top stories

Comments from ACCA
March 2003

The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on the publication Grant claim: Reducing the audit certification burden - issues for stakeholders (the 'think piece'). These comments have been prepared in consultation with members of the ACCA's Public Sector Technical Committee, a group of experienced accountants working in the public sector.

ACCA welcomes the 'think piece' which is a useful introduction to this topic and should go some way to help to reduce the administrative burden of an increasing number of specific grants which are provided to local authorities and the NHS by the UK Government and the European Commission. In terms of the specific questions which the 'think piece' asks respondents to consider, ACCA:

• agrees with the analysis contained in the �think piece�
  
  
• endorses the good practice features identified for the different parties, specifically:
  • grant-paying bodies
  • authorities
  • the Audit Commission
    and
  • auditors.

• supports the Commission�s proposals for change and, in particular, the proposed new differentiated certification arrangements that the Commission intends to introduce
  
  and
  
  
• does not consider that there are any major weaknesses or omissions in the Commission�s analysis and proposals except for the relatively minor points out-lined below.
  

  We agree with the conclusion of the 'think piece' that, 'grant-paying bodies hold the key to reducing the burden of grants certification work. They decide what grants to pay, what grant conditions to apply and whether claims need to be certified by auditors. Grant-paying bodies need to take a lead, therefore, in following good practice and so helping to reduce the regulatory burden' (page 4). We also accept that, 'the 'think piece' is not concerned with an analysis and evaluation of the policy of grant-paying bodies to pay specific grants as opposed to general grant' (page 6). We consider, however, that it would have been constructive to consider the additional costs of this policy to the local government and NHS grant recipients, especially as the costs of the certification of the grant claims will only be a small part of this administrative burden.

  ACCA also considers that the point could be made that reducing the administrative burden of certifying such grant schemes should not be taken as a reason for increasing further the number of such schemes or not reducing their number as much as possible. The main administrative burdens of specific grant schemes will remain even if the costs of certifying such schemes is reduced.

  We appreciate the danger that more flexible arrangements may encourage grant paying bodies to continue to act in what they see as a prudent approach by continuing with a blanket approach to certification requirements. On the other hand, we consider that there are a number of disadvantages with the use of rigid threshold values, these include:

• bodies making a large number of grants that are individually below the de minimis limit may not receive enough audit assurance on grant expenditure figures that may be large in aggregate
  
  
• bodies embarking on new grant paying schemes might wish for a higher level of assurance until such schemes have settled down and they can assess the history of errors and the strength of relevant controls at the recipient body and within the grant paying body
  
  
• there may be a perverse incentive for recipients to disaggregate claims where feasible to below the de minimis limits, so as to avoid audit scrutiny
  
  
  and
  
  
• recipients may relax controls over grant expenditures that are below de minimis limits if they believe that the chance of audit scrutiny is reduced.
  

On a similar point, whilst supporting the thinking behind the proposals for a more selective testing regime for grants in excess of £100,000, where the controls are good, we believe that when assessing the strength of the relevant controls, it may not be sufficient to consider only those at the recipient authority. Whether it is a desirable situation or not, there may be some grant paying bodies that think it more cost effective to rely on certificates rather than their own monitoring controls. They may not be happy to see a reduction in the detailed testing. This has several implications:

• the level and nature of testing for certain schemes may require liaison between the grant paying department (and its auditors) and the recipient authority (and its auditors) with due regard to control mechanisms at both payer and recipient
  

• there may be a need for a longer transition period than that suggested in the think-piece to enable both payer and recipient to put appropriate control mechanisms in place
  
  
  and
  

• the response of the grant paying body will be crucial to any successful implementation of revised arrangements.

ACCA does have some concerns over the role suggested for internal audit in the grant certification process. We accept that internal audit 'work on the [relevant] systems may be used to help reduce the level of the external auditor's certification work' (page 22). We do not accept, however, that this certification 'work might alternatively be undertaken by the authority's internal auditors' (page 19). We consider that such a move would be inappropriate and would encourage the view that internal audit's role is to confirm the accuracy and validity of transactions, rather than to assess the soundness, or otherwise, of the authority's internal control systems. In addition, such a suggestion may result in the diversion of scarce internal audit resources from their core work.

We are also concerned with the suggestion (on page 21) that 'Authorities should not automatically assume that the Commission's appointed auditor will undertake the required certification work'. We see clear benefits of the external auditor undertaking this work as their prior knowledge of the Authority and its systems should reduce the amount of time that they have too spend on this work and thus the cost. The proposals in the 'think piece' for the auditors to place some reliance on the authorities' internal control environment for their grants claims will strengthen this argument. We also believe that the 'think piece' would be improved if consideration were to be given to the situation in Scotland where auditors report on approve grant claims, as part of their audit appointment, in accordance with guidance provided by Audit Scotland.

On the same point, we believe that the proposed leaflet, to be issued to grant-paying bodies, and local government and NHS bodies, would be improved (on page 6) if it required authorities to explain how value for money is to be achieved if any claims or returns are to be certified other than by the Audit Commission's appointed auditors.

Back to top