Recommendation 3

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.