Agenda item

A report of the Director of Finance was presented to consult with Members of the Corporate Affairs and Audit Committee on the Council’s future external audit arrangements.  The submitted report considered the options available and asked Members to endorse a preferred way forward for recommendation to Executive and Council, if required.

The current auditor appointment arrangements covered the period up to and including the audit of the 2022/23 accounts.  The Council opted into the ‘appointing person’ national auditor appointment arrangements established by Public Sector Audit Appointments (PSAA) for the period covering the accounts for 2018/19 to 2022/23.

PSAA was now undertaking a procurement for the next appointing period, covering audits of the accounts for the financial years, 2023/24 to 2027/28. During autumn 2021, all local government bodies need to make important decisions about their external audit arrangements from 2023/24.  They had options to arrange their own procurement and make the appointment themselves or in conjunction with other bodies, or they could join and take advantage of the national collective scheme administered by PSAA.

Details of the options available were set out in the submitted report.  If the Council did not opt in to the national scheme, there would be a need to establish an independent auditor panel to make a stand-alone appointment. The auditor panel would need to be set up by the Council itself, and the members of the panel had to be wholly or a majority of independent members as defined by the Local Government Audit and Accountability Act 2014 (the Act).   Independent members for this purpose were independent appointees, excluding current and former Elected Members (or officers) and their close families and friends.   Elected  Members would not therefore have a majority input to assessing bids and choosing which audit firm to award a contract for the Council external audit.

Alternatively, the Act enabled the Council to join with other authorities to establish a joint auditor panel.  Again, this would need to be constituted of wholly or a majority of independent appointees.  Further legal advice would be required on the exact constitution of such a panel having regard to the obligations of each Council under the Act and the Council would need to liaise with other local authorities to assess the appetite for such an arrangement.

These would be more resource-intensive processes to implement for the Council, and without the bulk buying power of the sector-led procurement would be likely to result in a more costly service.  It would also be more difficult to manage quality and independence requirements through a local appointment process.  The Council would be unable to influence the scope of the audit and the regulatory regime would inhibit the Council’s ability to affect quality.  The Council and its auditor panel would need to maintain ongoing oversight of the contract.  Local contract management could not, however, influence the scope or delivery of an audit.

The national offer provided the appointment of an independent auditor with limited administrative cost to the Council.  By joining the scheme, the Council would be acting with other Councils to optimise the opportunity to influence the market that a national procurement provided.

Regulation 19 of the Local Audit (Appointing Person) Regulations 2015 required that a decision to opt in to the national appointment scheme must be made by Council.  The Council had to respond formally to PSAA’s invitation in the form specified by PSAA by the close of the opt-in period (11 March 2022).   PSAA would commence their formal procurement process in early February 2022 and expect to award contracts in August 2022.  PSAA would then consult with Local Authorities on the appointment of auditors so that they can be made by the statutory deadline of 31 December 2022.

If the Council wanted to opt-in, a decision will need to be made by full Council before 11 March 2022.  However, if the opt-in to the national scheme was not the preferred choice of Members, further research would be needed on the arrangements for a local or joint audit panel and how this would be constituted.

It was noted that in the previous appointing round, 98% of Local Authorities used the national scheme.    Locally, only North Tyneside and Newcastle formed their own audit panels.    PSAA was a nationally approved and regulated scheme and all nine national auditors were included in it. 

RECOMMENDED that Middlesbrough Council opt into the national scheme for the appointment of external auditors.