** Since writing this article, an Audit Commission Bill has been introduced in the House of Lords (on 22 January 1998). If enacted it will consolidate Part 111 of the Local Government Finance Act 1982 and other enactments which relate to the Audit Commission. No substantial changes are made in this Bill.

1 Institute of Internal Auditors Statement of Responsibilities of the Internal Auditor (New York, 1947), cited in Sherer and Kent Auditing and Accountability (Pitman: London, 1983) p 100.

2 On the face of it, independence for the internal auditor is harder to achieve than for the external auditor, since the internal auditor does not enjoy physical independence. She is employed by, and is thus part of, the organisation which is subject to the audit. Problems can arise, for instance, as to the scope of the audit (which can be prescribed by the management rather than being determined by the auditor), staffing (the same staff who are being subject to audit could form part of the audit team), and the auditor being seen as a labour resource on which the management can draw during busy periods.

3 Harden, I, ‘Money and the Constitution: Financial Control, Reporting and Audit’ (1993) 13 Ls 16 Google Scholar; Harden, I, White, F and Donnelly, K ‘Audit, accounting officers and accountability: the Pergau Dam Affair’ (1994) PL 526 Google Scholar; I Harden, F White and K Donnelly ‘The Court of Auditors and Financial Control and Accountability in the European Community’ (1995) 1 European Public Law 599; Harden, I, White, F and Hollingsworth, K ‘Value for money and administrative law’ [1996] PL 661 Google Scholar.

4 National Health Service and Community Care Act (NHSCC) 1990, s 20(2). There is a separate body for Scotland: the Accounts Commission.

5 Assessing value for money involves examining the ‘economy, efficiency and effectiveness’ with which public resources have been used. The US General Accounting Office was the first to analyse value for money into the three components of economy, efficiency and effectiveness (see Jones, R and Pendlebury, M Public Sector Accounting (London: Pitman, 1996)Google Scholar). The NAO's explanation of these terms is that ‘economy’ is about minimising costs, ‘efficiency’ means achieving the maximum output from a given input - or achieving a given output for the minimum input - whilst ‘effectiveness’ is concerned with the extent to which the policy objectives of spending have been achieved (see further ‘NAO, A framework for value for money audits’, undated).

6 The Commission now covers some 450 principal local government bodies, 10,000 minor bodies (such as parish councils), 700 health service bodies and 2,500 GP fundholders

7 Layfield Committee Local Government Finance. Report of the Committee of Inquiry (1976 Cmnd 6453).

8 The Committee of Public Accounts (1980–81). First Special Report ‘The Role of the Comptroller and Auditor General’ (HC 115): 11th Report of the Expenditure Committee (1976–77, HC 535).

9 The National Audit Act 1983, s 2 established a Public Accounts Commission which, under s 4(2), is responsible for examining the NAO's estimate and laying it before the House of Commons. Section 4 (3) requires the Commission to consult the Treasury and the Public Accounts Committee, but in practice, the Commission ‘controls’ the estimate. See further Schs 1 and 3.

10 National Audit Act 1983, s 1. When making the recommendation to the Crown for appointment of the C & AG, the Prime Minister must act with the agreement of the Chair of the Committee of Public Accounts (PAC) of the House of Commons, who by constitutional convention is an opposition MP. In practice, the Chair of the Public Accounts Commission is also consulted.

11 See generally McEldowney, J F ‘The Control of Public Expenditure’ in Jowell, J and Oliver, D (eds) The Changing Constitution (Oxford: Clarendon Press, 3rd edn, 1995)Google Scholar; I Harden ‘Money and the Constitution: Financial Control, Reporting and Audit’ (1993) 13 LS 16.

12 LGFA 1982, Sch 3, para 12. The accounting officer for the Commission is the Controller of Audit.

13 LGFA 1982, s 21: the Commission charges the auditee and then reimburses the auditor for his/her work, keeping a percentage of the amount for itself.

14 LGFA 1982, ss 21(7) and 35.

15 LGFA 1982, s 11 originally provided for between 13 and 17 members of the Commission. This was increased to 15-20 members by the National Health Service and Community Care Act, Sch 4, para 1.

16 See Who's Who at the Audit Commission (London: HMSO, 1994). See further, the Commission's Annual Reports.

17 LGFA, s 11(2). The bodies consulted include: the local government associations, the CBI, the TUC and the Consultative Committee of Accountancy Bodies

18 LGFA 1982, Sch 3, para 4. The grounds are that the member has become bankrupt or incapacitated; has been absent from meetings for six months without an approved reason; or is, in the opinion of the Secretary of State, otherwise unable or unfit to discharge the functions of a member.

19 Five members of the Commission whose appointments were due to expire on 30 June 1997, have had their appointment extended until 31 October 1997 to enable the new government to consider the range and balance of appointments to the Commission later in the year. The five members are: Clive Thompson (the Deputy Chairman, member since April 1991, now working for a small, highly regarded management consultancy firm); Iris Tarry CBE (member since 1 September 1994, currently Conservative Chairman of Hertfordshire County Council); Peter Soulsby (member since 1 September 1994, currently Labour Leader of Leicester County Council); Jeremy Orme (member since February 1989, Chartered Accountant and Head of Enforcement and Legal Services for the Securities and Investment Board); and Tony Travers (first appointed in February 1992, Greater London Group Research Director at the London School of Economics). Of these, three members, have since had their membership renewed: Iris Tarry; Jeremy Orme (now Deputy Chairman); and Peter Soulsby.

20 LGFA 1982, Sch 3, para 7.

21 INTOSAI described itself as ‘an international and independent body which aims at promoting the exchange of ideas and experience between Supreme Audit Institutions in the sphere of public financial control’ . International Organization of Supreme Audit Institutions INTOSAI Auditing Standards (June 1989) p 52.

22 National Auditing Standards, ch 2, para 56.

23 LGFA 1982, ss 19(1), 20(1).

24 LGFA 1982, s 22(2).

25 LGFA 1982, Sch 3, s 3.

26 Department of the Environment, Department of Health, Welsh Office and the Audit Commission Accounting For Independent Audit – A Joint Statement of Responsibility and Accountability (1994) p 6.

27 See Prosser, T Nationalised Industries and Public Control (Oxford: Blackwell, 1986)Google Scholar.

28 LGFA 1982, Sch 3, s 3(4).

29 A similar safeguard operated in Brind v Home Office (1991) 1 AC 696.

30 Accounting for Independent Audit above n 26.

31 Ibid p 1.

32 R Brazier ‘The Non-Legal Constitution: Thoughts on Convention, Practice and Principle’ (1992) 43 NILQ 262.

33 See Code of Audit Practice, para 9.

34 See District Audit Framework Document (undated).

35 LGFA 1982, s 13. The approved firms, in order of size, are: Coopers & Lybrand; Price Waterhouse; KPMG; Ernst & Young; Deloitte & Touche; Robson Rhodes; Binder Hamlyn; and Kidson Impey.

36 The Commission has engaged in three ‘market testing’ exercises for a small proportion of the work available (the Commission gave us the figure of 1-2% of total audit days) which enables the Commission to check that standards and prices are generally reasonable. Any profit (or loss) from market testing is borne by the Commission and not the audited body.

37 District Audit Framework Document (undated) p 6.

38 Ibid p 4.

39 LGFA 1982, s 14(3). The first Code appeared in 1983 and was revised in 1988, 1990 and 1995.

40 There are five directorates in all: Local Government Studies; Health and Personal Social Services Studies; Audit Support; Resources; Purchasing and Quality Control.

41 See Annual Report 1995, p 16. In 1993/ 94, 78 sites were the focus of the QCR (44 NHS and 34 local government – the different proportions in the sample reflect the relative proportions of NHS and local government audited bodies). The aims of the review are to: check that audits are being carried out in accordance with the Code; examine audit achievement against the targets set by the Commission in its annual guidance letter; assess audit performance with a view to taking remedial action if necessary and; identify and spread best practice: Annual Report 1995, p 16.

42 Code of Audit Practice 1995, p 4.

43 Audit Commission Annual Report and Accounts 1995 p 17.

44 LGFA 1982, s 22.

45 Radford, M ‘Auditing For Change: Local Government and the Audit Commission’ (1991) 54 MLR 912Google Scholar.

46 See Code of Audit Practice, para 9.

47 LGFA 1982, s 16. The maximum fine is f200 plus an additional £20 for each day the offence continues. This is similar to the French administrative law concept of astreinte. Astreinte has been defined as a judgment that requires a person to pay a certain sum of money for each day of delay in the fulfilment of an obligation: see Dupuis, G, Guédon, M J and Chrétien, P Droit Administratif (Paris: Armand Colin, 5th edn, 1996)Google Scholar.

48 Commission Who Audits the Auditors London: HMSO, 1994).

49 In the private sector, professional standards require that the partner rotate every seven years. No reference is made to managers.

50 First Report of the Committee on Standards in Public Life, Cm 2850-1, para 108.

51 Butler Review of the Audit Commission, February-July 1995.

52 See LGFA 1982, s 15(1)(a) and (b). Although ‘financial audit’ and ‘value for money audit’ are conventionally distinguished, there is no watertight boundary between them. Furthermore, questions of value for money may sometimes raise issues of legality and part of the purpose of having requirements of legality and regularity is their role in promoting value for money; see further I Harden, F White and K Hollingsworth ‘Value for money and administrative law’ (1996) PL 661.

53 See LGFA 1982, s15(1)(c). The current split between regularity and vfm work is about 70/ 30 in any individual audit.

54 [1925] AC 578. In Bromley London Borough Council v Greater London Council [1983] 1 AC 815, Lord Wilberforce said that Roberts v Hopwood ‘remained authoritative as to principle’.

55 The Third Report of the Committee on Standards in Public Life: Standards of Conduct in Local Government in England, Scotland and Wales (Cm 3702-1, July 1997) recommends the abolition of surcharge and the creation of a new statutory offence of misuse of public office.

56 For example, the refusal of some councils to set rates in the 1980s as a protest against rate capping.

57 LGFA 1982, s 25A as amended by Local Government Act 1988 (LGA 1988).

58 Local Government Finance Act 1988, s 114.

59 LGFA 1982, s 25D, inserted by LGA 1988.

60 See Code of Audit Practice, para 43.

61 NHS Act 1977, s 98(1).

62 See remarks by Lord, Henley Hansard HL, 1990 12 June, vol 520 Google Scholar col 265.

63 NHSCC 1990, s 20(2)(a).

64 See Bowerman, M ‘The National Audit Office and the Audit Commission: cooperation in areas where their value for money responsibilities interface’ (1994) 10 Financial Accountability and Management 47 CrossRefGoogle Scholar.

65 See NHSCC 1990, s 20(3).

66 As regards local authorities, this states that ‘In my/our opinion the statement of Accounts set out on pages… to… presents fairly the financial position of the authority at 31 March 19…and its income and expenditure for the year then ended’. The opinion for NHS trusts is a ‘true and fair’ opinion. In the financial year 1994-95, the AC audited the accounts of 450 principal local authorities, and over 700 health bodies: of this 14 opinions were qualified.

67 See further Bowerman, M, Gray, I and Reedman, M Audit Management Letters in Local Government. Aspects of Accountability, Research Papers in Accounting (Sheffield: Sheffield Hallam University, 1996)Google Scholar.

68 See further LGFA 1982, s 24 which provides a right of inspection to an local government elector to audited accounts, statements and report.

69 Agenda items for local authority committees are open to inspection under s l00B of the Local Government Act 1972 and s 1(4) of the Public Bodies (Admission to Meetings) Act 1960. They can be removed from the public domain only by resolution or if the letter is classified as material of a ‘confidential nature’.

70 See Code of Audit Practice, para 55(d). When it is ‘appropriate’ is left to the discretion of the individual auditor.

71 LGFA 1982, s 15(3).

72 Code of Audit Practice, para 74.

73 LGFA 1982, s 18A(2), inserted by the Local Government Finance (Publicity for Auditors’ Reports) Act 1991.

74 On the 1994-95 accounts, ten public interest reports were issued regarding local government and two reports for the NHS.

75 First Report of the Committee on Standards in Public Life, Cm 2850-1, para 4.105; recommendation 51.

76 Spending Public Money: Governance and Audit Issues (1996, Cmnd 3179) para 19.

77 LGFA 1982, s 27(6), as amended by NHSCC 1990, Sch 4.

78 See also National Audit Act 1983, s 6(2).

79 LGFA 1982, s 27(3).

80 Ibid.

81 The Commission also publishes bulletins, which are updates on the national reports, and management papers, which look at the wider issues which span across all service departments (such as personnel issues) and are concerned with highlighting best practice. To date, it has also produced occasional papers, containing quicker reviews of smaller aspects of local authority services and three papers about IT issues.

82 See Butler Review of the Audit Commission, February-July 1995, para 32.

83 As part of the Citizen's Charter programme, initiated by Cm 1599. The Audit (Miscellaneous Provisions) Act 1996 allows local authorities to publish their performance indicators in free newspapers.

84 Audit Commission, Annual Report 1995, p 31.

85 See I Harden, F White and K Donnelly ‘Audit and Government Accountability - A framework for comparative analysis’ Working Paper No 2 (Law Department and Political and Economic Research Centre, Sheffield University, August 1994).

86 Audit Commission Annual Report 1995-96.

87 See further Bowerman, Gray and Reedman above n 67

88 Ibid at 27.

89 LGFA 1982, Sch 3, para 15.

90 Spending Public Money: Governance and Audit Issues (1996, Cmnd 3179).

91 In a joint report with Democratic Audit and Professor Patrick Dunleavy Reinventing Parliament - Making the Commons More Effective (1995).

92 Renewing Democracy, Rebuilding Communities (London: The Labour Party, 1995).

93 In such circumstances the issue of locus standi would need careful consideration. For more recent views on this issue as it relates to central government expenditure, see R v Secretary of State for Foreign and Commonwealth Affairs, ex p World Development Movement Ltd (1995) 1 All ER 611.