Finance: All change on the district line: Paul Gosling talks to David Prince, chief executive of the District Audit service, about its move away from being an integral part of the Audit Commission

The District Audit service, which conducts 70 per cent of audits in local government and the health service, next month becomes an Executive Agency, at arm's length from the Audit Commission. For nearly a century and a half it has been an integral part of the Commission, but when Andrew Foster became Audit Commission controller last year he made it clear that he wanted to introduce a purchaser/relationship between the two.

David Prince is the recently appointed chief executive of the District Audit service, having been - at Leicestershire County Council - one of the few local authority chief executives with an accountancy qualification. Until now, his entire 25-year career has been in local government, but he says that a leading job in such an important national body was irresistible.

Mr Prince recognises that District Audit is going to have to change to cope with new circumstances. 'The purchaser/provider split is one of various structural changes the Commission has been making,' he says. 'The intention is to create clarity and accountability, give me more operational and managerial freedom on how we do things, and enable the Commission to be clearer, sharper and tougher on what it wants doing, on the standards of quality and competitiveness of our audits.

'The Commission has already done some market testing last year, which District Audit didn't take part in. The Commission will take a decision later this year whether to extend market testing. If they do, we will compete, both in audits where we are currently the auditors, and also where the private firms are currently in. Whether we still end up with the 70/30 split depends on the extent of the market testing, and how successful we are,' he says.

'I wouldn't expect there will be market testing for the moment in areas of shire England where local government reorganisation is under discussion. The Commission may look at London and the metropolitan areas, at the fifth wave of NHS trusts coming on next year.

'Our core business is local government and health, roughly 50/50, but we are also in grant- maintained schools - we have about 88 of those - where we have been winning tenders.' District Audit is also permitted by legislation to audit colleges, universities and some grant-aided bodies.

Mr Prince is convinced that the District Audit will not only survive market testing, but must do so for the benefit of the Audit Commission as a whole.

'Any public body finds the value of an in-house service as a benchmark of standards and costs, and as a regulator on market competition. We provide support and added value to the Commission, in terms of technical expertise and input to studies.

'We are working to our own corporate plan. We will be set financial and performance standards, and the Commission has indicated that the quality performance standards will be increasingly demanding over time, and is all part of using us as a regulator, an exemplar in the market.

'We have our own governing panel of five commissioners, chaired by Sir David Cooksey, to whom I report within the context of a framework document. I will have periodic meetings with Andrew Foster, who is still the accounting officer for the Commission as a whole, in the same way that any Next Step agency reports to its sponsoring department. The purpose of the split is to free the Commission of day-to-day concerns,' he says.

'We want to help to improve stewardship, and the management of public services. We will be looking at our methodologies, making sure we are adding value, taking a managed approach to the audit - that we do no more than is necessary to arrive at an opinion, and to satisfy ourselves on stewardship - and focus our efforts as far as possible as an aid to management in providing better comparative information. I think we have a particular strength here, to compare performance against a benchmark.

'We must not become too cosy with the bodies we audit, because there is a citizen's interest in all this. Public audit is different from a straight commercial audit, because it does get into this dimension of value for money and effectiveness. That isn't always understood, but from the citizen's point of view it is a powerful safeguard,' says Mr Prince.

'We have set ourselves four objectives for our next year. One is supporting the Commission, which is our regulating body and our owner. We have set ourselves the objective of improving the quality of audit at a local level.

Internally, we have set ourselves objectives of developing our market edge, which is about productivity and use of information, technology and internal management arrangements. Fourthly, we are a people-based organisation, and will develop our people to meet those challenges and fulfil our vision of being the best auditors of public services.

'We are very locally based. Most of our staff are around the country in teams located in county or city halls, or in health services premises. We are well-tuned to the local environment, and local politics where the body is political.'

Mr Prince believes that while the emphasis in recent years has been on value for money, there is now a swing back towards emphasising issues of probity.

'We have been looking at management controls and management training that need to underpin the devolution of management.

'The public sector, like everyone else, has been de-layering, and setting up localised business units. There has been fragmentation of historic central control. It is critical for the auditor to make sure that those initiatives are underpinned by effective systems and effective controls.

'The direction of decentralisation and local empowerment is good in terms of service delivery and flexibility. But all bodies have to watch there is appropriate training, appropriate systems - IT or otherwise - and above all there are appropriate controls. Problems come if the move comes too quickly without these, and you have a fragmented environment, with the opportunity for fraud.'

(Photograph omitted)