Recommendation 5

We are not convinced that the recently announced new local audit arrangements will meet the pressing need for effective system leadership now. In May 2021, the Department announced that the system leader for local government audit will be the new Audit, Reporting and Governance Authority (ARGA), the new regulator replacing the FRC. However, ARGA will not be set up until 2023, at the earliest, and doing so will require legislation. Contrary to the Redmond review recommendations, ARGA will not be responsible for procurement, which will remain with PSAA, due to the Department’s concerns about potential conflicts of interest. The Department will have Accounting Officer responsibilities for just the local audit element of ARGA, while BEIS will be the sponsor department overall. There is a crisis in local government audit and a need for urgent action to tackle the increasing delays, audit quality and market fragility. The Department recognises the importance of stronger system leadership during the transition to ARGA, but we are not reassured that its proposed liaison committee, bringing together all the responsible bodies, will be 8 Local auditor reporting on local government in England enough to meet the pressing need for system leadership now. It remains to be seen whether ARGA will then be able to meet fully the ongoing priorities for effective system leadership. Recommendation: The Department should write to us by September 2021 and outline: • how it will address the need for strong system leadership now, while ARGA is being set up and established; and • how it will work with BEIS to set up ARGA, the accountability and governance arrangements, and how its performance will be monitored and evaluated.