Source · Select Committees · Housing, Communities and Local Government Committee
Recommendation 17
17
Paragraph: 80
As highlighted in Sir Tony Redmond’s independent review of local authority audit, the local audit...
Conclusion
As highlighted in Sir Tony Redmond’s independent review of local authority audit, the local audit market is deeply flawed. We are particularly concerned about the shortage of specialist local auditors, about the principle of allowing local councils 42 Local authority financial sustainability and the section 114 regime to choose their own auditor and about the lack of a co-ordinating body responsible for monitoring the performance of auditors and joining up auditor findings across the country. We are pleased the Government has now announced its plans for instituting a new audit system leader, and we can see the argument for separating regulation and procurement. We are also pleased that the Department has accepted the recommendation in the Redmond Review that the new system leader produce annual reports on the state of local audit, although it is not clear to what extent it will be able to join up individual auditor findings with a view to identifying systemic issues across local government. We also note that the new Audit, Reporting and Governance Authority, in which the standalone unit will sit, is being set up primarily to audit the private sector. Given that local authority audit is different from private sector audit, in that it must consider such additional matters as public interest and value for money, it remains to be seen if a standalone unit within ARGA can provide the necessary specialism that local authority audit requires. We have concerns that the Government has not established a regulator along the lines suggested in Sir Tony Redmond’s independent review, rather than as a standalone unit within another regulator.
Paragraph Reference:
80
Government Response
Acknowledged
HM Government
Acknowledged
In September 2020, Sir Tony Redmond published his review of local authority financial reporting and external audit. Since then, the Government has undertaken a range of activities in response to all 23 of Sir Tony’s recommendations. This includes extending audit deadlines from July to September for two years, amending regulations to increase flexibilities to ensure that audit firms can more easily claim for the full costs of audit and providing £15 million to local bodies to help with the costs of audit. Also, strengthening local audit arrangements, and confirming our intention to establish the Audit, Reporting and Governance Authority (ARGA), as the new system leader for local audit. The Government has also reiterated its view that there should be independence between the procurement of audit services and audit quality oversight and monitoring functions. Additionally, the Public Sector Auditor Appointments Ltd (PSAA) is the organisation best placed to act as the appointing body. This includes overseeing the next opt-in bulk procurement, due to their technical expertise and the proactive work they have done to help identify improvements that can be made to the process1. While local bodies have the power to appoint their own auditors, the large majority of principal bodies to date (all bar nine) have chosen not to, with 98% of such bodies choosing to opt-in to the appointing person arrangements overseen by PSAA from 2018/19 to 2022/23, whereby PSAA appoint auditors on their behalf. While opting-in to PSAA’s procurement arrangements is optional, local bodies may determine that the scheme continues to offer a valuable alternative to making their own arrangements, particularly given ongoing issues of market fragility and the limited supply of qualified public auditors. The Government is confident that the broader checks and balances in the system, including the FRC’s audit quality review framework, help to ensure that auditors will be confident to flag up issues that emerge. Local auditors provide an independent assessment and are required to report their findings, regardless of how they are appointed. Maintaining around the appointment of local auditors will also help to provide continuity, given the proximity of PSAA’s next procurement exercise, which is due to launch shortly, for completion by June 2022. However, the Government will be taking the views of stakeholders into consideration through its recent local audit framework: technical consultation and will keep all existing arrangements under review. 1 See https://www.gov.uk/government/consultations/local-audit-framework-technical-consultation/local-audit-framework-technical- consultation paragraphs 77-88.