Source · Select Committees · Public Accounts Committee
Recommendation 4
4
Accepted
Set out contingency plans for delayed establishment of ARGA if legislation is not passed.
Conclusion
Delays to establishing the Audit, Reporting and Governance Authority (ARGA) and handing over responsibilities for leading local audit to the FRC, risk performance deteriorating further. The Department rejected the Redmond Review’s proposal to create an Office of Local Audit and Regulation to oversee local audit, partly due to the time it would take for a new body to establish itself. It instead opted to establish ARGA to replace the FRC and oversee and regulate the local audit sector. Despite the pressing need for leadership within local public audit and recognition of the importance to set up ARGA as soon as possible, ARGA will not be set up until 2024 at the earliest. Neither FRC nor the Department could confirm whether the legislation required to establish ARGA would be introduced in the current Parliament. While the Department and FRC have agreed what roles and responsibilities the FRC will take on as part of its shadow system leadership role until ARGA is formally in place, these arrangements are yet to be formally Timeliness of local auditor reporting 7 handed over. We welcome the National Audit Office’s offer to reissue the 2020 Code of Audit Practice to provide some continuity and certainty over local auditors’ responsibilities in the meantime. Recommendation 4: The Department should, as part of its Treasury Minute response, set out its contingency plans should the legislative programme not allow for ARGA’s establishment during this Parliament.
Government Response Summary
The government agrees and states the recommendation is implemented. Its contingency plan for legislative delays to ARGA's establishment involves establishing "shadow system leader arrangements" at the FRC, which includes appointing a director and publishing an MOU, with full arrangements anticipated to start later in 2023.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Recommendation implemented The government response to the Local audit framework technical consultation in May 2022 set out that, before the Audit, Reporting and Governance Authority (ARGA) is established, shadow system leader arrangements would also be established at the FRC. Shadow arrangements will cover all the planned system leader responsibilities ARGA will have except setting the Code of Audit Practice (the Code), as primary legislation is needed to transfer the Code from the NAO to a different organisation. As such, shadow arrangements constitute the government’s contingency plan for legislative delay. The FRC appointed the first director of local audit in September 2022. A memorandum of understanding (MOU) setting out shadow system leader responsibilities was published in March 2023. Full shadow arrangements are anticipated to start later in 2023 once the department and the FRC complete overall readiness assurance. During the shadow period the NAO will continue to set the Code, working closely with the FRC to plan a seamless transfer once a legislative timetable for ARGA establishment is determined. Planned statutory governance and accountability mechanisms (e.g., issuing of a remit letter) will be adhered to during the shadow period. ARGA will clearly deliver benefits across the wider audit system as a new regulator; ahead of its establishment, shadow system leader arrangements at the FRC will provide an effective contingency for the local audit system, enabling a seamless transfer once legislation can be brought forward. The government is committed to legislating on the establishment of ARGA when Parliamentary time allows.