Kieran Neild-Ali is a Grassroots Assistant at the TaxPayers’ Alliance
The coronavirus is putting extraordinary pressure on organisations of all shapes and sizes, and the same goes for councils. The demands on them are undoubtedly tremendous. But when it comes to council spending this year, that won’t be the full story. As always, the truth lies buried in their annual accounts.
Local authority audits play an important role in holding reckless council spending to account. Audited accounts reveal how councils are spending your money; publicising how much councillors claimed in allowances and expenses, disclosing revenue and spending, and giving the public a picture of the overall health of the authority. External auditors recently uncovered a scandal in Croydon where the cash-strapped authority loaned a failed housing developer £200 million in just five years and received no repayments. Local authority audits are vital for transparency and accountability.
When the Ministry 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 got the complete opposite.
The flagship recommendation of the Redmond Review is the establishment of a new quango, the Office of Local Audit and Regulation (OLAR), to regulate external audits. Simply, a new regulator is not a measured response to the problems facing local authority audits.
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 regulating the entire local audit sector.
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. Ministers should be genuinely concerned that the Redmond Review has basically resurrected the retired Audit Commission in all but name.
The Audit Commission was responsible for the external audit framework and ballooned in size from its inception in 1982. The commission appointed external auditors to local authorities, reported on the auditing process, and undertook performance assessments of English councils. By 2009, the Audit Commission cost the taxpayer £28 million and, like all other quangos, was not accountable to the taxpayers who funded it. It was a product of its time: a big lumbering bureaucratic watchdog heavily reliant on state funding. What was designed to be a voice for taxpayers became a creature of the central state, and a burden to the nations’ finances. Thankfully, the Coalition Government rightly got rid of it.
The breakup of the Audit Commission allowed the creation of smaller autonomous organisations and saved taxpayers money – all this would be undone by the OLAR. The Public Sector Audit Appointments (PSAA) relies on revenue from audit fees charged to local government bodies, and the Financial Reporting Council is funded by the auditing profession, not the state.
History may be repeating itself with the proposed OLAR. By design, the new regulator will consume the majority of auditing responsibilities, micromanaging the process and sending us back to a super quango like the Audit Commission. It won’t be long until the OLAR begins to appoint auditors, consuming the remits of the organisations who’ve already expressed concerns about it. We cannot go back to a ‘nationalised’ external audit framework, resurrecting yet another expensive arm of the state.
Instead of establishing a quango, we must continue to devolve power from central watchdogs to taxpayers themselves – building on the legacy of the coalition’s abolition of the commission.
The Local Audit and Accountability Act 2014 gave residents a right to come to their town hall and inspect the accounts for themselves, giving rise to ‘armchair auditors’ who keep an eagle eye on how their representatives are spending their hard earned cash. This is especially true in Lambeth where armchair auditors uncovered egregious examples of wasteful spending by combing through the council’s accounts. Residents discovered over £8 million worth of invoices had been lost by Lambeth’s finance department, and that their town hall renovation was over budget by over £50 million.
But councils cottoned on to armchair auditors and began to redact documents, impeding the public from scrutinising them. This is a shameful abuse of power which goes against the open government action plan – which MHCLG themselves have failed to deliver on. Councils must change, and government departments must lead from the front.
Rather than top-down inspections and audits, or further bureaucratic overreach, more could be done to open up local authorities’ data and spending to the press and public – so that citizens can hold them to account. Before signing off a multimillion-pound quango, the Ministry of Housing Communities and Local Government should first respond to the 2016 Transparency Code consultation and strengthen local government transparency. The recommendations are easily achievable too, like publishing more financial information online to improve the auditing process. It’s beyond belief that a consultation which ended four years ago is now gathering dust and could be completely junked in favour of setting up yet another quango.
Ministers must think carefully about the very real possibility of giving the OLAR an inch and it taking a mile. Unchecked bureaucracies are a menace to the taxpayer. In times of economic hardship, let alone the extreme demands of coronavirus, the government needs to think outside the quango box and implement policies which don’t further burden ratepayers. Local government transparency is as important now as it ever has been.