Agenda item

(Section 151 Officer) To consider the attached report regarding the independent review into the oversight of local audit and the transparency of local authority financial reporting (AGC-011-2020/21).

The Council’s Interim Chief Financial Officer, C Hartgrove, presented a report on the Redmond Review, an independent review into the oversight of local audit and the transparency of local authority financial reporting which had been published on 8 September 2020.

C Hartgrove reported that the Review had examined the effectiveness of local audit and its ability to demonstrate accountability for audit performance to the public. It also considered whether the current means of reporting an authority’s annual accounts enabled the public to understand this financial information and receive the appropriate assurance that the finances of an authority were sound. Serious concerns had been expressed by consultees during the Review about the state of the local audit market and the ultimate effectiveness of the work undertaken by audit firms. Specifically, whether audit reports delivered full assurance on the financial sustainability and value for money of local authorities, and evidence submitted to the Review noted concerns about the balance of price and quality in audit contracts.

C Hartgrove drew the attention of the Committee to the fact that the fragmentation of the existing local government accounting and audit framework following the demise of the Audit Commission in 2015 had been pinpointed as a key area for reform. The creation of a new regulatory body – The Office of Local Audit and Regulation (OLAR) – was recommended, which would have specific responsibility for procurement, contract management, regulation, and oversight of local audit. The Review was also critical of the current size of audit fees (which had fallen dramatically in recent years) and recommended extending the deadline for the publication of audited accounts to 30 September from the current 30 July deadline.  

C Hartgrove stated that Governance arrangements had also come under the spotlight, and a review of the composition of Audit Committees was recommended, and the switch to a narrative report on the value-for-money (VFM) opinion was supported. The Review also urged statutory status for the principles in the Chartered Institute of Public Finance and Accountancy’s Financial Management Code as a means of better judging financial resilience. In terms of financial reporting, the Review highlighted the “impenetrable” nature of local government accounts and had recommended a simplified statement of service information and costs be prepared alongside the statutory accounts. The implementation of the recommendations would, in part, require regulatory or legislative change and the report of the Review was now being considered by the Government. Any implementation of the recommendations of the Review would be effective for the 2021/ 22 municipal year.

Cllr R Jennings supported the report and whole heartedly supported the principle that the required knowledge should always be present in the membership of an Audit Committee. In addition, the Councillor supported the recommendation that financial reports should be understandable by the general public.

C Hartgrove stated that Public Sector Audit Appointments Limited (PSAA) had removed many of the requirements for local authority audits, which had reduced the fees levied by the Audit companies. As highlighted in the Review, there would be pressure to increase audit fees in the future. The External Auditor, C Wisdom, added that the Review had concluded audit fees were 25% lower than they should be, and that extending the time permitted for audits to be carried out would create more flexibility in audit delivery as well as allowing the same Audit Team to audit more Councils. The Chairman, Cllr I Hadley, emphasised that there was no mention of transition costs within the Review.

            Resolved:

            (1)        That the findings, conclusions and recommendations of the             independent review into the oversight of local audit and the transparency of             local authority financial reporting (The Redmond Review) be noted.