To consider the attached report.
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The Committee received a report and was informed that Sir Tony Redmond had carried out a review into the arrangements in place to support the transparency and quality of local authority financial reporting and external audits in England. The objectives of the review were:
(i) Whether the audit and related regulatory framework for local authorities in England was operating in line with the policy intent set out in the Act and the related impact assessment.
(ii) Whether the reforms had improved the effectiveness of the control and governance framework along with the transparency of financial information presented by councils.
(iii) Whether the current statutory framework for local authority financial reporting supports the transparent disclosure of financial performance and enables users of the accounts to hold local authorities to account.
(iv) To make recommendations on how far the process, products and framework may need to improve and evolve to meet the needs of local residents and local taxpayers, and the wider public interest.
The Redmond key findings had been:
(a) Local Audit arrangements – the most significant finding was the lack of coherence in local audit arrangements. No coherence in approach to procure audit. There were serious concerns regarding the effectiveness of local audit. Some of this was linked to the fee structure.
(b) A view that the cost was 25% less than it should be and as a result the quality of auditors had reduced. There was concern that the auditors did not have the experience or knowledge of local authorities. 40% of audits for 2018/19 had not been complete by the deadline.
(c) Governance arrangements – it was questioned whether Audit Committees understood the issues to question and challenge in an effective way? There were relatively low numbers of independent Audit Committee Members, little communication between the Audit Committee and Inspectors and no formal exchange of views. There seemed to be no real relationship between the Audit Committee and Full Council with very few reports submitted to Council.
(d) Internal Audit was not used much by External Audit as code of practice did not require them to liaise with internal audit work.
(e) Reporting – Current arrangements did not allow for the public to understand the accounts. More could be done to improve transparency of what local authorities did.
The recommendations in the Redmond report were:
Local Audits –
· A new ‘Office of Local Audit Regulation’ to be established and have responsibility for procuring, managing, overseeing and regulating local audits. It would include the current responsibilities fulfilled by Public Sector Audit Appointments (PSAA), National Audit Office (NAO) and Financial Reporting Council (FRC). The Office would provide facility for feedback and commentary in how the local audits are done and be able to impose sanctions where there were significant issues in a LA. e.g. If financial resilience issues where MHCLG are needed to intervene.
· Fee structure needed to be revised to reflect the true cost with local audit firms.
· At least 1 independent member would be required on each Audit Committee.
· Would be a requirement for three statutory officers to meet External Audit annually.
· Audit Committee members would have a requirement to be trained.
· Audit completion would move from 31 July to 30 September.
· An annual report to be presented by the External Auditor to the first Council meeting after 30 September.
· Auditors must have skills and training but also needed to be in place for LA finance staff. An induction/training mechanism was needed for new Section 151 Officers on Final Accounts.
· NAO had issued a new Code of Practice on VFM and these were to be endorsed.
Financial Reporting –
- A new standardised statement of services and costs would be required to enable a comparison of budget setting Council Tax information to outturn. CIPFA would be consulted upon this between September and December. Statement will be used in trial basis for YE 2020/21. Following year, the statement would be subject to audit. This would be a standard format and would be a requirement although it would not need to be published.
- CIPFA would also be tasked with reviewing the accounts. Property, Plant & Equipment and Pension Fund issues needed to be reviewed (as add little value for a local authority).
The Committee was informed that the PSAA Public Accounts Committee had written to MHCLG regarding the report and requested a full response by December 2020. A report would be brought back to the Audit and Governance Committee at the appropriate time following the response from MHCLG.
That the report be noted.