Agenda item

A report from Lisa Kitto, Interim Director of Financial Transformation is attached

It was reported that Sir Tony Redmond had been requested to undertake a review into the effectiveness of the local audit regime for local authorities and the transparency of the financial reporting regime.

This review was now complete and has reported back to the Secretary of State for Housing, Communities and Local Government.

It was reported that in total there had been 23 recommendations made which covered the following topics: 

·         External Audit Regulation

·         Smaller Authorities Audit Regulation

·         Financial Resilience of Local Authorities

·         Transparency of Financial Reporting

The review identified a number of key issues with local audit including:

·         An ineffective balance between price and quality with 40% of audits in 2018-19 failing to meet required reporting deadlines in part due to under-resourcing and lack of experienced staff.

·         A lack of coordination and regulation of audit activity.

·         Outcomes not always being effectively considered and presented to members and public

·         The technical complexity of statutory accounts limiting public understanding and scrutiny.

As a result of his review Sir Tony made 23 recommendations to the Government who will now need to consider how many of the recommendations it decides to implement with associated timescales. The key recommendations are outlined below:

External Audit Regulation and Oversight:

·         The creation of an Office of Local Audit Regulation (OLAR) to procure, manage and regulate external audits. Some of the regulatory responsibilities which sit with other bodies such as the PSAA, to transfer to the new body. 

·         Revisions to the current fee structure for external audits to ensure adequate resources are deployed.

·         Additional skills training for those involved in local audits and the amendment of statute to allow audit firms with the requisite capacity, skills and experience to bid for local audit work.

·         The deadline for publication of audited local authority accounts be considered in consultation with the NHS with a view to extending the deadline from 31st July to 30th September.

Financial Reporting

A simplified and standardised financial statement of service information and costs be made available to the public to allow comparison with the annual budget and council tax. This new statement would be prepared in addition to the statutory accounts and would be subject to audit.

·         CIPFA / LASAAC to look again at the composition of the statutory accounts to see if improvements can be made to simplify their presentation and enhance their usefulness and understandability.

Governance

·         The composition of audit committees be examined to ensure they have the required knowledge and expertise. Many local authority audit committees have no independent members at all and consist entirely of Councillors.

·         To demonstrate transparency and accountability, external audit would be required to submit an annual report to the first full council meeting after 30^th September each year, irrespective of whether financial accounts have been certified.

·         A formal requirement for statutory officers (Chief Executive, Monitoring Officer and Section 151 Officer) to meet at least annually with the Key Audit Partner.

Financial Resilience and Sustainability

·         The current framework for seeking assurance on financial sustainability is reviewed by the MHCLG to help address the gap between stakeholder expectations and what the auditor is required to do.

·         The sharing of key concerns relating to service and financial viability, between local auditors and inspectorates, prior to completion of the external auditors report.

·         In addition, an update to the NAO’s Code of Audit Practice that will be applicable form 2020-21 will require auditors to provide a narrative statement on the arrangements an authority has in place to secure value for money.

Assuming the recommendations are accepted and implemented by the Government the key implications for the Council are:

·         A likely increase in audit fees; with evidence suggesting audit fees collectively are 25% lower that require to fulfil local audit requirements effectively. However, it is hoped that this will be offset by an improved system of regulation and a better co-ordination of the external audit role for local authorities.

·         Formalisation of the facility for the Chief Executive, the Monitoring Officer and the Chief Financial Officer to meet with the Key Audit Partner at least annually. 

·         An Independent Audit Committee Member must be appointed.

·         Potential for External Audit to recognise that Internal Audit work can be a key support in appropriate circumstances where consistent with the Code of Practice. 

·         A revised timetable, with a change in the reporting deadline for published audited local author accounts being extended to 30^th September from 31 July each year.

·         The requirement for the external auditor to present an Annual Audit report to the first Full Council meeting after 30^th September each year, irrespective of whether the accounts have been certified.

·         A new standardised financial statement of service information and costs will form part of the audited statements in 2021-22 and this will be subjected to External Audit. ( Bury Council has pro-actively already commenced work on the standardised statement of service and information and costs and this will be included in the financial statements produced for the financial year 2020/21 and there is no requirement that this is subjected to Audit).

Delegated decisions:

1.    That the contents of the report be noted.

2.    That the Audit Committee will receive regular updates regarding the status of the Redmond Review, the recommendations agreed by the Government and progress being made by Bury Council to implement the recommendations.