Magazine article Public Finance

Lost in Transition

Magazine article Public Finance

Lost in Transition

Article excerpt

There is a lot to like about the way the Audit Commission handed out its contracts last month: a successful tendering process, cuts of up to 40% in fees and the introduction of two new players into the market

As a halfway house between the commission's old role as an audit provider and its eventual abolition, this does not seem so bad. But it is only a halfway house, and the tendering process leaves open as many questions as it answers.

The reduction in tees would appear to vindicate Local Government Secretary Eric Pickles' promise of cheaper audit, except that it was achieved solely by the commission's buying power. As a huge bulk purchaser of audits, it can offer high volumes in return for lower unit costs

That power goes when the commission does, and the worry for smaller and more remote councils must be that fees will start creeping back up once they start appointing their own auditors. A free market might well result in cheaper fees for Birmingham, but what about for a Cumbrian district?

The introduction of two new players into the market - DA Partnership and Ernst & Young - offers some comfort in the sense that it will encourage greater competition after the commission's demise. Everything we know about the audit market tells us that concentration puts up prices: costs went up by 2.4% fol lowing the near demise of Arthur Andersen in 2002.

But a lot depends on the future of the DA Partnership. The much vaunted spinoutfrom the commission has won only £5m of almost £90m on offer and so lacks the critical mass to become a mutual. It will now go by the name of Mazars DA, a wholly owned subsidiary of its backer, in a move that effectively bri ngs to an end the District Audit service that currently provides 70% of public audit

With just one contract in the Northeast & Yorkshire, will DA be big enough to drive competition in a post-commission world? …

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