Should the UK Audit Commission Continue to Function - Research Paper Example

The Proposed Abolition of the Audit Commission in the UK is a Good Idea Table of Contents 1.0 Introduction 2 1.1 Identification of the Problem 2 1.2 Research Undertaken 3 1.3 Conclusion Reached 3 2.0 Identification of the Research Undertaken 4 3.0 Implication of the Decision for Greater Manchester Fire and Rescue Authority (GMFRA) 4 4.0 Implications for the Fire and Rescue Service 5 5.0 Implications in Other Fields 6 5.1 Legal 6 5.2 Financial 6 5.3 Equality and Diversity 7 5.4 Environmental 7 5.5 Crime and Disorder 7 5.6 Children 8 5.7 Risk Management 8 6.0 Implications for the Eden District Council 8 7.0 Arguments Favouring the Abolition of Audit Commission 9 8.0 Impact of the Abolition in Society that makes it a ‘Good’ Idea 10 8.1 Shifting of Power 11 8.2 Citizen’s Rights 12 8.3 Taxpayer’s Savings 12 8.4 Maintenance of Auditing Standards 12 9.0 Comparison between the Audit’s Commission’s Role in UK and Singapore 13 10.0 Conclusion 14 References 15 1.0 Introduction 1.1 Identification of the Problem The Local Government Finance Act, 1982 established the Audit Commission that commenced its operations in the month of April 1983. The Audit Commission is an independent public body that is responsible for making sure that the money of general public is spent in an effective, efficient and economical way. The spending which the commission takes care of is in the areas of local government, health, criminal justice, housing, rescue and fire services. The major areas of work of the commission are audit, assessment for housing organisations and fire and rescue services and councils; research through which they provide authoritative and independent analysis; and data matching by which they help detect error and fraud to the public body. On 13th of August 2010, Communities Secretary, Eric Pickels announced the disbanding of the Commission on the ground that the Commission rather than taking care of the interests of taxpayers’, has become a ‘creature of the Whitehall State’. For the purpose of restraining the balance in the job performance of the Committee, the decision of disbanding it was taken. The objective of this decision was to bring expertise of professional audit across the country. As a result of the abolition, the Commission’s responsibilities for administering and delivering local inspections and audit will come to an end. The research activities which the Commission used to perform will end and the functions of auditing will shift to the private sector. The councils would be made free to appoint independent external auditors according to their choices from the competitive open market. It is appealed that by this move the council tax payers will be able to save up to £50 million. The new arrangement of audit will be overseen by the National Audit Office with the ensuring of robust scrutiny, probity and healthy competition (Parry & Sear, 2010). 1.2 Research Undertaken With the decision regarding this aspect, a number of issues emerged about the consequences of the abolition of Audit Commission. The research paper will focus on the issues related to decision outcome. The objective of the research paper is to draw a conclusion as to whether the abolition decision was fair enough or not. 1.3 Conclusion Reached From the research data collected regarding the topic, it would be realised that the idea to abolish the Audit Commission would cater effective results not only to the economy but the general local people as well. From the discussion that will be undertaken in the research paper, the advantages of the abolition of Audit Commission will become apparent along with evidences. 2.0 Identification of the Research Undertaken The research about the consequences of the proposed decision to abolish the Audit Commission has been conducted based on secondary research data. The data related to all the possible outcomes predicted by various groups post decision have been analysed with a qualitative perspective of the topic. According to Walker (2010), a ‘distinct hole’ has been created by the abolition of the Audit Commission. The author has described the fact in the context of Department of Health. The research in this paper has been conducted to analyse that ‘hole’ formed in the UK economy (Walker, 2010). The data are of various articles and journals released soon after the decision of abolishing the Commission. The articles have been analysed with proper references in this research paper. The purpose of such analysis is to measure the effects of abolition decision with an aim to draw a conclusion according to the goodness of the decision. 3.0 Implication of the Decision for Greater Manchester Fire and Rescue Authority (GMFRA) The report filed by the County Fire Officer & Chief Executive (2010) identified the following implications of the decision for the GMFRA: The audit of the accounts will be continued to be delivered by the Audit Commission in line with the Statutory Code of Audit Practice in which they are required to provide conclusion on the value for money and financial statements. There will be no issuance of CAA scores by the Commission for work assessment or the overall assessment of organisation that has already been completed for the year 2010 for GMFRA. There will be a period of uncertainty ahead but during this period there should be assurance by the party that will carry out the audit. The assurance is with respect to the local accountability and accurate audit. However, there has been indication by the Authority’s Audit Committee that they will continue to offer services for external audit during the financial year 2011/12. Thus, there should be alternative arrangements for the period of uncertainty where the Authority might have to collaborate with other AGMA Authorities or FRS in the North West. Previously, members were kept updated with various performances and improvements of the Authority. After the decision is finalised it would be a problem to decide as to what methodology should be followed to provide effective and timely information to the members (Audit Committee, 2010). 4.0 Implications for the Fire and Rescue Service The inspecting body for the Fire and Rescue Service are still the Audit Commission. There are certain discussions going on regarding the ways of discharging the roles of assurance towards implementation of the Fire and Rescue Service National Framework. The actual responsibilities and structure regarding the ensuring of Service Led Improvement has not yet been finalised. Thus, from the data, it can be observed that the implications of the move towards Fire and Rescue Service are not in a clear position (Audit Committee, 2010). 5.0 Implications in Other Fields 5.1 Legal Since the Audit Commission had been formulated by the Local Government Finance Act 1982, considering the abolition, the Secretary of State’s proposal will have to take parliamentary approval for revoking the basis of statutory foundation for the Audit Commission (Eden District Council Accounts and Governance Committee, 2010). 5.2 Financial The Eden District Council took on a prioritisation process of resource allocation in which the activities of the council was allocated to one of the four categories of work of the Commission. These categories will remain in action until the adoption of next corporate plan. This form of activity bases should assure that there is savings in the core audit fee but the savings should not be compromised for the quality (Eden District Council Accounts and Governance Committee, 2010). 5.3 Equality and Diversity The council should have a close watch over the unlawful discrimination practices and harassment after the abolition of the Audit Commission and at the same time should strive for the promotion of equality which is under the Equality Act 2006 and certain statutes related to the Act (Eden District Council Accounts and Governance Committee, 2010). 5.4 Environmental As per the environmental factors are concerned, the Council should look after the conservation of biodiversity. This is under the Environmental and Rural Communities Act and the Council should bear the due regard towards this responsibility (Eden District Council Accounts and Governance Committee, 2010). 5.5 Crime and Disorder The Council should have to look after the maintenance of law and disorder in the society. Under the Crime and Disorder Act 1998, the Council should have to bear the due regard towards the need that crime and disorder have to be reduced in the exercising of any of its functions (Eden District Council Accounts and Governance Committee, 2010). 5.6 Children After the abolition of the Audit Commission, the Council have to take concern of safeguarding and promoting the children’s welfare while exercising any of its functions. This is under the Children’s Act 2004 that the Council has to look after this aspect (Eden District Council Accounts and Governance Committee, 2010). 5.7 Risk Management There is still uncertainty in the factors of mitigating the risk. It is expected that there will be collaboration between the Cumbrian Council and the collaborative approach will lessen a few of the risk associated in external audit. But assessment of that risk at this stage is not possible (Eden District Council Accounts and Governance Committee, 2010). 6.0 Implications for the Eden District Council The foremost implication that the abolition of Audit Commission will have on the Eden District Council is with respect to saving the fees on auditing. This is also evident that saving in any form would arise from the abolition of resources of the Commission or the works associated with it and CAA (Comprehensive Area Assessment). The second implication is that, considering the abolition of the Commission, the Council will have to manage for its own external audit. However, it is expected that the Council will perform a joint procurement with Cumbria’s other Local Authorities. This approach would be viable in the sense that the costs of tendering will be shared. Along with this saving, ‘bulk buying’ phenomenon should even help in reducing each Council’s cost. The third implication of the abolition policy for the Council is that the present auditor’s tendering for the Cumbrian Councils will come to an end with the new arrangement that has been announced by the Department for Communities and Local Government (DCLG). The new arrangement by the DCLG will take place with effect from the audit year 2012-13 (Eden District Council Accounts and Governance Committee, 2010). 7.0 Arguments Favouring the Abolition of Audit Commission In a release by Eric Pickels in the Communities and Local Government (2010), it was mentioned that the job provided by the Audit Commission would remain the same even after the abolition but it will be done in a competitive environment. This approach will draw up a basis for professional expertise on audit performance all over the country. The writer put his view that he would like to see the auditing function of the commission ‘independent of the Government’. This phenomenal change in the auditing perspective of the country will provide a future competition for audit business between the private and public sector (Communities and Local Government, 2010). Following the decision that watchdog for the local government would be abolished; Bob Neill (2010) has reported in the Public Finance that the decision was a logical step and should not appear as a surprising factor to the people. The author mentioned that even the people in Audit Commission itself were thinking about going private and hence the decision should not astonish people. The decision should be taken as a mutual understanding among the Local Government, Department for Communities and the Commission (Phillips, 2010). Eric Pickels (2010) again mentioned in an interview with ‘The Telegraph’ that the decision to abolish the Audit Commission has been taken following many years of ‘shocking’ excess in its expenditure. The excess expenditure finally resulted in enjoyment of staffs which is in a way drove by the public expense. The Commission was bestowed with responsibility for checking Local Government and many other public bodies. Mr. Pickels admitted to the press that he was quite disturbed by such deed and even considered that the Audit Commission is no longer ‘fit for the purpose’. Such comments of the writer show the level of annoyance that he was experiencing over the performance of the Commission. Following the various impatience regarding the Commission, the Communities Secretary took that decision. Moreover, the Commission employs more than 2000 people with respect to which the budget stands at more than 200 million pounds in a year. Thus, the writer also mentioned that the abolition would save a considerable amount for the country (The Telegraph, 2010). 8.0 Impact of the Abolition in Society that makes it a ‘Good’ Idea Replacing the Audit Commission, a new decentralised regime of auditing will be formed that will provide valid support for the accountability towards local democratic. The impact of the decentralised regime that will be applicable to police, local health bodies and the local government will foster the following aspects in the economy. 8.1 Shifting of Power Following the abolition, the power will shift from the Westminster to the people. The people, generally the local people, will now be the audience who will be able to assure their decisions on their local spending. This will promote not only decentralisation but also democratic engagement and will put an end to the era of top-down government. The decision will provide new powers to individuals, communities, local councils and neighbourhoods. Thus, the abolition will provide a new dimension to the democratic environment in the country (Communities and Local Government, 2010). 8.2 Citizen’s Rights Due to the abolition decision of Audit Commission, there will be strengthening of the powers of the separate Local Government Ombudsman. The power of the Local government will in turn provide greater rights to the local people to object when anything erroneous happen to them. Thus, the decision to abolish will not only do well to the economy, but it will also be helpful for the citizens (Communities and Local Government, 2010). 8.3 Taxpayer’s Savings The abolition policy, as mentioned earlier, will help the taxpayers to save over £50 million in a year. The saving will be promoted by the saving of the corporate and central costs of the Audit Commission. This is at present paid for by the fees of Commissions that includes the audits’ surcharge inclusive of the amounts paid by the private firms. The Councils will now be able to appoint own external auditors on an independent basis. The appointment of external auditors will reduce costs since they will be from a more competitive environment (Communities and Local Government, 2010). 8.4 Maintenance of Auditing Standards There will still be subjection of the councils and local health bodies towards robust auditing. There will be development of protections for ensuring competence and quality, independence along with the maintenance of a statutory framework guiding the audit quality. The entire work will be looked after by the National Audit Office and profession. There will be an end to the research activities of the Commission and thus ending duplication with others. Hence, there will be greater strengthening of the role of the National Audit Office in this area (Communities and Local Government, 2010). 9.0 Comparison between the Audit’s Commission’s Role in UK and Singapore Audit Commission in UK Audit Committee in Singapore The appropriate comparison of the roles of UK’s Audit Commission and that of another country cannot be made at this stage because there are a lot of uncertainties regarding their existence. The uncertainty is there because the Commission has been proposed to be abolished by the year 2012. As per the roles of the Commission, a final conclusion would be not appropriate to draw because from the research undertaken thus far, the roles that are decentralised are not clear. The Audit Committee of Singapore oversees the Singapore Fund’s policies and practices of the accounting and financial reporting. It also looks after the objectivity and quality of the fund’s financial statements and their independent audit. The Committee takes into account the compliance of the funds with all legal and regulatory requirements. The Auditors are all independent workers and the committee oversees their independence and qualifications. Another important role of the Audit Committee in Singapore is to prepare report as demanded by the rules incorporated in the Securities and Exchange Commission. The report has to be included in the annual proxy statement of the Fund. (The Singapore Fund Inc, 2004). 10.0 Conclusion The research conducted thus far proves the fact that the idea to abolish the Audit Commission in UK is a ‘good idea’. The data presented in the research paper have provided various dimensions to the topic chosen and has made it possible to draw up a conclusion regarding the fact. The Audit Commission has been mentioned to be running off the track from its normal authentic functioning by the person who decided to abolish it. A considerable amount of evidence has also been presented in the research paper supporting the fact. The research has dealt with the consequences that the abolition policy can have over various aspects of the society and has been successful in drawing up the conclusion. References Audit Committee, 2010. Abolition of the Audit Commission and Its Implications for Greater Manchester Fire and Rescue Authority. Agenda Item 6. [Online] Available at: http://authority.manchesterfire.gov.uk/mgConvert2PDF.aspx?ID=252 [Accessed January 07, 2011]. Communities and Local Government, 2010. Eric Pickles to Disband Audit Commission in New Era of Town Hall Transparency. News. [Online] Available at: http://www.communities.gov.uk/news/corporate/1688109 [Accessed January 08, 2011]. Eden District Council Accounts and Governance Committee, 2010. Abolition of the Audit Commission Report of the Director of Finance. Agenda Item No 5. Parry, K. & Sear, C., 2010. Audit Commission: Abolition. Briefing Papers. [Online] Available at: http://www.parliament.uk/briefingpapers/commons/lib/research/briefings/snpc-05681.pdf [Accessed January 07, 2011]. Phillips, L., 2010. Minister Says Abolition of Audit Commission Was A 'Logical Step'. Public Finance. [Online] Available at: http://www.publicfinance.co.uk/news/2010/08/minister-says-abolition-of-audit-commission-was-a-logical-step/ [Accessed January 07, 2011]. The Singapore Fund Inc, 2004. Amended and Restated Audit Committee Charter. Singauditcomm. [Online] Available at: http://www.thesingaporefund.com/pdf/SingAuditComm.pdf [Accessed January 08, 2011]. The Telegraph, 2010. Audit Commission Scrapped as Austerity Drive Intensifies. Politics. [Online] Available at: http://www.telegraph.co.uk/news/newstopics/politics/7944639/Audit-Commission-scrapped-as-austerity-drive-intensifies.html [Accessed January 08, 2011]. Walker, D., 2010. Demise of the Audit Commission. Pubs. [Online] Available at: http://www.accaglobal.com/pubs/members/publications/sector_magazines/health_service_review/archive/2010/81/demise_audit_comission.pdf [Accessed January 07, 2011]. Read More