Auditee Perceptions of External Evaluations of the Use of Resources by Local Authorities

• Date: 01 August 2013
• DOI: http://doi.org/10.1111/faam.12015
• Published date: 01 August 2013

Financial Accountability & Management, 29(3), August 2013, 0267-4424

Auditee Perceptions of External

Evaluations of the Use of Resources

by Local Authorities

HASLIDA ABU HASAN,JANE FRECKNALL-HUGHES,DAVID HEALD

AND RON HODGES*

Abstract: The research reported in this paper takes up Michael Power’s challenge

that accounting researchers should pay more attention to the perceptions of auditees

and how they respond to audit regimes. The setting of the study is the intense

performance assessment regime imposed on local authorities in England from 2002

to 2009, one part of which – the Use of Resources (UoR) assessment – rated the

financial management capability and performance of each English local authority.

The perceptions of senior local authority finance officers within the Yorkshire and

the Humber region are reported, using a written questionnaire and an interview to

explore the reasoning behind the chosen responses. The results are more nuanced

than suggested by either the official rhetoric justifying the UoR system or by those

critics who view such systems as dysfunctional. Respondents portray themselves as

intelligent actors, not as passive recipients. Most learned to use the UoR process to

drive performance improvement, though there is some ambiguity as to whether the

improvements were genuine or solely a product of the scoring system. Though adding

to workload, UoR was regarded as one of the external pressures to be managed and

its requirements largely represented professional views of best practice. Three of

the types of control that characterise ‘regulation inside government’ (Hood et al.,

1999) – oversight, competition and contrived randomness – are seen through the

perceptions of the auditees. There is some evidence of the fourth style, mutuality –

working through professional networks to help local authorities improve their actual

and reported performance.

Keywords: auditee perceptions, inspection, local government, performance audit,

public audit, regulation inside government

INTRODUCTION

The use of external performance evaluations is a landmark feature of New

Public Management (NPM). For example, the seven doctrinal components of

NPM (Hood, 1991) include the use of ‘explicit formal measurable standards

*The authors are respectively from Universiti Malaya, The Open University, University of

Aberdeen and University of Birmingham.

Address for correspondence: Ron Hodges, Birmingham Business School, University House,

Edgbaston Park Road, Birmingham B15 2TT, UK.

e-mail: r.hodges@bham.ac.uk

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292 ABU HASAN, FRECKNALL-HUGHES, HEALD AND HODGES

and measures of performance and success’ and related accounting technologies

include the use of ‘performance indicators and audit’ (Hood, 1995, p. 96). Lapsley

(2008) provides a series of propositions predicting that the pressures for NPM

will continue, which include that performance measurement will continue to be

heavily emphasized by public organizations, audit bodies and governments and

that public service managers will continue to make their actions auditable and

verifiable.

This paper reports on a survey of senior finance officers of local authorities

in 2008, at a time when local authorities in England were subjected to an

intense performance evaluation regime called ‘Comprehensive Performance

Assessment’ (CPA). An integral part of the CPA was the Use of Resources (UoR)

assessment of the financial management performance of each local authority,

carried out by an auditor appointed by the Audit Commission (AC).

Our survey was carried out at a time of continuing change in the performance

assessment regime and this is reflected in some of the responses of the auditees.

The CPA was replaced in 2009 by the Comprehensive Area Assessment (CAA),

which involved a number of evaluation agencies carrying out assessments of

multiple public sector bodies, including local government, health agencies and

emergency services, on an area basis (Audit Commission et al., 2009). However,

the UoR remained based on each local authority. The incoming Conservative-

Liberal Democrat UK Coalition Government announced the abolition of CAA

in June 2010 (Department of Communities and Local Government, 2010a) and

hence of the UoR. This was followed by the announcement in August 2010

of the intention to abolish the AC (Department of Communities and Local

Government, 2010b).

The motivations behind the paper, discussed more fully in the next section,

are twofold. The first is to provide original, empirical findings on the perceptions

of auditees in contrast to much of the existing literature on audit and inspection

regimes which is focused on the role of auditors. The paper therefore responds

to Power’s (2003) call for research which examines the position of auditees

to help understand the impact of the explosion of auditing, in this case in

the particular context of an intensive public sector performance management

regime. Successful execution of the research design has highlighted the

complexity and subtlety of auditor-auditee relationships and confirmed the

contingent nature of behavioural responses. The views of auditees reported

here are more nuanced than would be expected from either the official rhetoric

justifying the CPA and UoR systems or from those critics of NPM who view such

systems as dysfunctional. The second is to contribute to the literature on public

sector performance management, particularly in those jurisdictions in which

central and local governments seek to prescribe a balance between standardized

reporting of local government financial management and the retention of local

decision-making and accountabilities. In the context of England, the results

reported in this paper have public policy relevance as the Coalition Government

takes steps to enact a new structure for local authority audit and inspection.

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The paper is structured in six further sections. The next section indicates the

conceptual and theoretical motivations underlying the study. The third section

gives an outline of the CPA regime, and its UoR component, necessary for

an understanding of the results of the study. The fourth section describes

the research method. The fifth section summarizes the results. The sixth

section provides discussion and interpretation of the findings. There is then

a short concluding section which links back to the conceptual and theoretical

motivations and considers the scope for further research.

CONCEPTUAL AND THEORETICAL MOTIVATIONS

The conceptual and theoretical motivations for the empirical study are set out

in this section. The UoR approach of centralized performance measurement

of English local authorities is a striking example of what Hood (2007a,

pp. 195, 203) labels ‘bureaucratic transparency’, by which he means making

activities/conduct/performance ‘observable by experts or agents’. Two seminal

contributions to the literature underpin this classification, namely those by

Michael Power and Christopher Hood.

Power’s (1997) analysis of the ‘audit society’, as applied both to the public

sector and to the many regulated parts of the private sector, has spawned

a voluminous literature. Fundamental to his view are two components: the

transfer of resources and prestige away from ‘producing’ (in its broadest sense)

to ‘watching’ what others do; and a revolutionary expansion in projects to

measure ‘objects’, including those that would previously not have been regarded

as measurable (Power, 2004). The implication of this second component is that

rationally-motivated ‘auditees’ shift their attention away from broadly-construed

performance against objectives to performance on the measurement instrument

itself. This displacement effect becomes especially powerful if the measurement

results are subsequently transformed into sporting-like league tables.

There is a tendency in the literature and in popular representation, not

present in Power’s own writings, to regard these developments as necessarily

malign. Power himself has been searching for an understanding of the social,

political and economic factors that explain these shifts in control substance and

style. The ‘auditee’ has been constructed as a governable person or organization,

whereas most prior academic, regulatory and professional literature in relation

to the narrower field of financial certification audit has put the focus squarely

on the ‘auditor’, with the auditee remaining relatively invisible. Power (2003,

p. 199) explicitly called for more empirical research on auditees and their social

construction as governable subjects, for example, on their perceptions of the

audit process and their behavioural reactions to audit. The impact of auditing

processes on auditees and auditable performance is ultimately an empirical issue

(Power, 1997, pp. 96–98; 2000, p. 111; and 2003, p. 199) and is dependent upon

the analysis of data drawn from methods such as surveys and case studies. An

example is the consideration of auditees and their interactions with auditors in

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