ARGA gets local government audit powers

July 2021

The UK government creates a standalone local audit unit in response to Sir Tony Redmond’s independent review 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.

The UK government hopes this will help to protect public funds and ensure councils are best serving taxpayers.

A standalone local audit unit will be created, bringing all regulatory functions into one place, to “better coordinate a new, simplified local audit framework”.

The 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 very short term, the Ministry of Housing, Communities & Local Government 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.

These 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.

The 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.”

The story so far

In response to Sir Tony’s Review, since December the government has:

1 Announced £15 million for this financial year to support councils with likely additional costs in audit fees. It has also consulted on the distribution of this funding.

2 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.

3 It is also working with stakeholders to deliver the other recommendations where a sector-led or system-wide response is appropriate.

4 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.

He felt the changes mark an important milestone with the ARGA’s powers over local government audit, ensuring local audit systems are “resilient, councils are truly accountable and providing the certainty the sector needs”.

CIPFA CEO Rob Whiteman said: “CIPFA welcomes the announcement that the ARGA will be the new systems leader for local audit. We’re pleased to see ARGA bring together regulatory functions, the Code of Audit Practice, reporting on local audit functions, and performance monitoring and review.

“Our concerns around audit supply and market instability remain. It is vital that any changes to the local audit system focus on these issues and emphasise the need for high quality audits in the short and longer term.”

Whiteman added: “Local authority accounts are vital to transparency and accountability.

As with the rest of the public sector and the private sector, ensuring that useful information in accounts is accessible to users is becoming increasingly difficult, the statement of accounts is often described as long and complex. CIPFA supports the Redmond Review recommendation for a summary statement that is able to communicate key messages to its council tax payers, service users and other key stakeholders.”

Other facts

• 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.