To consider a summary of the changes to the arrangements for the appointment of External Auditors following the closure of the Audit Commission and the end of the transitional arrangements together with the options available for arranging the first appointment of an External Auditor by 31 December 2017.

The Committee considered a report which summarised the changes to the arrangements for appointing external auditors following the closure of the Audit Commission and the end of the transitional arrangements at the conclusion of the 2017/18 audits.  The options available for arranging the first appointment of an external auditor by 31 December 2017 were set out and the Committee’s preferred approach was sought.

Members noted that Schedule 3, paragraph 1 of the Local Audit and Accountability Act 2014 stated that full Council was required to appoint the new external auditor.  At this point, therefore, the Committee was being asked to recommend to full Council a preferred approach for adoption.  However, the preferred approach was subject to any final decision being made by full Council at a future meeting.

The Committee was advised that when the current transitional arrangements came to an end on 31 March 2018 the Council would be able to move to the local appointment of its external auditor.  The three broad options open to the Council under the Local Audit and Accountability Act 2014 were as follows:

·         To make a standalone appointment

·         Set up a Joint Auditor Panel/local joint procurement arrangements

·         Opt-in to a sector led body (SLB)

The advantages/benefits and disadvantages/risks of each option were set out for Members’ consideration.

In addition the Committee noted that the current fees charged by external auditors were based on discounted rates offered by the firms in return for substantial market share.  When the contracts were last negotiated nationally by the Audit Commission they covered NHS and local government bodies and offered maximum economies of scale.  The meeting was advised that the LGA believed the fees would rise after the current contracts ended.

Members noted that the scope of the audit would still be specified nationally, the National Audit Office (NAO) being responsible for writing the Code of Audit Practice which all firms appointed to carry out the Council’s audit must follow.  Not all accounting firms would be eligible to compete for the work; they would need to demonstrate that they had the required skills and experience and be registered with a Registered Supervising Body approved by the Financial Reporting Council.  The registration process had not yet commenced and so the number of firms was not known but it was expected that the list of eligible firms may include the top 10 or 12 firms in the country, including the Council’s current auditor. It was unlikely that small local independent firms would meet the eligibility criteria.

The Committee noted that the LGA was working on developing a sector led body (SLB).  In a recent survey, 58% of respondents had expressed an interest in this option.  The greatest economies of scale would come from the maximum number of councils acting collectively and opting-in to a SLB. 

It was the recommendation of the officers that the SLB option should be adopted and this was the option which Members unanimously supported.  In order to strengthen the LGA’s negotiating position and enable it to more accurately evaluate the offering it was agreed that the Council be asked to approve the Committee’s approved approach of opting in to a SLB subject to a formal decision on whether or not to definitely opt-in at a later stage.

RECOMMENDED TO COUNCIL

1          that the Audit Committee’s preferred approach of opting in to a procurement of external audit services through a Sector Led Body be approved;

2          that Council note that officers will notify the Local Government Association of the decision taken;

3          that Council note that any recommendation on the final approach to be taken on this matter will be submitted to it for approval at a later date.