Local audit changes could undermine auditor independence

CHANGES to the local audit system whereby local public bodies appoint their own auditors may “inadvertently allow corruption to thrive”, an anti-corruption group has warned.

According to Transparency International, changes proposed in the Local Audit and Accountability Bill may “undermine” the independence of external auditors and constrain their ability to conduct comprehensive investigations.

In a new report, Corruption in Local Government: The Mounting Risks, Transparency International also raised concerns that the procurement process for the external auditors prioritised low prices over high quality.

“The focus on price competition suggest a worrying tendency towards less thorough audits, which might create a more fertile or forgiving environment for corruption in the future,” the report said.

“When local authorities are able to appoint their own external auditors, from 2017, the independence of auditors may be compromised further. They may feel even less able to act without fear or favour, moderating their behaviour with a view to having their contract renewed and ensuring that their bill is paid. Auditors may also be deterred from undertaking additional investigations for fear that the extra costs incurred will be disputed or go unpaid,” the report added.

Following the dismantlement of the Audit Commission, a draft local audit bill was created as part of a new audit regime where local public bodies appoint their own auditors.

In January Margaret Hodge, chair of the Public Accounts Committee, criticised suggested the arrangements set out in the bill “will result in a more complex and fragmented audit regime”.

“The legislation has some gaping holes that pose significant risks. Unless stronger safeguards are put into the legislation, whistleblowers might not be able to draw attention to serious failures in local governance,” Hodge said at the time.

The bill was debated at second reading on 28 October 2013. The Bill has now been sent to a Public Bill Committee.