Meeting: Audit Committee	Date: 17 November 2021

Council	9 December 2021

Wards affected: all

Report Title: Decision to opt in to the national scheme for Auditor Appointments with Public Sector Audit Appointment (PSAA) as the ‘Appointing Person’

Cabinet Member/Chairman of Committee Contact Details: Councillor Cowell, Cabinet Member for Finance, Darren.cowell@torbay.gov.uk, / Councillor Loxton, Chairman of the Audit Committee, Robert.loxton@torbay.gov.uk.

Director/Assistant Director Contact Details: Martin Phillips, Director of Finance, martin.phillips@torbay.gov.uk

1.	Purpose of Report

1.1	To consider proposals for appointing the external auditor to the Council for the 2023/24 accounts and beyond, as the current arrangements only cover up to December 2022.

2.	Reason for Proposal and its benefits

We want Torbay and its residents to thrive.

We want Torbay to be a place where we have turned the tide on poverty and tackled inequalities; where our children and older people will have high aspirations and where there are quality jobs, good pay and affordable housing for our residents.

We want Torbay to be the premier resort in the UK, with a vibrant arts and cultural offer for our residents and visitors to enjoy; where our built and natural environment is celebrated and where we play our part in addressing the climate change emergency.

2.1	The proposals in this report help us to deliver this ambition by ensuring the Council is fit for the future.

2.2	The reasons for the decision are A sector-wide procurement conducted by Public Sector Audit Appointments (PSAA) will produce better outcomes and will be less burdensome for the Council than any procurement undertaken locally. More specifically:

The audit costs are likely to be lower than if the Council sought to appoint locally, as national large-scale contracts are expected to drive keener prices from the audit firms;

Without the national appointment, the Council would need to establish a separate independent auditor panel, which could be difficult, costly and time-consuming;

PSAA can ensure the appointed auditor meets and maintains the required quality standards and can manage any potential conflicts of interest much more easily than the Council;

Supporting the sector-led body will help to ensure there is a vibrant public audit market for the benefit of the whole sector and this Council going forward into the medium and long term.

3.	Recommendation(s) / Proposed Decision

1.	That the Audit Committee recommends:

That the Council accepts Public Sector Audit Appointments’ (PSAA) invitation to ‘opt in’ to the sector led option for the appointment of external auditors for five financial years commencing 1 April 2023.

Appendices

None

Background Documents

Local Audit and Accountability Act 2014

Local Audit (Appointing Person) Regulations 2015

Supporting Information

1.	Introduction

In 2017 the Council first took the decision to ‘opt-in’ to the national scheme for appointing auditors operated by PSAA. As the original appointment period heads towards conclusion the PSAA are seeking confirmation from all local government and police bodies that wish to opt-in for five years from 2023/2024.

1.2	The Local Government Association (LGA) believes the national framework remains the best option councils can choose. There are many reasons for favouring the national arrangements and LGA think those reasons have become more compelling since 2016/17 when councils were last asked to make this choice.

1.3	For some the way external audit has operated over the last couple of years has been disappointing. A lack of capacity in the audit market has been exacerbated by increased requirements placed on external auditors by the audit regulator. There is also a limited number of firms in the market and too few qualified auditors employed by those firms. This has led to a situation where many audits have been delayed and dozens of audit opinions remain outstanding from 2019/20 and 2020/21. Auditors have also been asking for additional fees to pay for extra work.

1.4	As the client in the contract, a council has little influence over what it is procuring. The nature and scope of the audit is determined by codes of practice and guidance and the regulation of the audit market is undertaken by a third party, currently the Financial Reporting Council. Essentially. councils have find themselves operating in what amounts to a suppliers’ market with the client’s interest at risk of being ignored unless local government and police bodies act together.

1.5	It is accepted that the supply side of the market needs to be expanded, which includes encouraging bids from challenger firms. The PSAA has suggested various ways this could be done, but these initiatives are much more likely to be successful if a large number of councils sign up to the national scheme. The LGA therefore believe it is vital that councils coordinate their efforts to ensure that the client voice is heard loud and clear. The best way of doing this across the country is to sign up to the national arrangement.

1.6	To summarise, the same arguments apply as at the time of the last procurement:

Procuring through the appointing person (PSAA) makes it easier for councils to demonstrate independence of process.

PSAA has now built up considerable expertise and has been working hard to address the issue that have arisen with the contracts over the last couple of years:

PSAA has the experience of the first national contract. The Government’s selection of PSAA as the appointing person for a second cycle reflects MHCLG’s confidence in them as an organisation.

PSAA has commissioned high quality research to understand the nature of the audit market.

It has worked very closely with MHCLG to enable the government to consult on changes to the fees setting arrangements to deal better with variations at national and local level, hopefully resulting in more flexible and appropriate Regulations later this year

2.	Options under consideration

An alternative option would be to procure and External Audit Service by ourselves however on assessment this provides no obvious benefits and has been discounted:

A council procuring its own auditor or procuring through a joint arrangement means setting up an Audit Panel with an independent chair to oversee the procurement and running of the contract.

The procurement process is an administrative burden on council staff already struggling for capacity. Contract management is an ongoing burden.

The service being procured is defined by statute and by accounting and auditing codes, therefore the service we procured would be no different to that procured by PSAA

Possible suppliers are limited to the small pool of registered firms with accredited Key Audit Partners (KAP).

Since the last procurement it is now more obvious than ever that we are in a ‘suppliers’ market’ in which the audit firms hold most of the levers.

3.	Financial Opportunities and Implications

3.1	The fee for the External Auditors would be set by PSAA although there are benefits from economies of scale.

4.	Legal Implications

4.1	The Local Audit and Accountability Act 2014 requires the Council to have an appointed auditor and requires such an appointment to be made via an auditor panel. The PSAA would undertake the burdensome process of such an appointment on behalf of the Council.

5.	Engagement and Consultation

5.1	The Council has not undertaken any consultation in respect of this decision, it has to some extent been a consultee and provided feedback to the PSAA on the current arrangements.

6.	Purchasing or Hiring of Goods and/or Services

6.1	The procurement of an External Audit Service will be undertaken by the PSAA.

7.	Tackling Climate Change

7.1	It is more than likely that a national auditing organisation would be appointed as the Council’s External Auditor, however the Covid Pandemic has demonstrated that the virtual world can work for a number of auditing processes and it is anticipated that where suitable virtual technology will continue to be utilised thereby reducing the carbon created by ‘in person’ meetings.

8.	Associated Risks

8.1	If the Council decided not to accept the invitation to opt in by the closing date, the Council may subsequently make a request to opt in, but only after 1 April 2023. The PSAA would be required to consider such requests and agree to them unless there are reasonable grounds for their refusal. PSAA must consider a request as the appointing person in accordance with the Regulations. The Regulations allow PSAA to recover reasonable costs for making arrangements to appoint a local auditor in these circumstances, for example if PSAA needed to embark on a further procurement or enter into further discussions with the contracted firms.

9.	Equality Impacts - Identify the potential positive and negative impacts on specific groups

Positive Impact	Negative Impact & Mitigating Actions	Neutral Impact
Older or younger people	There is no differential impact
People with caring Responsibilities	There is no differential impact
People with a disability	There is no differential impact
Women or men	There is no differential impact
People who are black or from a minority ethnic background (BME) (Please note Gypsies / Roma are within this community)	There is no differential impact
Religion or belief (including lack of belief)	There is no differential impact
People who are lesbian, gay or bisexual	There is no differential impact
People who are transgendered	There is no differential impact
People who are in a marriage or civil partnership	There is no differential impact
Women who are pregnant / on maternity leave	There is no differential impact
Socio-economic impacts (Including impact on child poverty issues and deprivation)	There is no differential impact
Public Health impacts (How will your proposal impact on the general health of the population of Torbay)	There is no differential impact

10.	Cumulative Council Impact

10.1	None

11.	Cumulative Community Impacts

11.1	None