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Question 21
Should the Secretary of State, in consultation with the LAO and for defined periods, set an envelope within which the body could determine the appropriate proportion of public provision for the market?
Response: We consider that this would be a matter for MHCLG and the LAO to discuss when the practicalities of generating public provision have been worked through.
Question 22
Do you think that the Chair of an audit committee should be an independent member?
Response: Our view is that this should be left to individual bodies to decide. There will be strongly held but fundamentally differing views, and the practicalities of finding a suitable person willing and able to perform the role is likely to differ across areas. Imposing a single solution on all bodies would risk undermining other measures to improve the standard of audit committees in the sector.
Question 23
Do you have views on the need for a local public accounts committees or similar model, to be introduced in strategic authority areas across England?
Response: No. We do not have a view on this matter, other than to note two matters. Firstly, that if it were to be implemented then care would be needed to ensure that it does not overlap with other ways for the local audit system/LAO to follow up on audit matters arising. Secondly, the Public Accounts Committee has invaluable support from the NAO in carrying out its wide-ranging reviews. Careful consideration would need to be given to the remit given to any local model, and how it would be supported to deliver that remit.
Question 24
Would such a model generate more oversight of spending public money locally?
Response: See question 23.
Question 25
How would the creation of such a model impact the local audit system and the work of local auditors?
Response: See question 23.
Question 26
Do you agree that the MLA threshold should be increased?
Response: Yes. The current threshold of £500m income or expenditure was set in 2014 without a mechanism for increase and is now applying to bodies it was never intended to cover. We also suggest that in the context of LGR proposals that consideration is given to whether there needs to be an MLA limit when designing the future inspection regime.
Question 27
Do you agree that some local bodies should be declared exempt from the regulatory focus of an MLA? For example, should Integrated Care Boards be exempt?
Response: We consider that there is merit in examining the MLA regime as a whole, including why some suppliers will not accept appointments for them.
Question 28
Do you agree that smaller authorities’ thresholds should be increased?
Response: Yes. Our biggest concern is the extremely problematic challenge that bodies currently face when moving between the limited assurance regime and the full audit regime, and one of the gaps in the current fragmented framework is that no organisation has a role in supporting that transition. The gap has proved insurmountable for bodies and extremely costly in terms of money and scarce accounting and audit resource. A pragmatic solution is needed, and options other than increasing the threshold need to be considered as doing that alone does not address the gap issue. One possibility is that there is a stepped process within the SAAA regime with the requirements increasing. It may also be appropriate for certain types of body to stay in that regime even if they are subject to temporary but very significant spikes in expenditure due to grants, such as Internal Drainage Boards. Care would need to be taken to allow for the circumstance where a body is created but has little or no expenditure in its initial accounting period, but is then expected to be subject to full audit from then on. We would be keen to work with MHCLG, SAAA and the NAO and others as appropriate on the way forward.
Question 29
Do you agree that the lower audit threshold of £25,000 should be increased broadly in line with inflation?
Response: We do not have a view on this.
Question 30
Are there other changes that would improve the accounting and limited assurance regime for smaller authorities?
Response: We are aware that SAAA has been considering this matter and has developed an Effectiveness and Efficiency Improvement Plan, and so defer to them.
Question 31
What additional support, guidance or advice do local bodies and/or auditors need for future statutory deadlines (including backstop dates) for the publication of audited accounts?
Response: It is vital that the firms’ approaches to building back assurance vary as little as possible, and that they are practical and proportionate as well as Code of Audit Practice compliant. Any variance in the amount of work done should be due to differing circumstances at the bodies (which we note could be significant). We have long been calling for proportionate accounts and audit, which has been echoed by others. However, there has been very little progress to-date in practice despite much effort. The Government’s call for accounts and audit to be focused on the needs of the taxpayer is encouraging, but unless the volume of work needed to deliver a Code of Audit Practice compliant audit is reduced then the preparer and auditor resource available will not be sufficient, and there is a risk that disclaimed and modified audits will continue.
Question 32
Do you think that financial reporting and/or auditing requirements should be amended for a limited period after the backlog has been cleared and as assurance is being rebuilt, to ensure workload and cost are proportionate?
Response: Yes. All avenues need to be explored to find ways to avoid build back taking many years and/or the risk of perpetual disclaimers (whilst maintaining the integrity of the sector’s accounting). Whilst some options have a risk of issues being missed, if nothing is done to address the challenges particularly at bodies that have several years of disclaimers there is a risk that some bodies will struggle to get back to unmodified opinions.