Responding to COVID-19: insight, support and guidance
CIPFA has been watching with interest audit rise up the public finance agenda, and the announcement of a review of local authority audit over the summer was something we welcomed keenly. It’s particularly encouraging that this will be led by former CIPFA President Sir Tony Redmond, whose local government credentials are second to none.
Local public audit in England underwent a drastic change with the abolition of the Audit Commission in 2015. Over a century of public audit practice came to an end as the remaining public provision was effectively privatised and councils empowered to appoint their own auditors, although the vast majority have elected to pass this function to a central procurement body. However, since then concerns have been raised – not least by Sir John Kingman in his 2018 review of the Financial Reporting Council – that the new regime has weaknesses. Some have noted a decline in the scope, quality and challenge of local public audit.
So, CIPFA is glad to see the Redmond Review has been established to unpick these issues, and that it has started moving at some pace, with a call for evidence running up until 22nd November. CIPFA will be feeding into the review every step of the way and, while it’s early days, here are some initial thoughts on what the review could usefully explore.
One area worth considering is whether the current regulatory environment is as effective and robust as it could be. Some of the delays to local audits we’ve seen suggest that adequate resourcing may also be an issue, so the question of what an adequate level of future resourcing looks like could also be addressed as part of the review.
There might be a role for a separate body with a particular focus and expertise in local audit together with international auditing standards. This body could have a focused remit to secure quality audit outputs, and would also need to access the expertise and understanding of international auditing standards, as well as establish standards and ensure auditors are appointed who have appropriate understanding of the regulatory regime in which local authorities operate. Any new body should of course be established in accordance with the principles of public audit: independence from government; wide scope; transparency and accessibility; and responsiveness to changing contexts.
CIPFA also has questions around how audit findings are considered and responded to. Where issues arise as a result of an audit, are local authorities responding and establishing plans for corrective actions as soon as possible? Audit committees are a key component in this process and need to function as a central part of an authority’s governance framework. CIPFA is concerned that some few councils are disregarding guidance, to the detriment of the sector and a risk to local taxpayers, and Redmond will need to consider a means for auditors to highlight this to government.
It’s important that any change to the audit and assurance regime is fully comprehensive and clear, but it should also be progressive and fit for the future. It could be productive to discuss the potential of changes that would go beyond the traditional elements of financial statements, governance and value for money, important as these are.
More innovative financial reporting, for instance, could have a key role to play here. While financial statements are a cornerstone for accountability, demonstrating how public money has been used, it is also important that they communicate effectively and clearly to users, perhaps through real time or interim audit judgments.
CIPFA/LASAAC, setting standards for local government accounting in all four UK nations, has recently begun a discussion to explore how local authority financial statements might tell their story more clearly, be made less complex and scaled to a size proportionate to the preparing authority. We’re excited by the potential this could have to transform reporting, audit and assurance regimes.
The Redmond Review presents us with a blank sheet of paper. An opportunity to explore how we as a sector could do things differently. CIPFA is determined to be part of the vanguard driving this change. We hope that you will join us on this journey.
This article first appeared in the Local Government Chronicle.