Agenda item

Report attached.

The Local Audit and Accountability Act 2014 (the Act) brought to a close the Audit Commission and established transitional arrangements for the appointment of external auditors and the setting of audit fees for all local government and NHS bodies in England.  On 5 October 2015 the Secretary of State Communities and Local Government (CLG) determined that the transitional arrangements for local government bodies would be extended by one year to also include the audit of the accounts for 2017/18.

The Act also set out the arrangements for the appointment of auditors for subsequent years, with the opportunity for authorities to make their own decisions about how and by whom their auditors were appointed.  Regulations made under the Act allow authorities to ‘opt in’ for their auditor to be appointed by an ‘appointing person’.

In July 2016 Public Sector Audit Appointments’ (PSAA) were specified by the Secretary of State as an appointing person under regulation 3 of the Local Audit (Appointing Person) Regulations 2015. The appointing person was sometimes referred to as the sector led body and PSAA had wide support across local government.  PSAA was originally established to operate the transitional arrangements following the closure of the Audit Commission under powers delegated by the Secretary of State.  PSAA was an independent, not-for-profit company limited by guarantee and established by the LGA.

PSAA was inviting the Council to opt in, along with all other authorities, so that PSAA could enter into a number of contracts with appropriately qualified audit firms and appoint a suitable firm to be the Council’s auditor.

The principal benefits from such an approach were as follows:

·         PSAA would ensure the appointment of a suitably qualified and registered auditor and expected to be able to manage the appointments to allow for appropriate groupings and clusters of audits where bodies work together;

·         PSAA would monitor contract delivery and ensure compliance with contractual requirements, audit quality and independence requirements;

·         Any auditor conflicts at individual authorities would be managed by PSAA  who would have a number of contracted firms to call upon;

·         It was expected that the large scale contracts procured through PSAA would bring economies of scale and attract keener prices from the market than a smaller scale competition;

·         The overall procurement costs would be expected to be lower than an individual smaller scale local procurement;

·         The overhead costs for managing the contracts would be minimised though a smaller number of large contracts across the sector;

·         There would be no need for the Council to establish alternative appointment processes locally, including the need to set up and manage an ‘auditor panel’; and

·         A sustainable market for audit provision in the sector would be easier to ensure for the future.

If the Council did not opt in there would be a need to establish an independent auditor panel. In order to make a stand-alone appointment the auditor panel would need to be set up by the Council itself.  The members of the panel must be wholly or a majority of independent members as defined by the Act.  Independent members for this purpose were independent appointees, this excluded current and former elected members (or officers) and their close families and friends.  This meant that elected members would not have a majority input to assessing bids and choosing which audit firm to award a contract for the Council’s external audit.

Alternatively, the Act enabled the Council to join with other authorities to establish a joint auditor panel.  Again this would need to be constituted of wholly or a majority of independent appointees (members).  Further legal advice would be required on the exact constitution of such a panel having regard to the obligations of each Council under the Act and the Council would need to liaise with other local authorities to assess the appetite for such an arrangement.

Officers were unable to recommend either of these options.  Both options would be more resource intensive processes to implement and without the bulk buying power of the sector led procurement, would be likely to result in a more costly service.  It would also be more difficult to manage quality and independence requirements through a local appointment process.

Having discussed the options the Committee RECOMMENDED to Council:

1.    That it accepts Public Sector Audit Appointments invitation to ‘opt in’ to the sector led option for the appointment of external auditors commencing 1 April 2018, for the financial years of the contracts let in accordance with their procurement strategy; (5 years was currently proposed);

2.    If (1) was agreed delegate to the Section 151 Officer authority to give notice to the PSSA that the invitation was accepted.