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Local public audit: expectations gap

Trust and confidence in public spending can only be enhanced by building a framework of accountability, transparency, governance and ethics. Ultimately the responsibility for government spending rests with the government departments which delegate responsibility for local spending down to local public bodies. It is therefore important for local public bodies to demonstrate to the public that this money has been spent efficiently and effectively.

One way that the public builds this trust is knowing that there is an external audit carried out of each local public body and that the audit opinion provides assurance that the information in the financial statements shows a true and fair view of how that money has been raised and spent. The strength of the arrangements in England is that local public audit has a wider scope and local public auditors have wider reporting powers. However, there are potential areas of improvement that need to be considered for the new local public audit regime to be fully effective.

The role of auditors is therefore important. However, this role is often misunderstood and different stakeholders have differing expectations of what an audit is and what the auditors should do, which often creates an audit expectations gap.

In this paper, we:

  • outline how the role of local public auditors in England has changed after the 2010 policy changes implemented by the government;
  • capture the issues that local public bodies in England are facing in the current economic climate against a backdrop of financial instability, increasing demands for services from an ageing and increasing population, complex structures (both organisational and financial) and weaknesses of effective accountability and governance structures; and
  • offer solutions to some of the key the issues and concerns raised by those that have an interest in the audit of local public bodies.

Some of the solutions identified in the paper are slightly radical and require all stakeholders to disregard some of their long-held assumptions to work together to achieve the required outcomes. Falling back on old ways of doing something, and indeed hiding behind legislative, regulatory or international standards may prove to be restrictive and hinder progress of the audit profession. There are clearly concerns and challenges. To overcome these, innovative solutions are needed.

The findings in this paper will feed into a wider debate on the role of the auditor and the audit expectations gap in the private sector. While private sector auditors are under intense scrutiny, local public auditors have similar issues to address, albeit with wider responsibilities and powers in relation to public money.