Draft Local Audit Bill ad hoc CommitteeMemorandum submitted by Shropshire Council Audit Committee

New Inquiry—Call for Evidence: Pre-Legislative Scrutiny of the Draft Local Audit Bill.

Summary

1. This submission reflects the thoughts of members at Shropshire Council in relation to the Draft Local Audit Bill and the Select Committee is asked to consider the points contained within it.

2. The most significant concern is that there should be clarification of the position of audit committees and the role of elected members after April 2017. When the Draft Local Audit Bill came out for consultation, paragraph four, in its second bullet point stated “this (the Independent Auditor Panel) will see a significant change to existing Audit Committee arrangements and the makeup of such committees which usually comprise a large number of elected members.” This would clearly appear to indicate an intention that independent panels are to supersede audit committees for the whole range of functions which audit committees currently perform including risk management, fraud prevention and treasury management supervision. If however independent panels are to be restricted to simply appointing the external auditors and will then be disbanded after performing that role, this should be stated. While this Authority sees little purpose or merit in the appointment of independent auditor panels, it would have less objection if such panels were to be confined to the role of appointing the external auditor.

3. Points have been made under the areas proposed in the call for evidence and these are indicated in bold/italics at the start of each section.

Localism and decentralisation

4. The requirement for independent auditor panels is both excessive and unnecessary and runs contrary to the Government’s agenda around devolution and localism. There will still be a regulatory framework including the registration of auditors and monitoring of the quality of audits. This Council challenges why local elected members are not considered effective as Chairs and Vice Chairs of Audit committees as independent members? Independent members need to understand the business of the Council, the importance of confidence in public propriety, they will not have access to other issues and papers circulated at the Council—there are a number of high profile examples in the private sector where independent members did not avert a crisis, eg banking sector, and a lack in knowledge of the sector independent members are working in may lead to comparable issues in the public sector.

5. An independent appointments body, with local authority representation, would bring the “best of both worlds” in terms of maximising independence and ensuring greater local authority involvement in the appointment process. An appointments body, which could operate nationally or regionally, would also have the benefit of reducing the procurement burden on individual local authorities (and auditors), ensuring all authorities have an appointed auditor, and enabling greater economies of scale and therefore value for money in terms of cost, quality and continued investment in the sector.

6. If the recruitment of independent members is mandatory and there are difficulties with recruitment, what will happen if a local authority cannot recruit such members? Especially given that all public bodies will be going out at the same time for such members.

7. Where IAAP’s are to supersede the present committee system in local authorities there should be a statutory requirement for independent members to carry out a minimum number of hours of training and familiarisation with the Authority to which they are appointed. In the case of the Chair and Vice Chair, they should have to undertake chairmanship training unless they can demonstrate experience and capability as chairs of other organisations.

8. It is not clear when the Audit Panels have to be in place, though presumably by April 2017 to coincide with the appointment of auditors by councils. There should be a recommendation for the Government to produce supplementary guidance on the method of appointing independent members and of their conditions of service including remuneration.

9. There is no precedent to guide the working of the proposed panels and this should be clarified and set out in supplementary guidance in due course.

Transparency

10. Transparency requirements are already in place without the changes proposed in this bill. Challenge can come from the public directly, elected members or through FOI requests.

Lower audit fees

11. Lower audit fees have already been achieved with the changes in external auditor requirements, ie removal of the Comprehensive Area Assessment and Use of Resources process from the Audit Commission work. It is felt that adoption of some of the proposals in this bill will increase costs including the increased number of independent panel members, additional costs for any audit work outside of the accounts work, the costs of recruitment and retaining independent members, procurement costs and running IAAP’s alongside Audit Committees.

The market in auditing service

12. Given that the changes will impact on all public bodies at the same time, the demand for the correct calibre of the individual to understand public accountability, technical issues and added value will create a peak pressure. This will also be reflected in the ability to recruit independent members with the correct skills for IAAP’s. The markets for both independent members and audit firms may need to be developed at an additional cost to users.

13. Joining together of procurement processes may favour the larger providers and therefore make it difficult to encourage new or smaller providers to the market place and may lead to higher external audit fees.

October 2012

Prepared 16th January 2013