Is the end nigh? Nay

Public-Sector Finance Paul Gosling finds the District Audit alive and kicking - and improving

When the Butler review of the Audit Commission was published in August some expected it to mark the beginning of the end for District Audit, the commission's arm's-length agency that conducts 70 per cent of local authority, health authority and NHS trust audits.

Jim Butler, author of the report, said that district auditors should be chosen on merit, and told the Independent that he favoured competitive tendering being used for all contracts. With District Audit winning only one out of eight contracts in the initial tranche of market testing, the writing seemed to be on the wall for District Audit, with some private firms looking forward to picking up more public work.

But it looks as though District Audit will be around for a long time to come, after all. While the commission has welcomed the Butler review and accepted its recommendations, this has not extended market testing beyond the fairly limited scope that had been embarked on, which will alter the 70/30 public/private split only gradually.

"We have standard targets of 1 to 2 per cent market testing of contracts per year," says an Audit Commission spokesman. "We must get the audited bodies to agree to this, we can't just impose this on them, and there are strict eligibility criteria."

The commission is just releasing the specifications for the next batch of market testing, for agreement with the audited bodies, in this case five NHS trusts in Wales. That contract will be awarded in April next year, for commencement a year later. A similar process for the London boroughs and the metropolitan councils will begin in December 1996.

David Prince, chief executive of District Audit, says: "It is a matter for the commission to decide how far it goes with market testing, but it is not without cost. You can get most of the benefits of the programme without increasing overheads." The lessons learnt from a restricted market testing programme can be passed on to all clients.

The view that there is no need to introduce competitive tendering for all audit contracts receives surprisingly little criticism from the private firms. Price Waterhouse's spokesman says: "We are comfortable with the way things are." He adds that historically they won a large amount of the 30 per cent of work not carried out by District Audit.

Mr Prince stresses that District Audit is in a good position to cope with private-sector competition, having learnt a lot from the initial market testing exercise. He believes the greatest weakness displayed was DA's poor presentation skills, which have since been strengthened.

The Butler review, though, focused on other weaknesses, pointing out that the high-quality Audit Commission national value-for-money reports were not being translated effectively into local situations, blaming a weakness in relations between the commission and local district auditors, whether from DA or private firms.

Mr Prince believes that these problems had already been recognised, and were being resolved. "We are putting a greater emphasis on specialists and changing our skills mix, bringing people in on secondment," he says.

"We use a lot of people who are not auditors, we have more than 200 people who have non-financial disciplines from the public and private sectors, such as teachers, health managers and doctors, and we are making increasing use of them. Auditors are then that much closer to the bodies they are auditing. We want to tailor studies to the needs of the organisation we are auditing.

"We have been working on our own change programme for just over a year, since we became an agency. The Butler report reinforces the direction we are already going forward in."

Mr Prince points to DA's local value-for-money reports that have recently led to big savings. The London fraud initiative saved pounds 2m in just one borough, by matching names on computer databases across the city, finding people who were making multiple student grant and housing benefit applications.

Another study found some highways authorities could save pounds 50,000 annually by replacing bulbs in street lights half as often or, in other instances, by using a different type. And a DA investigation into computer security found that hospitals and local authorities were vulnerable to outside hackers as well as unauthorised access within organisations, and gave clients a free computer programme to create an audit trail of illicit data access.

"At the moment market testing affects a relatively small amount of our work," says Mr Prince. "We have been concentrating on developing new products as we want to give all our audited bodies the benefits of our thinking."

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