Monday, 5 March 2012

Outsourcing the Audit Commission

The Audit Commission has announced the four private firms that are set to replace the Commission's own Audit Practice. Audit fees for most local public bodies may fall by £250m over five years.

The savings will come in part from the award of four contracts to Grant Thornton, KPMG, Ernst & Young and Mazars subsidiary the DA Partnership. The DA Partnership is a wholly-owned subsidiary of Mazars LLP, and will be led by current head of audit practice at the Audit Commission, Gareth Davies.

Mr Davies had been attempting to launch a mutual made up of Audit Commission staff. However, DA partnership has only been awarded one contract for the North East and North Yorkshire - not enough to create an employee-owned independent firm.

Grant Thornton and KPMG already have contracts in place with the Audit Commission, alongside Deloittes, PWC and PKF and these existing contracts will remain in place, so in total there will be seven firms that will undertake the audits of larger public bodies.

The dominance of the so-called 'Big Four' in the market for large company audits is currently under investigation by the Competition Commission.

The outsourcing contracts will run for five years with the option to extend for an additional 3 years, and relates to the audits of larger bodies. The Audit Commission is running in parallel an outsourcing process for the audits of smaller bodies, and has published its outsourcing strategy.

Sir Merrick Cockell, Chairman of the Local Government Association, said:
"The Local Government Association would like to see councils themselves procuring their audit services and we have been working with Government to that end. In the current financial climate this next step towards that goal represents significant and guaranteed savings for five years and that is good news for local government. At a time when they are facing very hard decisions about budgets, this will be a tangible financial benefit to them."
In the meantime, the government is pressing ahead with its plans for disbanding the Audit Commission and is developing the new local public audit framework that will replace the current arrangements. Following the publication of the Government Response to the Consultation on the Future of Local Audit on 4 January 2012, it has undertaken discussions with local public bodies and other key partners.

Staff at the Commission's in-house practice will transfer to the winning bidders on 31 October, leaving a small residual Commission to oversee the outsourced contracts until the Commission is abolished and the contracts transferred.

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