Corruption, auditors and standards in public life

2 Apr

Transparency International UK

Corruption in the UK, Part 2: assessment of key sectors

Page 49 onwards:

Local Government

….. One area that was specifically identified as susceptible to local government corruption is procurement. Local government currently has an overall annual procurement budget of £80 billion. Procurement corruption can occur at any point during the key stages of the procurement process: bid specification; market analysis; invitation to bid; evaluation and award; project management; review. What is perhaps most alarming is just how little fraud and corruption is currently being detected. An Audit Commission survey found that in 2009/10, local councils detected a total of 165 corrupt procurement cases, with an estimated value of £2.7 million.  Although this value seems low compared with the annual local government procurement budget of £80 billion (and low compared with £99 million of detected benefit fraud),235 it is highly likely that it represents only a fraction of the true total.

A key element in the prevention of corruption in local government procurement is the provision of an adequate contract audit service by internal audit.  Contract audit may involve the evaluation of general controls over tendering and contract management processes, or the audit of the letting and performance of a specific contract.

External audit is equally crucial, and the announcement of the abolition of the Audit Commission raises serious concerns over the future of local government and its capacity to tackle corruption.  It is highly likely that local councils will appoint their own auditors, which could be considered a serious conflict of interest. Even if the auditor appointment decision is taken by the full council, there are still issues over the extent to which the ruling political party may be perceived to have influenced the decision.  If the independence of local government audit is to truly follow the private sector route, in which auditors are appointed by shareholders, then possibly auditors will be selected (or elected) by local council tax payers.  The most recent suggestion is that local authorities will use private sector firms.

However, it is notable that a recent report from the House of Lords, referred to the major four accounting firms as “disconcertingly complacent” over the recent financial crisis, and asked the Office of Fair Trading to review them.   The motivation for the abolition of the Audit Commission is still somewhat unclear. It was originally calculated to save £50 million per year, but the closure itself has been estimated to cost at least £90 million.The £50 million savings were also recently revealed to be only a “ballpark figure” by Local Government Minister, Grant Shapps, whose evidence to the local government select committee was that the government could not produce a breakdown of these savings.

There is a similar lack of clarity surrounding the abolition of the local government standards framework, which was created by the Local Government Act 2000. The framework included statutory local standards committees for each council; the creation of a national regulator, Standards for England; and a statutory code of conduct for councillors. Under the terms of the Decentralisation and Localism Bill, all of these elements will be revoked, although local authorities will be allowed to maintain a voluntary code of conduct and a voluntary standards committee if they so wish.

 Put simply, the coalition government is in the process of removing the key accountability and integrity mechanisms in English local government (Scotland, Wales and Northern Ireland will be unaffected). Although it is too soon to speculate what the effects will be, the implications for local authorities are very serious. Not only will key anti-corruption mechanisms be removed, but corruption risks may well be created in their wake–part-two—assessment-of-key-sectors





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