Commission officials are talking about schools and local education authorities being "oppressed" by inspectors with competing jurisdictions.
The report may provoke a "turf war" between OFSTED and the commission, quangos which were established by Tory governments but now enjoy Labour ministerial backing - albeit from different departments. Observers talk about "overlap" and "confusion" over their joint roles.
Last week's report from the Audit Commission on the future of local authorities is being read as the first shot in its bid to rationalise school inspection. It is arguing for a "best-value" approach to assessing local authorities, schools and colleges, emphasising self-assessment based on published performance indicators - markedly different from the hands-on inspectorial role favoured by the chief inspector of schools, Chris Woodhead.
Although the Audit Commission is the junior partner in the inspection of local education authorities under the 1997 Education Act, it considers it has a right to report on the effectiveness of inspection in local government. It contrasts its rights of access to National Health Service hospitals and surgeries to its subordinate role in schools.
The commission intends to examine how local services of all kinds are inspected. In investigating Her Majesty's Inspectorate of Schools, it will inevitably ask questions about OFSTED.
Already there are signs of friction: one commission official described it as a "Johnny-come-lately, costing nearly three times as much as we do". OFSTED's annual budget is just over #163;150 million while the Audit Commission costs #163;60m a year.
Commission controller Andrew Foster is understood to be highly regarded by both Deputy Prime Minister John Prescott and Health Secretary Frank Dobson and enjoys high-level contacts in Downing Street.
Last week the commission endorsed the co-ordinating role of local authorities and councils' right to allocate education budgets in the light of their own assessment of local needs. By giving councils a template for assessing their performance, the commission - according to a senior source at the Local Government Assocation - will encourage local authorities to "stand up" to OFSTED.
From 2000 each local education authority will be inspected every five years, it was announced last week. But despite that, the Commission plans to publish a further report this spring on how LEAs should conduct themselves.
Members of the commission acknowledge there is now a "contradiction" between the different approaches to auditing councils and inspecting schools. The "best-value" approach favoured by local government minister Hilary Armstrong encourages councils to manage their own performance with the minimum of central inspection.
OFSTED favours external intervention in schools and local authorities where they are perceived to be failing.
These rival approaches also reflect differences of view in Whitehall and among ministers. The Department of Environment, Transport and the Regions - which is officially responsible for the Audit Commission - favours giving councils more autonomy. The commission has also received tacit encouragement from the Treasury, which is concerned at OFSTED's cost. But Education Secretary David Blunkett and standards minister Stephen Byers back OFSTED.
Both bodies have made representations to the Prime Minister's think-tank at Number 10. Prime Minister Tony Blair is seen as the ultimate judge of which quango gets the go-ahead over LEA inspection.
Changing Partners, a discussion paper on the role of the lea is available from the Audit Commission, price #163;15.00