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; request a free guide on NISAs from Hargreaves Lansdown

Life and Style
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
Ruby Wax has previously written about her mental health problems in her book Sane New World
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Marketing Services Manager - (communications, testing, DM)

    £32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

    Guru Careers: Finance Account Manager

    £Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

    Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

    £40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

    Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

    £45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

    Paul Scholes column

    It's a little-known fact, but I have played one of the seven dwarves
    Fifa's travelling circus once again steals limelight from real stars

    Fifa's travelling circus once again steals limelight from real stars

    Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
    Frank Warren column: 2014 – boxing is back and winning new fans

    Frank Warren: Boxing is back and winning new fans

    2014 proves it's now one of sport's biggest hitters again
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas