Source · Select Committees · Housing, Communities and Local Government Committee
Recommendation 19
19
Accepted in Part
Paragraph: 91
The establishment of the local audit system leader will require primary legislation.
Recommendation
The establishment of the local audit system leader will require primary legislation. The legislation required to establish ARGA has been significantly delayed and there appears to be little or no forward momentum or urgency in the Government to introduce it. Moreover, the Department for Levelling Up, Housing and Communities, which will be responsible for the local audit system leader, informed us that only the Department for Business and Trade, as ARGA’s sponsor department, can move forward with this legislation. It is fundamentally unclear how the Government’s Financial Reporting and Audit in Local Authorities 37 departments are being coordinated to establish ARGA in a timely fashion. The Government must make it a priority to establish the local audit system leader, in a different form if necessary.
Government Response Summary
The government views a new arm's length body for local audit as unnecessary and has instead appointed the FRC as a shadow system leader, which is now staffed and working. Full establishment of ARGA through primary legislation is subject to parliamentary time.
Paragraph Reference:
91
Government Response
Accepted in Part
HM Government
Accepted in Part
As the Committee will be aware, Sir Tony Redmond’s ‘Independent review of local authority financial reporting and external audit’ recommended the establishment of a new independent regulator for local audit. The aim of this central proposal was to overcome fragmentation in the local audit framework, enabling a coordinated response to challenges arising. As set out in our May 2021 ‘Local Authority Financial reporting and external audit: Spring Update’, it is the government’s view that a new arm’s length body is not necessary to achieve this objective and that a system leader should instead be appointed from within the current system. This policy has been subject to a public consultation. The Auditing, Reporting and Governance Authority (ARGA) will be established through primary legislation when parliamentary time allows. Ahead of that, it was stipulated in our July 2021 public consultation ‘Local Audit Framework: technical consultation’ and the subsequent government response, that a shadow system leader function would start at the FRC, funded by and accountable to the Department. Accordingly, an MoU between the FRC and DLUHC was published in March 2023 setting out the roles and responsibilities the FRC will undertake as shadow system leader and associated governance arrangements. The local audit unit at the FRC, as incoming shadow system leader, has now been staffed and is working with the Department to lead the cross-system package of measures to clear the backlog.