to wade through hundreds of pages of accounts.
In recommending another cumbersome quango, the review has jumped the gun and the proposed OLAR is nothing but a costly trojan horse. We need a new way of thinking to overcome governmental challenges that doesn't include more costly quangos. At present we have a patchwork of organisations which aren’t reliant on big taxpayer budgets and are motivated by providing a good service as a business, not a state regulator. Yes, the current operation is fragmented, but the creation of the OLAR would be far worse for the taxpayer.
Instead, legislation can standardise and improve the quality of audits - especially by extending the deadline and forcing auditors to produce a simple financial statement as well as the audited account. These simple changes will make the public better equipped to challenge wasteful spending and are not dependent on another redundant regulator.
Ministers must think carefully about the very real possibility of giving the OLAR an inch and it taking a mile. The government needs to think outside the quango box and implement policies which don't further burden taxpayers in times of economic hardship. Because after all, unchecked bureaucracy is a menace to the taxpayer - endlessly expanding their budgets, awarding pen pushers plush paycheques, and all the while evading proper scrutiny. It’s happened before, and it’ll happen again.