An independent review has called for the establishment of a new organisation, the Office of Local Audit and Regulation (OLAR), to act as the system leader for the local audit framework.
The Independent Review into the Oversight of Local Audit and the Transparency of Local Authority Financial Reporting, led by former Local Government Ombudsman Sir Tony Redmond, said in its report OLAR should be created to manage, oversee and regulate local audit with the following key responsibilities:
- 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.
Roles and responsibilities currently carried out by Public Sector Audit Appointment, the Institute of Chartered Accountants of England & Wales, FRC/ARGA, and the Comptroller and Auditor General would be transferred to the OLAR as part of the shake-up.
The engagement of audit firms to perform the local audit role would also be accompanied by a new price/quality regime “to ensure that audits were performed by auditors who possessed the skills, expertise and experience necessary to fulfil the audit of local authorities”. The new regulator would hold those auditors accountable.
The review also called for:
- authorities to examine the composition of audit committees in order to ensure that the required knowledge and expertise are always present when considering reports, together with the requirement that at least an annual audit report to be submitted to full council. “This demonstrates transparency and accountability from a public perspective which is currently lacking in many authorities”;
- consideration to be given to the appointment of at least one independent member, suitably qualified, to the Audit Committee;
- formalising the facility for the CEO, Monitoring Officer and Chief Financial officer to meet with the key audit partner at least annually;
- a standardised statement of service information and costs, compared to the annual budget, that is aimed at taxpayers and service users.
The report estimated that “aside from the additional costs arising from a fee increase, the resource implications of the new regulatory body would amount to approximately £5m per annum after taking into account the amount related to staff subject to transfer under the TUPE arrangements”.
In a covering letter to Robert Jenrick, Secretary of State for Housing, Communities and Local Government Sir Tony said: “As I conducted my work, it became clear that the local audit market is very fragile. The current fee structure does not enable auditors to fulfil the role in an entirely satisfactory way. With 40% of audits failing to meet the required deadline for report in 2018/19, this signals a serious weakness in the ability of auditors to comply with their contractual obligations. In addition, the ambition of attracting new audit firms to the local authority market has not been realised.
“Without prompt action to implement my recommendations, there is a significant risk that the firms currently holding local audit contracts will withdraw from the market.”
Sir Tony said it would be possible to achieve part, but only part, of what needed to be done without legislation. “However, it is important to emphasise that to fully achieve the vision set out in the Review, primary legislation will be essential. Only this can give the new organisation the tools it needs to do its job and to rebuild the sustainability of the local audit market.”
The report revealed amongst other things that monitoring officers attend just under half of audit committee meetings.