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Local Government Minister Grant Shapps has welcomed yesterday's announcement by the Audit Commission that hard-pressed councils and other local bodies should see big fee reductions following the successful outsourcing of the Commission's centralised audit practice.

Outsourcing is the next step to disbanding the Audit Commission and putting in place a new decentralised framework that will refocus audit on helping people hold their councils to account for local spending decisions. It should save £250 million over five-years, leading to fee reductions of around 40 per cent for local bodies. This will help councils in managing their budgets during this challenging period, and ensure the same high audit standards are maintained to safeguard public money.

Four firms are expected to win contracts, increasing the number of suppliers of local public audit from five to seven. This will help create more choice in the market ahead of local bodies appointing their own auditors. Other firms will have the opportunity to enter the market then too.

The contracts awarded by the Audit Commission will begin on 1 September 2012 and last for five years. The Government was happy to support the sector's preference for these big fee reductions to be locked in for five-years.

In the meantime, the Government is pressing ahead with its plans for disbanding the Audit Commission. A draft Bill will be published in the Spring for Parliamentary scrutiny. The legislation will be introduced as soon as Parliamentary time allows. The legislation will include arrangements that allow these contracts to continue after the Commission is abolished.

Staff at the Commission's in-house practice will transfer to the winning bidders on 31 October, leaving a small residual Commission to oversee the outsourced contracts until the Commission is abolished and the contracts transferred.

Mr Shapps said:

"Today marks another step on the road to replacing the Audit Commission with a more streamlined and competitive local audit system that increases town-hall transparency and the accountability of councils to local citizens.

"The potential savings of £250 million with 40 per cent fee reductions for councils show that our decision to outsource the Audit Commission's in-house practice was the right one."

Sir Merrick Cockell, Chairman of the Local Government Association, said:

"The Local Government Association would like to see councils themselves procuring their audit services and we have been working with Government to that end. In the current financial climate this next step towards that goal represents significant and guaranteed savings for five years and that is good news for local government. At a time when they are facing very hard decisions about budgets, this will be a tangible financial benefit to them."

Notes to editors

1. Around 11,000 local public bodies are audited under the Audit Commission's regime, including local government, health and police bodies, national parks authorities and passenger transport executives. Smaller bodies are handled separately from larger bodies.

2. The outsourcing announced today relates to the audits of larger bodies. The Audit Commission is running in parallel an outsourcing process for the audits of smaller bodies which fall under the limited assurance regime. There are around 9,500 such bodies, with audit work totalling around £2.9 million. The results of this outsourcing process will be announced in a month's time.

3. The contracts announced today cover around 70 per cent of the local public audit work for larger bodies, and have a value of £90 million per year, as expressed in terms of Audited Body Notional Value based on the proposed scale fees for 2012/13 and an estimated value for certification work. The other 30 per cent of the audit work for larger bodies is already outsourced.

4. The Audit Commission is proposing to award new contracts to four firms as a result of the current outsourcing: DA Partnership, Ernst and Young, Grant Thornton and KPMG. Grant Thornton and KPMG already have contracts in place with the Audit Commission, alongside Deloittes, PWC and PKF and these existing contracts will remain in place, so in total there will be seven firms that undertake the audits of larger public bodies. As a result of this outsourcing, it is expected that Grant Thornton will be the largest firm in this market.

5. Further details of the contract awards are available from the Audit Commission's website www.audit-commission.gov.uk (external link).

6. The outsourcing contracts will run for five years with the option to extend for an additional 3 years. A decision as to whether to extend the contracts will be taken nearer the time of expiry.

7. It remains the Government's intention to introduce the necessary legislation to abolish the Audit Commission as soon as Parliamentary time allows. It is the Government's current intention to transfer all rights and liabilities under the contracts in that proposed legislation, so that the contracts can run for their planned duration (even though the Commission will be disbanded in the meantime).

8. Outsourcing the Commission's in-house practice will mean that many of the Commission's audit staff will transfer with their work to the private sector under TUPE terms. The Transfer of Undertakings (Protection of Employment) Regulations 2006 require that the terms and conditions of employees are protected on transfer.

9. In line with previous practice, the Commission have allowed for a significant period of consultation with local bodies prior to finalising appointments. This will begin imminently. The timetable means that appointments are planned by the start of the Annual Audit Cycle on 1 September 2012. In the meantime, the existing auditor who will be on-site undertaking the 2011/12 audits will keep a watching brief for the first six months of the new financial year.

10. The Government is currently developing the new local public audit framework that will replace the current arrangements, subject to legislation. Following the publication of the Government Response to the Consultation on the Future of Local Audit on 4 January, we have undertaken comprehensive discussions with local public bodies and other key partners. These will inform the detail of the draft Bill to be published in the Spring.

11. The Government Response to the Consultation on the Future of Local Audit is available on the DCLG website at: www.communities.gov.uk/publications/localgovernment/localauditgovresponse. The consultation ran from March-June 2011. Over 450 responses were received, mostly from local bodies and their representative bodies.

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