Stephen Sellers 06 February 2017

Deadline is looming for local government auditor appointments

Deadline is looming for local government auditor appointments image

This year sees the new arrangements for appointing auditors under the Local Audit and Accountability Act 2014 finally bite. Local government bodies must appoint their auditor by the end of the year. But why is this deadline looming when we are only a month into the new year?

The answer is authorities must decide what option for auditor appointments to choose and then undergo a procurement exercise where EU procurement law is still in force. And to underline how 'looming' is the right word one of those options is only available until 9 March and needs a full council resolution.

The Local Audit and Accountability Act 2014

Before the Local Authority and Accountability Act 2014 was introduced, auditors for local authorities were appointed firstly by the Audit Commission under the Audit Commission Act 1998 and, after its abolition at the end of March 2015, by Public Sector Audit Appointments Limited, a company owned by the Local Government Association. Here, the Commission had entered into contracts with audit firms for the provision of audit services to local public bodies, and these contracts were extended beyond the Commission's abolition in 2015.

There are three main ways to appoint an auditor under the new regime before 31 December, in time for the 2018/19 financial year: by the authority itself acting independently, by the authority acting alongside other authorities or by PSAA through a national sector led scheme managed by PSAA and established under regulations made under the Act.

Independently appointing an auditor

Under the Act, an authority may appoint its own auditor. To do so, it must establish an auditor panel, where at least a majority of the panel has to be independent and chaired by an independent member. Appointments are made by full council and, in the case of independent members, after public advertisement. A person is not independent if that person:

• is a member or officer of the authority or an entity connected with it;
• has been such a member or officer within the past five years or a relative;
• is a close friend of such a serving member or officer, or;
• is providing works, goods or services to the authority, or is a partner, director or shareholder of such a person

Additionally, an authority must take the decision in full council, after taking into account the panel's advice. The authority must also publish any advice and recommendations it receives about the selection and appointment of the auditor, as well as its reasons for not following the advice.

When appointing an auditor, it is likely that the estimated contract value will equal or exceed the £164,176 threshold, triggering the need to use the open or restricted procedure under the Public Contracts Regulations 2015, providing the likelihood of a three, four or five year appointment. However, if the appointment falls below the threshold, it must respect the EU Treaty-based principles of non-discrimination, equal treatment, transparency, mutual recognition and proportionality.

Acting alongside other authorities

As well as appointing an auditor independently, authorities can work with each other to select and appoint a new auditor. There are two ways that this can be achieved:

• appointing an auditor panel jointly with one or more other authorities, or;
• recognise the audit panel of another authority as its own audit panel

This approach could work well for authorities who have joint arrangements, with or without a lead authority, especially for shared financial services. The benefit of this method is that it allows for the procurement of the auditor to be managed without every authority in the arrangement appointing a separate panel.

If an authority decides to elect for this option, there are restrictions that they must be aware of. Firstly, authorities cannot delegate the appointment to a joint committee or lead authority. While an audit panel of more than one authority can recommend the appointment of the same auditor, the full council of each authority within the joint arrangements has to accept the recommendation, which runs the risk that not all the authorities will accept it.

Secondly, a multi-authority appointment must secure the services of an auditor who can satisfy the policy adopted by the panel about the independence of and the provision of non-audit services by the auditor. Auditors are limited in the consultancy services they can provide over and above their role, highlighting the independence issue. The more authorities involved in an appointment, the more the risk that one or more firms in the market will be unable to meet the independence requirement.

To overcome some of these problems one authority can take on the role of a central purchasing body, under the Public Contracts Regulations, and therefore award a framework contract to a number of audit firms, which can then be accessed by other authorities. However, framework contracts have a reduced maximum term of four years, while the pricing structure adopted will largely determine if contracts can be awarded under its terms without further competition. These contracts can offer the possibility of bulk discounts, depending on the number of authorities using them, and the costs of procurement may be shared as part of the terms. An authority is not likely to use scarce time and resources in taking on this role unless it is confident a significant number of other authorities will use the framework and share the costs.

Accessing the national scheme

The third option for authorities is to take advantage of the national sector led scheme developed by PSAA. The Secretary of State gave PSAA the task of establishing and managing audit appointments in England under the Local Audit (Appointing Persons) Regulations 2015 for authorities who want to opt into the scheme. They are “an appointing person” for the purposes of the regulations.

This option means that authorities cede the power of appointing and managing the auditor to a central body, providing potential savings on procurement and removing the additional bureaucracy of the auditor panel. It reduces the involvement of authorities and saves time by delegating the decision-making to an independent checkpoint.

Authorities must opt in to realise these benefits, and have until 9 March to do so but need a full council resolution to opt in. This will last for five years and authorities that choose not to opt in will have another opportunity to apply to join the national scheme subsequently for later financial years.

It is expected that PSAA will appoint several audit firms, subject to receiving acceptable tenders, to ensure that no single firm achieves market dominance. It must also consult each individual authority on the appointment of its auditor and will take into account the desirability of appointing the same auditor to authorities that share accounting and financial services, or that have made other joint arrangements that impact audit work.

All the signs point to most authorities deciding to opt in and over one third of eligible authorities had already done so as at 9 January.

New auditors must be appointed this year. Whether it's independently, with another authority or using PSAA, authorities must have a new auditor in place by 31 December 2017 ready for the 2018/19 financial year.

Stephen Sellers is consultant at Gowling WLG and non-executive director of PSAA.

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