No going back on audit

By Heather Jameson | 15 September 2020

This is not a return to the Audit Commission. Launching the recommendations of his report into local government audit – which include a call for a new audit body – Sir Tony Redmond is clear we are not going back.

The former watchdog, which was highly criticised for its heavy handed, expensive and overly bureaucratic regime, was scrapped by former communities’ secretary Lord Eric Pickles just a few weeks into his tenure. Yet the demise of the Audit Commission created a void that Sir Tony’s review of local government audit has attempted to fill.

Launched by another former communities’ secretary – James Brokenshire – last summer, The Redmond Review was tasked with examining the effectiveness of the local authority financial reporting and audit regime.

The review came on the back of increased criticism of the audit regime both in local government and more widely, following the failure to highlight risks in advance of high profile collapses, such as Northamptonshire CC and outsourcing firm Carillion.

In the private sector, a triumvirate of reports on audit culminated in the Brydon Review which reported to the Department for Business, Energy and the Industrial Strategy (BEIS) in December 2019, calling for urgent action and outlining 64 recommendations to resolve the issues. It is yet to be actioned.

Sir Tony – a former local authority chief executive and Chartered Institute of Public Finance and Accountancy (CIPFA) past president – also faced a further issue that the local government audit market is close to collapse and utterly incomprehensible to the average taxpayer, leaving a public sector finance regime that lacks transparency and accountability.

Speaking to The MJ as his report was released last week, Sir Tony said the fee structure was woefully under-resourced, and there were questions surrounding the quality of audit. In a letter to the current secretary of state, Robert Jenrick, he highlighted some of the problems: the market is fragile; the fees don’t meet the cost of thorough audit; and 40% of audits missed their deadlines in 2018/19.

He added: ‘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.’

Not only has his report recommended a review of fees, it also calls for the deadline for accounts to be pushed back to 30 September – with auditors reporting the financial picture to full council meetings shortly afterwards.

Moreover, a lack of coherency and transparency has meant it is difficult for taxpayers to understand exactly where their money is going.

‘What is lacking is an overarching body to connect it all together. I concluded that the only way to resolve that is a new body,’ Sir Tony told The MJ.

The new body, the Office of Local Audit and Regulation (OLAR), would manage, oversee and regulate audit. Its responsibilities would include procuring and managing audit contracts, monitoring the performance of audit, and regulating the audit sector.

With a proposed budget of just £5m a year – compared with the Audit Commission’s annual spend of £90m – the plan is for OLAR to remain lean. But it is the key tenant of the plan. ‘The independent body is the fulcrum for all the other recommendations. It provides the framework,’ Sir Tony explained. ‘And there needs to be accountability.’

The system would report in to a liaison committee, chaired by the Ministry of Housing, Communities and Local Government (MHCLG). In further efforts to safeguard the system, auditors would liaise with the big service inspectorates to highlight concerns over services and finances – and the MHCLG was urged to look again at its oversight of council financial stability.

‘Auditors need to spend time speaking to inspectorates,’ Sir Tony explained. ‘So if they have any concerns from any side, it’s made known to all of them.’

There is a raft of further recommendations calling for more engagement between auditors and councils, standardising reports to create more transparency, and solving issues of proportionality for parish councils.

Overall, Sir Tony’s suggestions have been well received. Chief executive of CIPFA, Rob Whiteman, told The MJ they were ‘modest proposals’ covering the scope of what Sir Tony was commissioned to do.

‘I think that Redmond hasn’t been asked to look at the improvement regime for local government,’ he said. ‘It still leaves the question, does the Government have adequate tools to support the sector and avoid failure?

‘At the moment, the secretary of state has nuclear powers... but how does the department have a role of looking at performance issues without having to use its statutory power and the nuclear issue?’

Furthermore, Redmond is not the only audit review in town. The far bigger Brydon Review reported back to BEIS last December and is yet to be actioned. If Sir Tony is right, and ‘prompt action’ is needed to stop the market from falling over, between COVID, Brexit and Brydon we could be waiting a while before the required legislation is in place.

And there is no guarantee the MHCLG is on board with the changes. Responding to publication of the report, communities’ secretary Robert Jenrick said: ‘This government remains committed to a locally-led audit regime, alongside robust local scrutiny and local accountability by the press and public.’

But the recommendations in the Redmond Review are not locally-led – they are dependent on a central body. A system of ‘robust local scrutiny’ is more akin to Lord Pickles’ vision of an army of ‘armchair auditors’ that he thought would replace the Audit Commission – a vision, he has since admitted, that did not work.

The main recommendations of the Redmond Review included:

  • The Office of Local Audit and Regulation (OLAR) should be created to manage and oversee audit
  • OLAR should report in to a Liaison Committee, chaired by MHCLG
  • The governance of local authorities should be reviewed to include
  • An annual report to full council from auditors
  • An independent member appointed to the audit committee
  •  The chief executive, monitoring officer and chief financial officer should meet with the auditor at least annually
  •  Local authority specific training for auditors
  •  Fee structures should be revised
  • The deadline for publishing audited accounts be revised to 30 September each year
  •  Auditors to present an audit report to the first full council meeting after 30 September
  • Arrangements for parish councils should be reviewed to ensure they are proportionate
  • MHCLG should review its oversight of the financial sustainability of local authorities
  •  Concerns about service and financial viability should be shared between auditors and inspectorates including Ofsted and the Care Quality Commission, before the auditor’s annual report
  • A standardised report on cost and service delivery, compared with the budget, should be presented with the accounts
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