Source · Select Committees · Public Accounts Committee
Recommendation 3
3
The commercial attractiveness to audit firms of auditing local authorities has declined.
Conclusion
The commercial attractiveness to audit firms of auditing local authorities has declined. Audit firms bid for the current contracts to audit local authorities in 2017, but the work involved has increased significantly in response to well-publicised problems in the corporate sector. Fees now bear little relation to the costs audit firms incur to carry out the work. Audit firms point to the increased work required to audit pension and property valuations, and to meet increased regulatory expectations for Local auditor reporting on local government in England 7 local audit. Local authorities say the focus on these areas means less attention is paid to more meaningful areas for their themselves and their residents, such as their financial resilience, outturn against their budget, and performance outcomes. The Department is consulting on changes to the regulations that set the fees, to enable fees to be set closer to when the audit work is carried out, and so that fees can reflect any increase in audit work required. In the meantime, the Department is consulting on how to allocate an additional £15 million to help audit firms respond to the pressures in the current year. Recommendation: The Department should ensure that PSAA’s next procurement exercise, due to begin in 2021, supports a new fee regime for local government audit, which is appropriately funded, and which brings fees into line with the costs of the work.
Government Response
Not Addressed
HM Government
Not Addressed
3.1 The government agrees with both the Committee’s recommendations. Target implementation date: September 2021 3.2 The government agrees a decision by firms to withdraw from local audit could pose a risk to the future sustainability of the market. In the Spring Update, the government set out that expanding the number of firms engaged in the market should be a priority for the next procurement and reiterated that Public Sector Audit Appointments Ltd (PSAA) remain best placed to continue acting as appointing body for local audit. 3.3 The government is working closely with PSAA as it designs its procurement strategy. Given the priority attached to this, it was discussed at the inaugural meeting of the Local Audit 23 Liaison Committee. The PSAA has proposed an increased focus on quality in recent consultations with firms and local bodies, although ultimately prices reflect firms’ bids. Additionally, the department is working with PSAA, local audit firms and other key stakeholders to consider what contingencies may be required to support the sustainability of the local audit market. 3.4 As set out above, the government has committed to amend regulations to provide the appointing person (PSAA) with greater flexibility, including to set standardised fee variations across groupings of bodies, and to amend the fee-setting deadline to allow the appointing person to take account of additional information, to make it easier to reflect additional cost pressures from new requirements. 3.5 The government will write to the Committee in September 2021, explaining the contingencies that are in place to support the procurement of the next round of audit contracts, although being mindful of not wanting to undermine PSAA’s ongoing opt-in and procurement processes.