Austerity, Audit, and Accountability : New Public Management and the Privatisation of Local Audit in England

Abstract

This paper examines the experience of the local audit reforms in England against the doctrines and principles of New Public Management (NPM). NPM is a term applied to public sector reforms which aim to enhance both performance and accountability by adopting governance and accountability mechanisms from the private sector. The local public audit reforms, which were initiated in England in 2010, abolished the independent specialist Audit Commission, effectively privatising the financial audit function and severely curtailing the extent to which local public bodies are subject to performance audit. As with other state audit bodies, the Audit Commission had acted as both regulator and provider of audit services to local bodies, such as local authorities and local health service organisations. A review of evidence to date shows that short term efficiency gains were made in financial audit and that there is prima facie evidence of greater accountability to local people. However these gains have been made at the cost of : first, a severe reduction in performance audit, a key function of public audit in delivering both democratic and managerial accountability, and second, a longer-term risk to audit quality and thus to the risk of financial mis-statements. In summary, the evidence suggests that the principles of NPM were appropriated to legitimise the reforms, after the decision to abolish the Audit Commission was taken. In contrast, the rhetoric prior to abolition suggests that the reforms were, instead, inspired more by a personal and political agenda than one of rational economic decision making.