In the US, of course, getting rid of regulators is flavour of the month. Those of us who can think back as far as the devastating collapse of energy giant Enron in 2001, and the consequential collapse of Arthur Andersen, probably the most revered of audit firms, remember the magnitude of the event and its aftermath.
Thousands upon thousands of innocent accountants lost their jobs. As ever, the call went out that it must never happen again and a high-powered and independent board was set up to, as far as was possible, ensure that would be the case. But now, well, regulators get in the way, so why don’t we simply shut down that board, which keeps finding faults in the work of auditors?
But that, you might say, is America and they do things differently there. Over here in England, though, take a look at the latest report from the National Audit Office on the state of what is known as the whole of government accounts (WGA), which cover everything from local authorities, the police, the Bank of England, the NHS, academy schools, even the national parks – pretty much every single organisation in the public sector, over 10,000 of them.
Politicians’ enthusiasm to get rid of the regulator has degraded trend data reliability
The unhappy auditor
And is the National Audit Office’s comptroller and auditor general happy with the state of these myriad organisations and their accounts? Emphatically not, although that might be an understatement since 44% of local authorities did not submit any data at all.
For the first time in history, no audit opinion could be made. The head of the NAO reports that he was ‘unable to obtain sufficient, appropriate evidence upon which to form an opinion’.
It effectively means that the chain of information right the way up through the public sector organisations through to the Office for Budget Responsibility and then to the various responsible government ministries have less information that they can truly rely on.
Handing the work over to audit firms dissipated the culture within the Audit Commission
Data deficit
But the real problem lies in the lack of information forthcoming from local authorities. As Gareth Davies, the head of the NAO, puts it: ‘The WGA is uniquely positioned to provide an overview of public spending and offers an important tool for taking a holistic view of public spending and public sector assets and liabilities, managing public finances and ensuring transparency and accountability. However, English local government statutory audits are increasingly delayed, and whilst the WGA still contains useful information, the fall in data quality and completeness of returns has degraded the reliability of trend data and the insight the accounts can provide.’
And the reason for this is partly the enthusiasm of politicians to get rid of regulators. Back in 2015, they abolished the Audit Commission, which, like the still surviving equivalent in Scotland, provided a structure for the audit of local authorities.
It is now clear what the effect of that decision was. First the loss of expertise, but more importantly the loss of staff. Handing the work over to mainstream audit firms meant the culture accumulated within the Audit Commission was dissipated and scattered, and the new system is much more disparate and less connected. What held the old system together has largely vanished.
Davies says: ‘I believe that the WGA is a vital tool for the management of public finances, and therefore the government should ensure that the action it is taking to restore timely and robust audited accounts for local authorities in England is effective.’ In a world where such actions are disdained, it is hard to see that happening.
