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Further measures to help ensure taxpayers get value for money by improving the effectiveness and transparency of local government audit.

Further measures to help ensure taxpayers get value for money by improving the effectiveness and transparency of local government audit, were announced by the government today (19 May 2021).

The Audit, Reporting and Governance Authority (ARGA) – the new regulator being established to replace the Financial Reporting Council (FRC) – will be strengthened with new powers over local government audit, protecting public funds and ensuring councils are best serving taxpayers.

The new regulator, which will contain a standalone local audit unit, will bring all regulatory functions into one place, to better coordinate a new, simplified local audit framework.

ARGA will continue to act as regulator and carry out audit quality reviews as the FRC does now. It will now also provide annual reports on the state of local audit and take over responsibility for the updated Code of Local Audit Practice – the guidelines councils are required to follow.

The government has confirmed that the Public Sector Audit Appointments (PSAA) will continue as the appointing body for local audit, in charge of procurement and contract management for local government auditors.

In the immediate term, MHCLG will set up and chair a Liaison Committee, which will comprise senior stakeholders across the sector that will oversee the governance of the new audit arrangements and ensure they are operating effectively.

Today’s measures finalise the government’s response to Sir Tony Redmond’s independent review into local audit, carried out last year.

The government has already announced £15 million to support councils with additional costs in audit fees, and recently consulted on the distribution of this funding. Government is also consulting on improving flexibility on audit fee setting and has extended the deadline for when councils must publish their audited accounts.

Minister for Regional Growth and Local Government Luke Hall MP said:

It is essential that we have an effective and transparent local audit system that ensures value for money for the taxpayer.

Today marks an important milestone as we announce that ARGA will have strengthened powers over local government audit, ensuring local audit systems are resilient, councils are truly accountable and providing the certainty the sector needs.

Executive Director of Regulatory Standards at the Financial Reporting Council Mark Babington said:

Having an effective regulatory market to sustain high quality local public audit is of fundamental importance. The FRC looks forward to working with MHCLG and local public audit stakeholders to implement the recommendations in Sir Tony Redmond’s review.

ARGA’s extended remit, the wider reforms to the audit system and the continued separation of procurement and quality assurance will create a stronger local audit system which will protect public funds and best serve taxpayers.

The government continues to work closely with stakeholders, including local bodies and audit firms, to refine proposals for implementing our commitments around system leadership, as well the range of other commitments we have made in response to the Redmond Review.

We intend to publish a further consultation on implementing the above proposals in the summer.

Further information

See the full response.

View the original report.

In response to Sir Tony’s Review, since December we have:

• Announced £15 million for this financial year to support councils with likely additional costs in audit fees. We have also consulted on the distribution of this funding.
• Launched a consultation on proposed changes to regulations related to fees that will allow more flexibility to ensure that audit firms receive payment for additional work required.
• We are also working with stakeholders to deliver the other recommendations where a sector-led or system-wide response is appropriate.
• Extended the deadline for when councils must publish their audited accounts from 31 July to 30 September, for an initial two years, to give firms more time to complete audits.

The department welcomes views from principal local authorities, police and fire bodies, parks authorities, audit firms, regulators and any other stakeholders in these consultations:

• Audit fee setting and fee variations

A call for evidence was opened last year seeking views from practitioners who work in the local government sector, the audit community, representative bodies and other relevant or interested parties.

Councils in England are responsible for 22% of total UK public sector expenditure.

The responsibilities for local authority audits and how they are conducted is set out within the Local Audit and Accountability Act 2014.

The 2014 Act gave effect to government manifesto commitments to abolish the Audit Commission and its centralised performance and inspection regimes and put in place a new localised audit regime, refocussing local accountability on improved transparency.

The abolition of the Commission centralised audit regime and its top down inspection was estimated to save taxpayers £1.35 billion over 10 years.