Source · Select Committees · Public Accounts Committee
Recommendation 22
22
Accepted
Establishment of ARGA, the local audit system leader, further delayed until 2024.
Conclusion
In 2020 the Department rejected the Redmond Review’s proposal to create an Office of Local Audit and Regulation (OLAR) to oversee local audit, partly due to the time it would take for a new body to establish itself.68 It chose instead to place system leadership with the Audit, Reporting and Governance Authority (ARGA), which was already being established as the replacement for the FRC. In our 2021 report we expressed concern that ARGA would not be set up until 2023. This date has since slipped to 2024 at the earliest.69 We challenged the Department on whether getting the required legislation in place to establish ARGA was being prioritised, given the urgent challenges the sector faces. The Department responded that responsibility for the legislation was with the Department for Business and Trade (which replaced the Department for Business, Energy & Industrial Strategy in February 2023). The Department conceded that progress depends on government securing the legislative time in Parliament. When we expressed our concern that the involvement of an entirely new department added to risk of delay, the Department was confident that it would not.70
Government Response Summary
The government agrees and states the recommendation is implemented, detailing the establishment of shadow system leader arrangements at the FRC, including the appointment of a director and a published MOU, and commits to legislating for ARGA when parliamentary time allows.
Government Response
Accepted
HM Government
Accepted
4.1 The government agrees with the Committee’s recommendation. Recommendation implemented 4.2 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. 4.3 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. 4.4 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. 4.5 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.