Source · Select Committees · Public Accounts Committee
Recommendation 5
5
We are not convinced that the recently announced new local audit arrangements will meet the...
Conclusion
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.
Government Response
Not Addressed
HM Government
Not Addressed
5.1 The government agrees with the Committee’s recommendation. Target implementation date: by end of 2021 5.2 The government recognises the need for effective system leadership now. The department’s Spring Update set out the responsibilities the Audit, Reporting and Governance Authority (ARGA) will have as system leader for local audit and the governance mechanisms which BEIS has been consulting on for the new regulator. The department committed then to a publish a public consultation on the details for Summer 2021 recess and signalled that MHCLG would assume a stronger leadership role in the interim before ARGA is established. 5.3 MHCLG has already established the Liaison Committee, a senior stakeholder forum – as recommended by Sir Tony Redmond to consider systemic issues – with MHCLG as chair while ARGA is being established. An inaugural meeting was held on 29 July 2021 to discuss the develop of the next procurement strategy, and meeting minutes will be published in due course, with a further meeting in September 2021. 5.4 The department’s summer consultation reflects further work MHCLG has already conducted with BEIS and FRC on governance and delivery. It has been agreed with BEIS that MHCLG’s Secretary of State will send a discrete Remit letter to ARGA and that ARGA’s annual report will have a standing, distinct local audit section – the government is consulting on the scope of this. This also outlines that FRC will establish interim arrangements from April 2022 to ensure a smooth and timely implementation. Finally, NAO has been liaising with FRC on the range of activities it conducts around the Code of Local Audit to assist with planning for the transfer of the Code to ARGA as system leader. 5.5 Given views are currently being sought from stakeholders on the proposals ahead of a consultation deadline of 22 September 2021, it is proposed to provide a high-level update in September 2021 and will also consider these points as the department develops its response to that consultation later in the year.