This paper analyses the deregulation of the municipal audit market in Norway, in particular how organization of the service affected audit costs.
The paper uses multiple regression analysis of administrative as well as survey data of organizational structure and audit costs from 312 municipalities in Norway in 2012.
The introduction of contracting out in the municipal audit market in Norway in 2004 contributed to a reduction in audit fees eight years after the deregulation, compared to the situation four years before the deregulation. The type of audit, mixing inter-municipal co-operation and contracting private auditors, was related to lower costs.
The data does not include audit quality and are restricted to one country.
The municipalities that combined inter-municipal co-operation and contracting a private auditor achieved the lowest costs. Hence, neither pure in-house production (“make”) nor outsourcing (“buy”) but mixing several governance forms (hybrid organization) was related to low costs.
Contracting out is a core element of new public management (NPM) but has often been a contested tool in public policy. This paper provides empirical evidence on the effects of a reform of a professional service, which is relevant for many services in the public sector.
This paper contributes by filling some of the gaps in the public sector accounting and public management reform literature by studying the organization and costs of the municipal audit, specifically by including transaction costs, addressing plural governance forms in addition to pure in-house production, inter-organizational co-operation and market contracting and by studying long-term effects.
Thanks to Hilde Kari Maugesten and Beate Torkildsbyen who collected parts of the data for their master thesis at Oslo Metropolitan University in 2013–2014; and to Bjørn Bråthen at the Norwegian Municipal Auditor Association for help with data collection on the organization of the municipal audit in 2012. I acknowledge the comments received when earlier versions of the paper were presented for the European Institute of Advanced Studies in Management (EIASM) 10th International Public Sector Conference, Lund, Sweden, 4–6 September 2018, and for the 27th Nordic Local Government Conference, 30 November–1 December 2018, Aarhus, Denmark. I also acknowledge the constructive comments from the journal's editor and three anonymous reviewers.
Johnsen, Å. (2021), "Organizing municipal audit: contracting out and audit costs in Norway", International Journal of Public Sector Management, Vol. 34 No. 4, pp. 407-424. https://doi.org/10.1108/IJPSM-07-2020-0181
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