WIREDGOV

Local Government Minister Grant Shapps yesterday published the next steps on the road to a more efficient and accountable local audit system that will replace the Audit Commission's centralised inspection regime.

The Government has yesterday published its proposals for the new arrangements for audit of local public bodies.

Following the decision to abolish the Audit Commission, the Government sought views last year on a new, more transparent and accountable local public audit framework that would both reduce the cost of public audit and maintain high standards of scrutiny over public money.

The Government will now begin a period of intense discussion with councils and audit firms so they can shape the practical details of the new, localised audit system. A series of workshops with council finance experts will begin this month.

The Government intends to bring forward legislation to formally close down the Audit Commission and introduce the new framework as soon as Parliamentary time allows. A draft Bill will be published for pre-legislative scrutiny in the Spring.

The new framework will free local bodies to appoint their own independent auditors from an open and competitive market. It will be based on the private sector audit model with transparent regulation overseen by the Financial Reporting Council and the National Audit Office. Separate arrangements will be developed for smaller bodies like parish councils.

Local Government Minister Grant Shapps said:

"Today we are taking another step down to road to replacing expensive centralised local public audit with a more streamlined and competitive local audit structure. Councils are already showing they can be open and accountable - publishing details on their day to day business from spending to structure and taking control of their own auditing affairs.

"The plans set out today will see Whitehall take another step back so that councils can begin to take ownership of their new audit system. Robust and independent external audit will continue. We want councils to be part of how we create a better, more efficient and transparent audit service that offers best value for money and properly serves taxpayers."

In addition, as the Audit Commission is wound down the Government will put in place suitable transitional arrangements.

The Audit Commission is currently in the process of outsourcing its in-house audit practice. The contracts will start from 2012-13 and are expected to run for three to five years to ensure best value for money and give local bodies the time to plan for appointing their own auditors.

Once these outsourced contracts have been awarded the Commission will further downsize in readiness for final closure. This smaller body will be responsible for overseeing the contract period after which the new arrangements will come into effect.

Vernon Soare, Executive Director of Professional Standards at the Institute of Chartered Accountants in England and Wales (ICAEW), said:

"The Institute of Chartered Accountants in England and Wales understands the importance of the proper stewardship of tax payers' money by local public bodies and the need to provide good value and effective public services to citizens. We welcome the publication of the proposals and the clarity over the next steps. The Institute of Chartered Accountants in England and Wales will continue to assist the Department for Communities and Local Government with its work on the new public audit regime."

Notes to editors

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

2. While the new arrangements are being finalised, the Audit Commission is in parallel outsourcing the audit work currently done in-house. This means all audits will be done by private firms from 2012-13, with regulation and guidance still overseen by the Commission until the new regime takes effect. This will allow the Audit Commission to become smaller and more streamlined, minimising costs to local bodies in this transitional period. The Department will be seeking views from local bodies on whether the outsourcing contracts should last for three or five years. The new arrangements will come into effect at the end of those contracts.

3. The Deaprtment for Communities and Local Government is working closely with smaller bodies, particularly their representative groups such as the National Association of Local Councils and the Society of Local Council Clerks, to identify the most proportionate and effective framework for the sector. Peter Lacey, of the National Association of Local Councils, and Steve Parkinson of the Society of Local Council Clerks said: "We look forward to working with the Department for Communities and Local Government over the coming months to achieve proportionate and cost-effective arrangements for the 9,900 smaller bodies in England."

4. Ministers will ask Parliament to approve a new role for the National Audit Office, producing the Code of Practice and supporting guidance to set out the framework for the audit of local public bodies. The National Audit Office will consult key partners in developing a risk-based and proportionate approach to the value for money element of local public audit.

5. The Financial Reporting Council will be the overall regulator, mirroring its role under the Companies Act 2006. The Financial Reporting Council will be responsible for recognition and supervision of Recognised Supervisory Bodies (professional accountancy bodies responsible for supervising the work of auditors, and for putting rules and arrangements in place which their members must fulfil before they can be registered auditors, monitoring the quality of audits, and investigating complaints, disciplinary cases etc.)

6. The Accountancy and Actuarial Disciplinary Board (part of the Financial Reporting council) investigates significant public interest disciplinary cases and can impose sanctions on those auditors found guilty of misconduct in both the companies and public sectors. It will continue to exercise these powers in regard to local public audit.

7. Local public bodies will have a duty to appoint an auditor from the register of local public auditors, on the advice of an Independent Auditor Appointment Panel. The appointment process will be transparent. Local public bodies will be required to publish details of the auditor appointment on their website within 28 days of making the appointment, together with the Independent Audit Appointment Panel's advice and, if they did not follow that advice, a statement explaining why. We intend to work with the sector to produce guidance which would set out how the responsibilities of the Independent Audit Appointment Panel could be exercised.

8. The Government Response sets out how the proposed new arrangements might need to be flexed for different local public bodies such as Police and Crime Commissioners or Passenger Transport Executives. Audit arrangements for local health bodies (such as the Clinical Commissioning Groups proposed in the Health and Social Care Bill before Parliament) are not included. The detailed arrangements will be specified in due course.

9. Local public bodies will be required to appoint an auditor by 31 December in the year preceding the financial year to be audited, and notify the Secretary of State if they have not done so. The Secretary of State will be able to direct the local public body to appoint an auditor or make the auditor appointment directly. In addition to meeting the cost of the appointment the local public body could be subject to a sanction for failing to make the appointment.

10. The Institute of Chartered Accountants in England and Wales is likely to play a key role in the new framework as a Recognised Supervisory Body, building on the similar role it already plays in relation to audit in the private sector (alongside several other organisations who are also designated as Recognised Supervisory Bodies).

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