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Ian Welch

By Ian Welch, head of policy, ACCA

With pressure on public finances being at an all-time high on most countries – and public trust in both business and governmental institutions seemingly being at the other end of the scale – the role of finance professionals will come under increasing scrutiny.

Our new report, Setting high professional standards for public services around the world, analyses all aspects of public sector accountants’ roles and makes the crucial – and topical – observation that finance professionals must promote whistleblowing laws and policies to ensure that communities can have confidence in how their taxes are being spent.

Accountants have a critical role to play in rebuilding waning public trust by championing the cause of developing anti-corruption procedures and cultures. To do this, they will have to work with other stakeholders to help eradicate fraud and corruption, through a combination of education, fraud-awareness programmes and training in forensic accounting.

This is no easy task, but it can be done. In the UK, the newspapers are currently full of stories of scandals in the healthcare, social care and police sectors – all of which came to light through whistleblowing by public sector staff. The fear of retribution and repercussions are always there. But it is even more vital than ever, at a time of unprecedented constraints on public spending, that finance professionals feel able to highlight issues where public money raised through taxation is misspent or misused – and that those responsible can be held to account.

ACCA also calls for proper separation between the accounting and auditing functions within all governments. In some countries that does not exist, which impairs accountability and transparency. The report accepts there is a challenge in educating the populace about the audit process – and in making it more transparent – to ensure public confidence.

Yet it could be argued that the public sector is, in many ways, ahead of the private sector in this respect. The ongoing regulatory and political inquiries into the role of audit – highlighted in this space last month – reflect a wider public sense of dissatisfaction with the auditors of banks and other major institutions. ACCA has consistently argued that the role of audit itself needs to be extended to take in issues such as risk management, internal controls and corporate governance. And yet the public sector is already there – in most developed countries ‘value for money’ audits are the norm. These are notably wider in scope than their private sector equivalents.

Under VFM audits, not only do the financial statements receive a true and fair opinion, but the auditors also have to comment on aspects of corporate governance and the effectiveness of the organisation’s arrangements to secure value for public money. There is also a wider variety of reporting in the public sector, driven by its multiple stakeholders (politicians, citizens, investors, pressure groups etc) which require reporting innovations such as scorecards. Audits have to satisfy all these requirements and audiences, which can be challenging.

Yet many of these audits are done by the same firms who seemingly find innovation much harder to bring into their private sector work. In the UK, the long-awaited report by the Competition Commission on audit competition has just been published and among its findings, the Commission concludes that there is considerable ‘unmet shareholder demand with regard to information supplied by auditors’ and that by putting the demands of management ahead of investors, auditors ‘competed on the wrong parameters’. Overall, the Commission’s report is a fairly bleak assessment of the current situation.

It is however, weaker on practical remedies to improve the situation. Amazingly it doesn’t mention liability once – yet concerns over liability have been shown, via outreach carried out by ACCA and others since 2009, to be a serious deadweight on innovation. This issue simply has to be addressed.

But firms – and the wider profession – also need to reflect on whether there is more they can do to bring some of the more interesting aspects of public sector audits to bear on their private sector work. This really might start to bridge that intractable expectations gap.

This post first appeared in The Accountant in February 2013

Armchair auditors?

theaccablog —  16 August 2010 — Leave a comment

By Gillian Fawcett, head of public sector, ACCA

Friday the 13th certainly lived up to its billing for the Audit Commission as the government chose the notorious date as the day to announce the end of 157 years of public audit as we know it. The chief executive's predictably not very pleased, as you can see from this memo, reproduced in the FT.

A move from having one centralised body to 'citizen power' instead is perfectly in-keeping with the 'big society' ideas of the government and the Audit Commission was perhaps in need of review, but scrapping the Commission outright could cost more than the £50m of potential savings identified.

When it comes to auditing its work, the public sector needs a coherent approach; authorities need to be clear on the processes and expectations involved in it. Much of the Audit Commission's work is already contracted out to large private sector audit firms, but the team that works out of the Commission itself ensure there is a consistency of approach. This won't be easy to achieve in future.

This source of centralised expertise was first available as the District Audit service which was consolidated into the Audit Commission in 2003. The Audit Commission and its district audit predecessors have been demonstrating best practice benchmarking and guidance for public sector officers for a combined total of 157 years and the accumulated wealth of knowledge and skills could be lost if the transition period to 2012 isn't handled properly.

The idea of an army of 'armchair auditors' may sound a great way of increasing citizen involvement in local government, but in reality very few members of the public actually look at their local authorities' accounts, even though they're already publically available.

When people do look, they will usually only do so to check out an area of personal interest – spending on children's play areas; recycling; park spending – rather than the accounts as a whole. Investigations into specific areas may be costly and might not be of the wider financial benefit for the public.

Going forward, there needs to be some form of co-ordinating structure put in place to avoid a public audit 'postcode lottery'.