Introduction
PSAA’s Section 172 (1) Statement has been published in accordance with the Companies (Miscellaneous Reporting) Regulations 2018 as set out in Section 172(1) (A) to (F) of the Companies Act 2006.
The Board takes very seriously its duty under Section 172 of the Companies Act 2006 to promote the success of the company. The Act states that:
’A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:
- the likely consequences of any decision in the long term;
- the interests of the company’s employees;
- the need to foster the company’s business relationships with suppliers, customers and others;
- the impact of the company’s operations on the community and the environment;
- the desirability of the company maintaining a reputation for high standards of business conduct; and
- the need to act fairly as between members of the company. (Note 1)
Note 1: PSAA is a company limited by guarantee and does not have different classes of members of the company. Hence, this requirement does not apply to PSAA.
The Board has satisfied itself that consideration of the requirements of Section 172, and the directors’ duties under it, have informed and guided its work throughout the year. This statement explains how the Board has had regard to promoting the success of the company in relation to each of the specific requirements of the legislation.
(a) The likely consequences of any decision in the long term
All decisions are taken with due regard to PSAA’s purpose and objectives (as set out in the Articles of Association and other relevant documents), the effective and efficient use of public funds and meeting our statutory obligations as an Appointing Person.
The Board considers how to promote the long-term success of PSAA on a continuous basis, providing effective leadership and oversight of the company’s work and functions. It also ensures that PSAA plays an active role in discussions with partners concerning the development of the local audit system and sustainability of the market as a whole. The Board is mindful of the fact that PSAA’s success depends to a large extent upon the ability of the wider system to deliver for, and meet the needs of, opted-in bodies and users of audited accounts. With this in mind PSAA meets and works closely with other key players in the local audit system seeking to influence decisions for improvement of the system overall. During 2023/24 PSAA has supported these partners as they have developed proposals to address the local government audit backlog.
PSAA has two distinct business cycles which each require their own governance and decision- making processes. PSAA has an annual business cycle designed around delivery of the appointing person functions and monitoring the performance of contracted suppliers. In addition, PSAA undertakes a significant project to develop a national appointing person scheme and procure audit services for opted-in bodies (normally at 5 yearly intervals). The corporate governance framework sets out the scheme of delegation and the controls in place for these projects.
PSAA is a member of the Local Audit Liaison Committee (LALC) along with representatives of relevant government departments, the National Audit Office (NAO), the Financial Reporting Council (FRC), Institute of Chartered Accountants in England and Wales (ICAEW), and the Chartered Institute of Public Finance and Accounting (CIPFA). The LALC strives to provide a joined-up response to the challenges and emerging priorities across local audit. It is chaired by the FRC.
PSAA’s Business Plan sets out our planned activities for the two-year period to 31 March 2025. Importantly, these include supporting efforts to move towards a local audit system which is more stable, more resilient, and more sustainable.
Recognising the future uncertainties, the Board keeps the Business Plan and activities under review, and where necessary responds to emerging issues and developments within the local audit system as well as any relevant government decisions. The Board uses a suite of KPIs to regularly monitor the Business Plan.
The Board also regularly reviews our five-year Medium-Term Financial Plan (MTFP), ensuring it is updated to reflect the latest position. PSAA operates on a not-for-profit basis. From time to time the Board approves the distribution of surplus funds to opted-in bodies after ensuring PSAA has sufficient funds to pay for its operating expenses and manage its cash flow. The transitional arrangements (2015-2018) and each appointing period are accounted for separately in the MTFP to acknowledge the different groups of bodies receiving services from PSAA at each stage. The Board also regularly reviews performance against the company’s annual budget.
(b) The interests of the company’s employees
PSAA’s staff are its key resource. PSAA aims to be a good employer, encouraging a culture of openness and transparency, developing people to the best of their abilities, and offering competitive remuneration and benefits to recruit and retain staff. The Board recognises that a team of well-qualified staff is critical to the success of PSAA and its ability to respond to anticipated challenges to local audit. The Board monitors PSAA’s activities and related capacity via review of the Business Plan and regular updates from the Chief Executive.
The company’s structure is designed to ensure that PSAA is fit for purpose to fulfil the company’s appointing person responsibilities including supporting the periodic development of a national appointing person scheme, monitoring the audit suppliers’ performance and procurement of audit services for opted-in bodies. The roles in the structure are filled by employees with the necessary skills, qualifications, and experience. Staff are encouraged and funded to attend training and development activities, including continuing professional development requirements for those who are members of professional bodies. Employees and Board members have access to the LGA e-learning platform (provided as part of the agreement with the LGA for back-office support services) for training on a variety of topics, including annual mandatory refresher training on IT security and information governance.
PSAA has embraced the benefits of hybrid working arrangements, with staff required to be in the office when needed for business purposes. The Board has recognised the importance of supporting the workforce and has put in place measures to ensure that staff are able to work effectively at all times.
PSAA keep staff working arrangements under regular review. In 2023 the Board approved a review to look at how and where we work, based upon the themes of well-being and working relationships including team meetings, within the context of continuing to ensure that business needs are met.
Quarterly team days take place which cover a range of well-being and business focused topics.
During 2023 the Board reviewed PSAA’s staff establishment and recognised the need for a restructure. We created three new roles in order to place contract management at the heart of everything that we do, and to further develop organisational resilience. Following a recruitment campaign, two contract managers and a business support assistant were appointed. This has increased the establishment to 15 posts (14.2 FTEs, of which 0.5 is fixed term).
With a small team good communication is imperative. Board, Audit Committee and Procurement Committee papers are accessible to all staff. All employees are kept up to date with items considered at Board meetings and in relation to PSAA’s finances, and these are standing agenda discussion items at weekly team meetings. The quarterly team awaydays provide further opportunity for communicating information.
Where PSAA has needed additional short-term capacity to deliver focused time-limited assignments such as interim contract manager support for the development of our contract monitoring arrangement where we have drawn upon external consultancy and advisory services.
All permanent and fixed term staff receive annual appraisals and have personal development plans recognising training needs including training aligned to both company and personal career goals. During the year we assessed the training needs across the organisation and put in place a training plan for the following year.
The Board recognises the benefits of retaining well-qualified, experienced staff. They provide specific knowledge and expertise to support our functions and are likely to be difficult to replace.
(c) The need to foster PSAA’s business relationships with suppliers, customers and others
Local audit as a sector is facing significant challenges and there are many uncertainties about the future. Uniquely, PSAA has relationships with both auditors and opted-in bodies, which means that PSAA is often in a strong position to identify emerging issues.
PSAA operates in a diverse and complex stakeholder landscape, so effective communication and engagement are crucial. The Board recognises that PSAA’s stakeholders’ requirements and expectations will vary significantly, which means that there is a need to use a range of ways to communicate and engage.
Strong relationships with a diverse range of stakeholders are crucial to PSAA’s work. Relationships with audit firms are of vital, strategic importance. Local audit requires specialist knowledge and expertise. Retaining existing suppliers and supporting efforts to encourage new firms to enter the market help to address the crucial challenge of moving towards a more sustainable and competitive market capable of delivering the capacity the sector requires.
Close links and open communications with opted-in bodies enables PSAA to understand and better meet sector needs. The Board is committed to building and maintaining strong, effective links with the organisations which perform specialist roles in the local audit system, so that the system as a whole operates efficiently and in a way that meets the needs of opted-in bodies and users of accounts.
PSAA’s communications strategy identifies our key stakeholders and the channels of communication through which the organisation engages with each group. PSAA keeps this under regular review and intensifies activity as appropriate when the periodic procurement is undertaken. The PSAA team reviews key stakeholder engagement every six months capturing how it is evolving in the context of business needs and the local audit landscape.
This year PSAA commissioned consultants Touchstone Renard (TR) to perform an independent ‘lessons learnt’ review of our work to develop the national auditor appointment scheme for the audits from 2023/24. The review focused in particular on the effectiveness of our communications and engagement activities and whether we could have adopted different or better approaches to any aspects of our preparations.
TR concluded that PSAA had communicated and engaged effectively throughout all phases of the project in the face of major headwinds including the statutory limitations of our role and a fragile and under-resourced local audit market. The report made a number of recommendations for PSAA to consider. We are addressing these points as we review our approaches to both day-to-day communications and as we start to plan for the next procurement.
PSAA’s role is often to influence others by raising awareness of key issues. The breadth of PSAA’s work – covering almost 100% of eligible bodies – and our relationships with both audit firms and opted-in bodies enables early identification of emerging issues and early sharing of intelligence with partners in the local audit system as appropriate.
The long-term success of PSAA is therefore critically dependent on the effectiveness of its work and the strength of relationships with customers, suppliers, and other stakeholders.
PSAA’s customers
PSAA’s customers under the appointing person arrangements are opted-in local authorities, police, fire and other local government bodies. PSAA operates on a not-for-profit basis, and any surpluses are returned to the opted-in bodies.
- PSAA engages with customers through a variety of different means:
- PSAA’s Advisory Panel – the panel members represent the finance communities within different types of opted-in bodies. This forum provides an important mechanism for communicating with our opted-in bodies by cascading information and obtaining helpful feedback and insights into all aspects of our national scheme and procurement arrangements. This has been particularly useful in relation to sharing updates on discussions focused on the local audit backlog solution.
- PSAA seeks to ensure that all stakeholders have sufficient information and time to enable them to respond effectively to PSAA consultations, for example, in relation to the audit fee scale and auditor appointments.
- We provide information on our website which we refreshed during the year to improve accessibility for users.
- PSAA’s Local Audit Quality Forum (LAQF) provides an important channel for communicating and engaging with both officers and members of opted-in bodies. In particular PSAA aims to help local audit committees to play their critical and demanding roles effectively.
During 2023/24 we hosted three LAQF events. In July 2023 Neil Harris, the FRC’s Director of Local Audit, discussed the system-wide work to find a solution to the local audit backlog. The third LAQF held in September 2023, was the first webinar hosted to support PSAA’s consultation process for proposed scale of audit fees. This was followed by a webinar in February 2024 with panelists from MHCLG[1] , the NAO and the FRC. This was in response to the launch of MHCLG’s and NAO’s local audit and reporting backlog consultations. The events attracted over 350 delegates, who were predominantly Directors of Finance or Audit Committee (or equivalent) Chairs.
PSAA has continued to support the LGA to provide Leadership Essentials training specifically tailored to meet the needs of audit committee chairs.
PSAA survey opted-in bodies annually as part of our monitoring arrangements for the quality of the audit services they are receiving. We reported the results of our third survey in August 2023. We shared and discussed the key messages with the audit firms.
During the year PSAA engaged with opted-in bodies on topical issues and presented at a number of local finance, audit and networking events.
PSAA distributes a quarterly e-bulletin to opted-in bodies, covering a wide range of topics including PSAA updates and events, and local audit issues and developments in the sector. It is also shared with system stakeholders and audit firms.
[1] As of 09 July 2024, The Department of Levelling Up, Housing and Communities (DLUHC) was renamed to the Ministry of Housing, Communities and Local Government (MHCLG).
PSAA’s suppliers
PSAA’s main suppliers are the audit firms who are contracted to provide audit services to opted-in bodies. The development of strong, long-term relationships with audit firms is critical for delivering quality audit services under the new contracts which commenced in April 2023.
Audit firms contracted for work from 2023/24 audits are subject to our active contract monitoring regime introduced by the terms of the revised contract terms, including a rectification, change and challenge process. We have quarterly contract monitoring meetings.
PSAA has a duty under the Local Audit (Appointing Person) Regulations 2015 to set fee scales and determine proposed fee variations. We use a fair approach, working on the basis of contractually set fee rates, to remunerate firms for their audit work to deliver an NAO Code of Audit Practice compliant audit.
PSAA also engages with firms on local audit matters, including the challenges of tackling the significant backlog of audit opinions, helping our understanding of the complexities of working in this sector.
PSAA carries out annual monitoring of each contracted firm addressing both financial health and significant threats to reputation which might be relevant to the firm’s contractual responsibilities. We also publish audit service quality monitoring reports on the website on the performance of our contracted firms and the quality of the audit services they deliver. We include the latest fee variation information in these reports.
Other stakeholders
PSAA works closely with key local audit stakeholders and is represented on various important fora.
The key stakeholders include MHCLG, the Local Government Association (LGA), the NAO, CIPFA, the FRC, and ICAEW. PSAA also interacts with other organisations with an interest in local audit, such as the media.
Throughout the year PSAA has continued to work closely with MHCLG to both support their work (and that of other local audit players) to address the challenges facing local audit which have resulted in a critical backlog of audit opinions. PSAA has had significant involvement with key stakeholders, proactively engaging with the local audit system to support the development of proposals to tackle the backlog. A number of groups were established to develop components of a proposed solution, and PSAA’s Chief Executive was a member of the Task and Finish Group, the workforce strategy steering group and the system-wide risk register group. He also chaired the Handover Panel.
PSAA engages with sector wide initiatives and contribute views, information, intelligence, and data for Government commissioned reviews and the production of targeted and meaningful reports on local audit.
Other key suppliers of services to the company are: Bevan Brittan and Browne Jacobson who provide legal advice, the LGA which provides our back-office support services and accommodation; and CIPFA which provides technical reports and publications including the sector Accounting Code. PSAA staff meet regularly with these suppliers to ensure positive relationships and early resolution of any concerns.
(d) The impact of the company’s operations on the community and the environment
The Board regards local audit as an important cornerstone of local accountability. PSAA’s most significant contribution to the community therefore lies in its responsibility to ensure that Code-compliant audits which meet quality standards are delivered at every opted-in body by competent suppliers.
- The LGA provides PSAA with a range of support services, including provision of serviced accommodation, HR, ICT, and payroll support. This service level agreement for back-office services was renewed for a three-year period commencing in April 2024 and the license for accommodation is reviewed and renewed annually. As well as securing operating efficiencies and economies of scale, this arrangement enables PSAA to subscribe to and participate in a range of LGA policies and initiatives. These include an office recycling scheme and use of energy efficient office equipment. Our aim is to reduce our environmental footprint by:
- continually reducing waste and increasing PSAA’s recycling rate;
- reducing paper use;
- ensuring that procurement of goods and services adheres to the green purchasing and procurement policy; and
- complying with all applicable legislation, regulation and other relevant requirements relating to environmental impacts.
PSAA’s current audit services contracts for the financial years 2023/24 to 2027/28 require suppliers to identify the social value benefits which accrue from any contract award. This secured commitments to apprenticeships, training, and other arrangements. On-going monitoring of the contract reviews performance against this commitment. Across the six contracted firms over 430 positions were committed to be provided across the life of the contracts.
The contracts awarded for the second appointing period include further social value commitments by firms to:
- generate new jobs;
- wider support work for the local audit sector;
- reduce their carbon footprint; and
- support employees’ charitable contributions.
Staff complete mandatory e-learning training modules on dignity at work and equality in the workplace and awareness of modern slavery. The Board approves our statement on modern slavery annually which is published on the website.
(e) The desirability of PSAA maintaining a reputation for high standards of business conduct
High standards of corporate governance are a key factor in underpinning the integrity and efficiency of PSAA. The Board believes they are critical in helping PSAA to achieve its core objectives as set out in the Articles of Association. PSAA’s arrangements draw on a number of good practice sources including the principles set out in the Code of Conduct for Board Members of Public Bodies (issued by the Cabinet Office) and in the UK Corporate Governance Code, to the extent that the latter can be applied to a small company without shareholders. PSAA has in place a robust corporate governance framework which is reviewed annually to ensure that it remains fit for purpose and full details are published on our website.
PSAA is transparent in its operations in line with its role in managing and safeguarding public money in the form of fees charged to opted-in bodies and strives to be as open as possible about costs and procedures. PSAA aims to make information available in accordance with the Local Government Transparency Code. PSAA is subject to the requirements of the Freedom of Information Act. PSAA’s publication scheme is available on the website and provides detailed information about the company and its functions.
As a not-for-profit organisation any surpluses generated are returned to scheme members at appropriate intervals determined by the Board. Our most recent distribution was £5.6m in September 2021, paid to opted-in bodies in proportion to their scale audit fees. The Board decided to use surplus funds to cover directly the inflation increase on 2022/23 audit fees – this was more efficient for all parties than charging the increase and then refunding it.
Value for money is an important requirement for PSAA’s opted-in bodies. PSAA’s financial policies set out the high-level financial controls for securing value for money for the taxpayer and form part of the Corporate Governance Framework.
PSAA’s financial procedures describe the day-to-day arrangements and delegated responsibilities for implementing the financial policies. They are consistent with the relevant sections of the Companies Act 2006 and the principles of HM Treasury’s Managing Public Money. PSAA follows the Public Contracting Regulations 2015 for above threshold procurements.
PSAA’s Procurement Committee guides and oversees procurement activity and PSAA completed the re-procurement of several essential services including PSAA’s own internal and external audit services and legal advice. During the year small scale procurements included the appointment of consultants to undertake the Lessons learnt review of the AP2 project and the Recruitment, Pay and Reward Consultancy.
The Procurement Bill, which will reform the existing Procurement Rules, received Royal Assent in October 2023. In March 2024 the Procurement Regulations 2024 were laid in Parliament to bring some elements of the Bill and the wider regime into effect. The Government has committed to give a minimum of 6 months’ notice before ‘go-live’, which may be as early as October 2024. PSAA initiated a project to prepare for the changes in 2023 and has made good progress, providing regular updates to the Procurement Committee.
PSAA have in place a rolling programme of compliance checks built into the business cycle supported by assurance from internal and external audit reviews, to ensure that internal processes and systems are up-to-date and effective.
The Board have continued to conduct an annual survey of the effectiveness of Board and Committee arrangements to identify both good practice and any areas for improvement.
Approved by the Board of Directors on 25 July 2024
Bill Butler
Chair