Timeliness of local auditor reporting on local government in England

Public Accounts Committee Closed Inquiry
Opened: 23 Mar 2021 Closed: 16 Nov 2021 Parliament page
In 2019‑20, 487 local bodies including local councils, local police and local fire bodies in England spent nearly £100 billion delivering local public services that residents, businesses and taxpayers rely on every day.Proper accounting with high quality audit is essential for public trust in how taxpayers’ money is spent. Each … Read more
5 Recommendations
29 Conclusions
1 Report
2 Oral sessions
3 Letters
2 Events
Activity timeline 7 events
16 Nov
2021
Correspondence
28 Oct
2021
Report published
25 Oct
2021
Correspondence
14 Jul
2021
Report published
21 Jun
2021
Correspondence
20 May
2021
Oral evidence
17 May
2021
Oral evidence
Oral evidence sessions 2 sessions
20 May 2021
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Local government auditing in England 2020
Catherine Frances · Department for Levelling Up, Housing and Communities Jeremy Pocklington CB · Ministry of Defence Tony Crawley · Public Sector Audit Appointments Ltd
17 May 2021
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Local government auditing in England 2020
Fiona Baldwin · Grant Thornton Janet Dawson · Ernst and Young Mark Stocks · Grant Thornton Sir Tony Redmond · Chartered Institute of Public Finance and Accountancy (CIPFA)
Title HC No. Published Items Response
Eleventh Report - Local auditor reporting on local government in… HC 171 14 Jul 2021 34 Responded
Recommendations & Conclusions
21 results
Clear
2 Recommendation Accepted
Eleventh Report - Local auditor re…
There is a pressing risk of market collapse due to an over reliance on a...
There is a pressing risk of market collapse due to an over reliance on a small number of audit firms and significant barriers to entry. Only eight audit firms have the specialist knowledge and accreditation needed to audit local authorities. … Read more
Government Response
The government agrees with the recommendation and commits to writing to the Committee by September 2021, explaining the contingencies in place to support the procurement of the next round of audit contracts.
HM Treasury
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3 Recommendation Accepted
Eleventh Report - Local auditor re…
The commercial attractiveness to audit firms of auditing local authorities has declined.
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 … Read more
Government Response
The government accepted the recommendation, agreeing to amend regulations to give PSAA greater flexibility in fee setting and committed to working with PSAA on the next procurement strategy to ensure a new, appropriately funded fee regime.
HM Treasury
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4 Recommendation Accepted
Eleventh Report - Local auditor re…
The rapidly diminishing pool of suitably qualified and experienced staff increases the risks to the...
The rapidly diminishing pool of suitably qualified and experienced staff increases the risks to the timely completion of quality audits. There are serious shortfalls in the number of specialists which audit firms rely on to carry out audits of local … Read more
Government Response
The government accepted the recommendation, outlining ongoing work with stakeholders, including a public consultation on amending Key Audit Partner guidance and developing new training to increase the supply of qualified auditors.
HM Treasury
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5 Recommendation Accepted
Eleventh Report - Local auditor re…
We are not convinced that the recently announced new local audit arrangements will meet the...
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 … Read more
Government Response
The government accepted the recommendation, outlining MHCLG's interim leadership role through a Liaison Committee and detailing plans for ARGA's setup including a discrete Remit letter and a distinct local audit section in ARGA's annual report.
HM Treasury
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6 Recommendation Accepted
Eleventh Report - Local auditor re…
Unless local authority accounts are useful, relevant and understandable they will not aid accountability.
Unless local authority accounts are useful, relevant and understandable they will not aid accountability. Changes in auditing standards, such as on auditing pensions and grant distribution, have required considerable extra audit time. Some local authorities also have increasingly complex financial … Read more
Government Response
The government accepted the recommendation, detailing plans to develop a standardised statement, reduce accounting/audit requirements for less risky areas, and work with CIPFA to improve the presentation of local authority accounts.
HM Treasury
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8 Conclusion Accepted
Eleventh Report - Local auditor re…
The deadline for local authorities to publish their accounts has changed over time, being 30...
The deadline for local authorities to publish their accounts has changed over time, being 30 September up to 2017; 31 July for 2018 and 2019; and for 2020 the original 31 July deadline was extended to 30 November.16 Grant Thornton … Read more
Government Response
The government has already extended the audit publication deadline to 30 September for two years and provided additional funding to local bodies for audit costs. It is also consulting on broader system strengthening and will review the audit deadline after the 2021-22 audits, providing an update by September 2021.
HM Treasury
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10 Conclusion Accepted
Eleventh Report - Local auditor re…
High-quality audits of local authority financial statements are important to assure taxpayers, stakeholders, and users...
High-quality audits of local authority financial statements are important to assure taxpayers, stakeholders, and users of the accounts, that local authority accounts have been properly prepared, and to maintain trust in audited accounts.21 The FRC is the independent body responsible … Read more
Government Response
The government agrees with its interpretation of the underlying recommendation to increase qualified auditors, detailing ongoing work with stakeholders, a public consultation on new training routes, and a commitment to update by the end of 2021.
HM Treasury
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12 Conclusion Accepted
Eleventh Report - Local auditor re…
Sir Tony Redmond emphasised the need for much greater transparency in the financial reporting of...
Sir Tony Redmond emphasised the need for much greater transparency in the financial reporting of local authorities, to turn accounts that were impenetrable to the public into simpler information that the public wanted to know about. His review had recommended … Read more
Government Response
The government agrees with the recommendation to increase transparency in local authority financial reporting. It is developing a plan to deliver Sir Tony Redmond’s recommendation for standardised statements and will work with CIPFA to improve account presentation, with an update to the Committee by September 2021.
HM Treasury
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13 Conclusion Accepted
Eleventh Report - Local auditor re…
Durham University highlighted that local authority accounts were an important means of democratic accountability, and...
Durham University highlighted that local authority accounts were an important means of democratic accountability, and could cover issues of financial sustainability, financial and service resilience and equity, and that work was needed to resolve questions of what local electors should … Read more
Government Response
The government agrees with the committee's recommendation to provide detailed plans by September 2021 on how to focus local authority accounts and audits, and is developing a plan to deliver on transparency and reduce accounting requirements.
HM Treasury
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15 Conclusion Accepted
Eleventh Report - Local auditor re…
Sir Tony Redmond told us that local authorities considered that audits give too much attention...
Sir Tony Redmond told us that local authorities considered that audits give too much attention to the valuations relating to pension funds and property. He added that local authorities believed the work that auditors had to carry out on valuations … Read more
Government Response
The government agreed with the committee's observation, outlining plans to reduce accounting and audit requirements for areas of less risk and to develop a standardised statement to improve the transparency and focus of local authority financial reporting.
HM Treasury
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16 Conclusion Accepted
Eleventh Report - Local auditor re…
The Department agreed with Sir Tony’s assessment that local authorities’ audited accounts were hard reading,...
The Department agreed with Sir Tony’s assessment that local authorities’ audited accounts were hard reading, and with his proposal for a summary statement in plain English. The Department had asked CIPFA to look at simplifying local authority accounts.40 This included … Read more
Government Response
The government agrees and is developing a plan for authorities to prepare a standardised financial statement. It is also working with CIPFA and stakeholders to simplify accounting requirements and will write to the Committee by September 2021 with a work plan.
HM Treasury
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17 Conclusion Accepted
Eleventh Report - Local auditor re…
In May 2021, the Department announced its updated response to recommendations in Sir Tony Redmond’s...
In May 2021, the Department announced its updated response to recommendations in Sir Tony Redmond’s review, from September 2020. We challenged the Department on whether the new arrangements would have any real effect on the efficiency of local government auditing. … Read more
Government Response
The government agrees with its interpretation of the underlying recommendation to address system leadership, outlining plans for ARGA as the system leader, and committing to provide updates in September and later in 2021.
HM Treasury
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18 Conclusion Accepted
Eleventh Report - Local auditor re…
Given that ARGA is not going to be set up until 2023 at the earliest,...
Given that ARGA is not going to be set up until 2023 at the earliest, we pressed the Department on what would happen in the interim. The Department acknowledged that it would take time to establish ARGA, and that doing … Read more
Government Response
The government agrees with the need for effective interim system leadership and has already established the Local Audit Liaison Committee, chaired by MHCLG, to address systemic issues during the transition period before ARGA is fully established.
HM Treasury
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19 Conclusion Accepted
Eleventh Report - Local auditor re…
The Department had asked PSAA to continue as the appointing body for procuring audit services,...
The Department had asked PSAA to continue as the appointing body for procuring audit services, unlike the recommendation in Sir Tony’s review to create a new body as a system leader, an Office of Local Audit and Regulation, which would … Read more
Government Response
The government agrees with the Committee's position that PSAA should remain the appointing body, and is working with PSAA to design procurement strategy, consider market sustainability contingencies, and amend regulations for fee flexibility. The government will write to the Committee by September 2021 with details on contingencies.
HM Treasury
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20 Conclusion Accepted
Eleventh Report - Local auditor re…
The Department confirmed that ARGA would be accountable to the Secretary of State for Business,...
The Department confirmed that ARGA would be accountable to the Secretary of State for Business, Energy and Industrial Strategy.50 The Department explained that it would hold Accounting Officer responsibility for the local government role of ARGA and for all aspects … Read more
Government Response
The government has agreed that MHCLG's Secretary of State will send a specific Remit letter to ARGA and ARGA's annual report will include a distinct local audit section, alongside FRC interim arrangements, to ensure local government interests are reflected.
HM Treasury
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21 Conclusion Accepted
Eleventh Report - Local auditor re…
In September 2020, Sir Tony Redmond reported to the Secretary of State for Housing, Communities...
In September 2020, Sir Tony Redmond reported to the Secretary of State for Housing, Communities and Local Government, that it was clear from his independent review of the effectiveness of local audit and the transparency of local authority financial reporting, … Read more
Government Response
The government acknowledges the market fragility and details specific actions to address it, including working with PSAA and stakeholders on contingencies for market sustainability and regulatory amendments for fee flexibility. The government will provide a written update by September 2021.
HM Treasury
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22 Conclusion Accepted
Eleventh Report - Local auditor re…
All parties agreed that the market was not currently competitive, and that one measure needed...
All parties agreed that the market was not currently competitive, and that one measure needed for the market to become effective was to have more audit firms in the market.56 Only eight audit firms are accredited to audit local authorities.57 … Read more
Government Response
The government implicitly accepts the conclusion about the uncompetitive market and is working with PSAA to design procurement strategies to support market sustainability and encourage new firms, including amending regulations to provide flexibility in fee setting. It commits to providing an update on contingencies by September 2021.
HM Treasury
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30 Conclusion Accepted
Eleventh Report - Local auditor re…
The Department reported that it was working closely with the Financial Reporting Council (FRC), the...
The Department reported that it was working closely with the Financial Reporting Council (FRC), the Chartered Institute of Public Finance and Accountancy (CIPFA) and 75 Local Government Association submission, page 2 76 Institute for Chartered Accountants in England and Wales … Read more
Government Response
The government confirms its commitment to working with stakeholders on improving auditor training and reviewing Key Audit Partner entry requirements. It has published a consultation with proposals to amend guidance and develop a new training offer, seeking views on further actions.
HM Treasury
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31 Conclusion Accepted
Eleventh Report - Local auditor re…
PSAA noted that the audit firms carried out extensive training programmes for their staff, but...
PSAA noted that the audit firms carried out extensive training programmes for their staff, but that it was important to ensure these programmes covered training on the specific aspects for audits of local authorities.88 Grant Thornton informed us that it … Read more
Government Response
The department is already working with stakeholders on improving auditor training and reviewing Key Audit Partner entry requirements, having committed to this in December 2020 and published proposals for consultation in July 2021.
HM Treasury
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32 Conclusion Accepted
Eleventh Report - Local auditor re…
In 2019, the previous Committee reported on the reduction in fees for auditing local authorities.90...
In 2019, the previous Committee reported on the reduction in fees for auditing local authorities.90 The Department accepted that audit fees had become insufficient to reflect the increased challenges in auditing local authorities.91 Sir Tony Redmond confirmed that audit fees … Read more
Government Response
The government has committed to amending regulations to provide the appointing person (PSAA) with greater flexibility in setting audit fees and to adjust the fee-setting deadline to better reflect additional cost pressures.
HM Treasury
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34 Conclusion Accepted
Eleventh Report - Local auditor re…
We sought clarity from the Department on whether, if fees went up, it would look...
We sought clarity from the Department on whether, if fees went up, it would look to reflect the increase in the settlement for local government. The Department responded that is had put in more money this year for affected bodies, … Read more
Government Response
The government confirms its commitment to amending regulations to provide the appointing person (PSAA) with greater flexibility in setting and varying audit fees, and to adjust the fee-setting deadline to reflect additional cost pressures.
HM Treasury
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Government Response AI assessment · 33 of 5 classified
Accepted 21
Accepted in Part 1
Acknowledged 6
Not Addressed 5
Total 5 recs + 29 conclusions
Correspondence 3 letters
16 Nov 2021 Correspondence from Dame Meg Hillier, Chair, Committee of Public Account, re Treasury Minute response – Timeliness of local auditor reporting on local government in England, dated 8 November 2021
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25 Oct 2021 Correspondence from Jeremy Pocklington CB, Permanent Secretary, Department for Levelling Up, Housing and Communities, re response to the Public Accounts Committee’s 11th Report of Session 2021–22 Timeliness of local auditor reporting and Treasury Minute, dated 6 October 2021
Parliament page
21 Jun 2021 Correspondence from Catherine Frances, Director General, Local Government, Strategy & Analysis Ministry of Housing, Communities & Local Government, re PAC hearing into audit delays follow up, dated 14 June 2021
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