Research Project

Show Me the Money: Accounting for Localism
4 April, 2011

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As Communities Minister Grant Shapps launches plans for the future of local government audit, a new report from localism think tank the New Local Government Network (NLGN), challenges government to avoid a dangerous decline in public trust in councils by letting citizens take the lead in auditing local government finances.

Based on extensive research across the sector, Show Me the Money: Accounting for localism is the first comprehensive analysis of the future of local government audit and warns that the abolition of the Audit Commission could have a disastrous effect on public faith in local government if ineffective safeguards allow council finances to fail. To prevent this, the government must actively encourage the public’s involvement and allow a ‘Citizen Right of Appeal’ in circumstances where auditor independence may be compromised.

The report also calls on government to avert the dangers of an uncompetitive audit market and higher costs to councils. NLGN recommends that the Audit Commission Practice is rolled out as a mutual, to create another ‘player’ to compete with existing providers and drive market competition and quality.

Report author Olivier Roth said:

“We’re pleased to see that the government has recognized the need for a more open and less centralized system for auditing local councils, but if the new model doesn’t work and we see the deterioration or collapse of some councils’ finances, then public confidence in localism will be seriously undermined. With the audit landscape and public finances in turmoil, the best way to reassure citizens is to let them take the front seat in the drive for stable council finances.”

“We recommend giving citizens real power in auditing councils’ finances through measures such as independent, citizen-led auditor appointment panels, and a ‘Right of Appeal’ when auditor independence is compromised.”

“Without the Audit Commission Practice acting as an additional player in the market, there are real concerns that the market could become a closed shop, barring new business entry and raising the costs faced by councils. NLGN’s new model of audit would not only reinforce local accountability but also provide a unique chance to ensure an open, competitive and inclusive audit market”

Show Me the Money also argues that barriers to entry for small and medium tier firms should be removed by reducing the complexity of audit requirements and clear guidance introduced to guard against appointing on current ‘experience’.

Below researcher Olivier Roth discusses the details of his new report on the proposed shake up of local government auditing and accounting.

Publication Date: 4 April 2011
ISBN: 978 1 903 447 91 8
Authored by: Nigel Keohane, Olivier Roth, Luke Hildyard and Shinjini Mehta