The role of local public audit
2 March 2020: Michael Izza outlines ICAEW’s response to the Redmond Review.
Local authorities are operating in difficult times, having to do more with less, and to be more innovative and commercially-minded against a backdrop of financial instability.
Thus, Sir Tony Redmond’s independent review into the transparency and quality of local authority financial reporting in England has been both timely and welcome. ICAEW recently responded to Sir Tony’s Call for Views, and I want to outline for members the context within which this review is taking place, and offer some of our insight.
Those who audit local authorities play a crucial role in providing accountability and transparency in how public money is spent and how local services are delivered. They also have a large remit. The scope of local audit (set through the Local Audit and Accountability Act 2014) is wider than that of the private sector, and includes audit findings on the accounts, as well as opinions and conclusions on regularity and value for money arrangements.
However, auditors’ reports alone cannot provide full assurance. Those charged with the governance of local bodies need to take responsibility for how they manage public finances and take early remedial actions where issues arise. Too often, such actions are not taken and there are no consequences for those responsible.
Central government also has a responsibility to provide the right framework and environment within which local bodies and their auditors can operate effectively and independently of each other, in order to preserve the integrity of the financial statements and build trust and confidence in local spending.
The final report of Sir Donald Brydon’s independent review into the quality and effectiveness of audit, published in December, recognises that all stakeholders in the audit process bear a level of responsibility. For example, it recommends that the CEO and CFO make a controls attestation to the Board, and proposes measures for greater clarity in relation to the role of audit committees.
While the Brydon review is aimed at the corporate audit market, we believe that some of its suggested reforms will also flow through into public sector audit, and are thus of relevance to the Redmond review.
There is now a fragmented local public audit framework, with accountancy bodies taking on a role in facilitating solutions. To that end, ICAEW hosted a Stakeholder Forum in early January to examine short-term solutions while we await the outcome of the Redmond Review. The discussions at this Forum were positive and a letter, signed by myself and Rob Whiteman CBE, Chief Executive of CIPFA, was sent to the MHCLG Minister recently. We await the Minister’s response to provide the necessary direction.
More widely, we look forward to working with other stakeholders to:
- Improve the usefulness of the financial statements in local authorities for a wide range of users;
- Clarify and enhance the roles and responsibilities of those charged with governance within local authorities;
- Increase the choice of auditors in the local audit market and improve audit quality; and
- Ensure that local public audit meets the future needs of taxpayers, local and central government and wider society.
Any reforms must serve to improve the integrity and transparency of public sector audit, whilst supporting and strengthening the audit profession more widely.
For more detailed information on ICAEW’s position, please read our full response to Sir Tony’s Call for Views at this link.