The government is to offer councils an additional £15m in response to findings of the independent review into the effectiveness of local audit carried out by Sir Tony Redmond earlier this year, to fund a suite of improvements in transparency and accountability
However, it has ruled out creating a new overarching body to monitor local audit functions, for the time being.
The review, launched in July 2019, addressed a number of issues which have since gained additional urgency, after public interest reports were issued for both Nottingham and Croydon councils relating to investment failures and budget overspends, and a Financial Reporting Council (FRC) review found the majority of local audits are ‘unacceptable’ in terms of quality.
In its response, the government said the Redmond review highlighted four key areas. Firstly, current local audit arrangements do not meet the policy objectives underpinning the Local Audit and Accountability Act 2014, with weaknesses in the functioning and value of local audit, the timeliness of its findings and how these are considered and managed by local authorities.
Secondly, the local audit market is unattractive to audit firms and so highly fragile.
Thirdly, the introduction of the localised audit framework in the 2014 Act spread roles and responsibilities for local audit across multiple organisations, resulting in a lack of coherency and difficulties in resolving the weaknesses in the system.
In addition, the Redmond Review highlighted that the statutory accounts prepared by local authorities are widely agreed to be ‘impenetrable to the public’, limiting how effectively taxpayers can judge the performance of their authority.
The review recommended the current fee structure for local audit should be revised to ensure that adequate resources are deployed to meet the full extent of local audit requirements.
Existing regulations mean Public Sector Audit Appointments (PSAA) must set scale fees before the start of the financial year to which the fees relate and is then unable to amend these, even if uncertainties such as the impact of Covid-19 or new auditing requirements emerge.
In its response the government said, subject to consultation, it will review and reform regulations to provide the appointing person with greater flexibility to ensure the costs to audit firms of additional work are met. This could include enabling the appointing person to allow a fee scale to be set or changed in-year (subject to consultation with the auditor and the audited body), and/or enabling the appointing person (subject to appropriate consultation) to set additional fees across groupings of audited bodies in-year where there is clear evidence of additional work that affects those groupings.
The government will consult in the new year on how best to amend the existing regulations, with a view to having revised regulations in place before the 2021 summer recess.
The Redmond Review highlighted the significant increase in delayed audit opinions since the target date was brought forward in 2017/18 from 30 September to 31 July. Over 200 audits did not meet the 31 July deadline in 2018/19.
The government has accepted its recommendation that the current deadline should be reviewed, with a view to extending it to 30 September.
Subject to consultation in the new year, the government intends to amend regulations to extend the deadline for publishing audited local authority accounts from 31 July to 30 September, for a period of two years (i.e. covering the audit of the 2020/21 and 2021/22 accounting years). At the end of this period it will review whether there is a continued need to have an extended deadline.
The government has said it agrees with recommendations that all local authorities be required to prepare an audited standardised statement of service information and costs. These should be short and accessible, for example one or two pages.
Standardised statements should be communicated to all taxpayers and service users, and the government will explore how this can be done, for example, alongside or with council tax bills from 2022.
The ambition is for the standardised statements to be introduced as soon as possible. The government will work closely with CIPFA as they lead on the development and consultation with local government to produce a product, with a view to rolling statements out in 2021/22. As part of this work, it is considering whether it may need to change regulations to mandate the inclusion of the statement alongside the accounts. It will also engage with the National Audit Office (NAO) on the required changes to the Code of Audit Practice.
An additional £15m will be provided in 2021-22 to support councils to fund the likely increase in audit fees and to produce these annual statements.
However, the government has, for the time being, rowed back on the review’s central proposal, which was the establishment of a new independent regulator for local audit – the Office of Local Audit and Regulation (OLAR).
Redmond proposed OLAR would have a range of responsibilities, including procurement of local audit contracts; producing annual reports summarising the state of local audit; management of local audit contracts; monitoring and review of local audit performance; determining the code of local audit practice; and regulating the local audit sector.
In its response, the government argues the creation of a strong system leader for local audit, especially in the form of a new body, would entail significant structural reform and would mark a significant departure from the 2014 Act.
It stated it does not wish to ‘re-create the costly, bureaucratic and over-centralised Audit Commission’ and says it is not currently persuaded that a new arms-length body is required.
It does, however, commit to exploring the options around creating a ‘system leader’, which will include close consideration of whether existing bodies could take on this function.
The government’s response also acknowledges the potential value in the regular production of analysis highlighting trends in local audit findings across England, and government is to look at this more closely with the sector with a view to making a full response on these particular issues by spring 2021.
Robert Jenrick, local government secretary, said: ‘I would like to thank Sir Tony Redmond for his thorough review. It is an important step towards strengthening the local audit regime, and I have announced additional funding today to ensure we can now begin implementing his recommendations.’