Audit Committee
6 December 2011
Agenda Item No_____12________
The Future Provision of External Audit
Summary:
Following the announcement by the Secretary of State for
Communities and Local Government in August 2010 to put in
place new arrangements for auditing local public bodies in
England, and the subsequent consultation exercise, this paper
brings Members up to date with developments.
Conclusions:
The publication of a draft bill on the future shape of external audit of
local authorities is imminent
Recommendations:
That the Committee notes the contents of this report and continues to
monitor future developments.
Cabinet member(s):
Ward(s) affected:
All
All
David Ablett
01263-516055
David.ablett@north-norfolk.gov.uk
Contact Officer, telephone number,
and e-mail:
1. Introduction
1.1. As members will be aware the demise of the Audit Commission was announced in
August 2010. Since that date there have been several exchanges between the
Commission and the Department for Communities and Local Government (DCLG).
1.2. The Coalition Government is firmly of the view that the abolition of the Audit
Commission will reduce the expenditure of local authorities and other public bodies on
the provision of external audit services by allowing each local council to procure its audit
contractor.
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Audit Committee
6 December 2011
1.3. DCLG Ministers also justified the decision to abolish the Audit Commission on the
grounds that an Audit Commission which was regulator, commissioner and provider of
local government audit services was highly "centralist" and thereby incompatible with
the Government's move to localism.
2. Current position
2.1. The DCLG had considered the option of transferring the in-house audit work of the
Audit Commission to the private sector. However, Ministers are now of the opinion that
the better result would be achieved by outsourcing the work through a procurement
exercise.
2.2. The new arrangements are based upon the following four design principles:
•
•
•
•
•
Localism and decentralisation – freeing authorities to appoint their own
external auditors from a competitive marketplace.
Transparency – ensuring results of audit work are more accessible with
Local people participating in the process.
Lower fees
Higher standards of work
2.3. To this end the DCLG has asked the Audit Commission to provide a timetable for
procurement and seek bids for this work. New contracts will be awarded for three or five
years starting in time for the audit of the 2012-13 accounts.
2.4. Awards of contracts will be in ten “lots”, grouped into four English regions and valued at
approximately £90m in total. The contracts will cover all the audited bodies in a
geographical area with those for the “Central Region” made up of West Midlands
(£8.9m), East Midlands (£7.8m) and Eastern (£7.8m). Only one lot will be awarded to
any one supplier in any one region.
2.5. North Norfolk District Council will fall into the “Eastern” lot of the Central Region.
However as the service is currently provided by PricewaterhouseCoopers it will almost
certainly remain the Council’s External Auditor until “auditor choice” comes in (i.e. after
the three or five years referred to in paragraph 2.3 above).
2.6. The timetable for procurement is as follows:
Key Date
Milestone
05/09/2011
Issue of Contract Notices in the Official Journal of the European
Union
07/10/2011
Deadline for the return of the Pre Qualification Questionnaires
Week
commencing:
Issue of Invitations to Tender and anonymised TUPE information
to selected suppliers
24/10/2011
16/12/2011
Deadline for the submission of tenders
Week
commencing:
Approval of contract awards
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Audit Committee
Key Date
6 December 2011
Milestone
20/02/2012
23/04/2012 to
13/07/2012
Consultation with audited bodies on appointments
Week
commencing:
Approval of auditor appointments
23/07/2012
01/09/2012
Appointments for 2012/13 to start
2.7. The procurement is designed to allow “a range of firms to bid to support a market
plurality during the period of transition to new audit arrangements”. This confirms the
intention of the Commission to try and encourage more firms to enter the market,
especially those who currently do not work in the public sector.
2.8. In addition the outline timetable for audit coverage has been published by the Audit
Commission as follows:
Period
Auditor Appointment
From 01/04/2011
Current auditor
•
No change for audit of
2011/12 accounts
01/04/2011 to
31/08/2012
Current auditor
•
Interim appointment for
2012/13; no change –
subject to consultation by the
end of 2011
•
Roll will be a watching brief
only and costs will be paid by
the Commission
•
Change of auditor – subject
to consultation following
award of contracts in spring
2012
•
Auditor will audit the 2012/13
accounts (opinion and
financial statements and the
VFM conclusion)
•
Full years scale fee payable
by the audited body
•
Auditor responsible for the
audit of future year’s
From 01/09/2012
New auditor
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Comments
Audit Committee
6 December 2011
Period
Auditor Appointment
Comments
accounts
2.9. It is proposed that auditors appointed under the new arrangements will be on a three or
five year term.
3. Further considerations
3.1. The recent House of Commons Select Committee report on “Audit and inspection of
local authorities” looked in detail at the proposals for reform of the Audit Commission.
3.2. Looking beyond the broad conclusions of the report it did also serve to highlight the
detailed proposals for the appointment of external auditors. In particular it highlighted
the role of the Audit Committee and the changes that are envisaged to ensure the
independence of the audit function and the appointment of the auditors.
3.3. The principles endorsed by Lord Sharman in his report (Holding to Account, The
Review of Audit and Accountability for Central Government, Report by Lord Sharman of
Redlynch, HM Treasury, 13 February 2001) include:
•
Auditors are independent of the audited body;
•
The scope of auditors' work covers not only the audit of financial statements,
but also 'regularity' (legality), propriety (probity) and use of resources (value
for money), and
•
Auditors may report widely to the public, councillors and other key
stakeholders.
3.4. Some parties feel that the proposal to allow local authorities to appoint their own
auditors is flawed and against the principles outlined by Lord Scarman.
3.5. However, the Government is also proposing that the appointment is overseen by an
Audit Committee which is independent of the local authority. This independence comes
through an independent person as Chair of the Committee and a substantial
representation of independent members to serve alongside Elected Members.
3.6. The legal framework for and practicalities of local audit committees are of crucial
importance to the success of the proposals. The results of recent consultation on the
eligibility criteria for independent members of audit committees and whether they should
be in the majority will be included in the proposed Public Audit Bill.
4. Risks
4.1. There are a number of risks associated with these proposals for the Council potentially
these include:
•
A competitive market does not emerge for this service
•
The award of contracts on a “lots” basis reduces the Council’s influence over
external audit fees
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Audit Committee
6 December 2011
•
The new arrangements could reduce external audit knowledge of the Council
•
There could be potential conflicts of interest with the internal audit contractor
5. Conclusion
5.1. The consultation by the Department for Communities and Local Government on “The
Future of Local Public Audit” ended on 30th June 2011. The first draft of a Bill on the
shape of future of the audit of local public bodies is anticipated to be published soon.
The bill will outline how the current arrangements will be replaced.
5.2. A report by FTI Consulting Limited for the DCLG has just been published. The report
covers high level advice relating to the transfer to the private sector of the in-house
audit commission practice.
6. Recommendation
6.1. That the Committee notes the contents of this report and continues to monitor future
developments.
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