A public sector model

Auditing of private organisations has room for improvement. By Paul Gosling

Auditing of public and private bodies could be transformed as a result of a debate that has taken hold of the public audit profession. The significance is heightened because the discussion is led by Sir Peter Kemp, chartered accountant, member of the Audit Commission, and former permanent secretary to the Cabinet Office in charge of establishing the executive agencies that broke up the Civil Service.

A single public audit body would be created to be responsible for auditing all organisations in receipt of public money, if Sir Peter's proposals were accepted. Sir Peter goes on to advocate replacing the current system of private sector auditing, which can encourage cosy relationships between directors and auditors, with the public sector model.

"In my view the public audit system goes further than the private audit system, which doesn't mean private auditors can't do it - 30 per cent of our audits for the Audit Commission are done by private sector auditors. The difference between public and private sector audits is how far the examination goes into the motivations, looking at good behaviour in a wider sense than just legalities.

"The interesting question is whether in the end the private sector is going to have to move towards the public sector approach, with somebody else - a regulatory body which might be the Institute of Chartered Accountants - appointing or approving the auditor, and setting the fee. It is a fiction that auditors report to shareholders."

Good quality auditing, says Sir Peter, is faintly adversarial, which is why public sector auditing, with an externally appointed auditor, is more effective than that of the private sector. The customer for an audit should be recognised as the wider society. While this is particularly true of the public sector, it is also the case with big plcs, which have become so large they should be regarded as social organisations, he says.

The work of the Audit Commission, and district auditors on its behalf, is giving a lead on how auditing in all sectors should develop, Sir Peter believes. Far more attention should be placed on value for money, whether the people in charge have been good citizens, and on environmental impact.

"I have sympathy for those firms of accountants who want limited liability, because it is very unreasonable to ask people to report on environmental matters, with Greenpeace out there suing you at the drop of a hat," says Sir Peter. He believes that the auditing profession should agree with government that in return for limited liability it accepts a wider audit responsibility, with government stipulating the remit. "In the public sector, examinations are done much more profoundly - public interest reports are quite frightening things to local authority people. A public interest report on the behaviour of Shell with Brent Spar might have been an interesting, if very difficult, document," Sir Peter says. But public auditing "still needs to get its act together," believes Sir Peter. He says that, although speaking personally, the Audit Commission believes it is unfortunate that privatisation and the development of quangos have meant that more bodies in receipt of public money are now subject to less rigorous private sector audit standards.

The Government has responded weakly to sensible proposals from the Nolan Committee to strengthen public auditing, Sir Peter adds. The appropriate response would be to amalgamate the National Audit Office - which, Sir Peter says, "I don't think much of" - with the Audit Commission.

A General Audit Office would be responsible for commissioning audits - some in-house, some from the private sector - and reports submitted to an audit committee. Audit committees have been established in NHS trusts, are common in local government, and the Public Accounts Committee could be seen as their equivalent for government departments.

Sir Peter believes that this new national body should have the same powers as those of district auditors, with access to people and files, and could report not only on maladministration, but on policy disasters such as the poll tax and the exchange rate mechanism. This should have the effect of making governments think harder about policy, and ensure that bad advice from permanent secretaries was made public, making the Civil Service more accountable.

"All this ought to happen, and it could happen. I think that eventually if we are going to have public management, and indeed private management, the way it should be - letting chaps get on with the job - the quid pro quo for the state is some kind of idea of how people are appointed, and some kind of audit after the event."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Arts and Entertainment
Under the skin: Sarah Kane in May 1998
theatreThe story behind a new season of Sarah Kane plays
Arts and Entertainment
Preening: Johnny Depp in 'Mortdecai'
filmMortdecai becomes actor's fifth consecutive box office bomb
Sport
Bradford City's reward for their memorable win over Chelsea is a trip to face either Sunderland or Fulham (Getty)
football
News
Lars Andersen took up archery in his mid thirties
video
Voices
Focus E15 Mothers led a protest to highlight the lack of affordable housing in London
voicesLondon’s housing crisis amounts to an abuse of human rights, says Grace Dent
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Client Services Manager - Relationship Management - London

    £30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

    Recruitment Genius: Credit Controller / Customer Service

    £18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

    Guru Careers: In-House / Internal Recruiter

    £25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Day In a Page

    Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

    Auschwitz liberation 70th anniversary

    Woman sent to three Nazi death camps describes surviving gas chamber
    DSK, Dodo the Pimp, and the Carlton Hotel

    The inside track on France's trial of the year

    Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
    As provocative now as they ever were

    Sarah Kane season

    Why her plays are as provocative now as when they were written
    Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

    Murder of Japanese hostage has grim echoes of another killing

    Japanese mood was against what was seen as irresponsible trips to a vicious war zone
    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea