Redmond Review: Towards a better audit


By Diana Melville, CIPFA Governance Adviser

The key question that everyone involved in local government wanted answering from the Redmond Review’s recommendations was ‘will it give us a better audit experience?’ If the recommendations are fully implemented, and we must bear in mind that some primary legislation is required to do that, then the answer is probably yes. It is unlikely to be perfect and inevitably changes will take time to bed in, but yes it should be better.

So what are authorities looking for?

Firstly, they are looking for an audit regulatory system that is properly aligned to the needs of the sector and provides a clear allocation of responsibility to make it work. The fragmentation introduced by the Local Audit and Accountability Act could never be regarded as efficient and effective despite the best endeavours of all involved. The establishment of the Office of Local Audit and Regulation (OLAR) should overcome those difficulties.
Secondly, the sector wants to have confidence in the providers of audit services. This splits down into several factors:

  • expertise
  • capacity
  • competitiveness.
The review clearly revealed concerns that some audit teams, below the Key Audit Partner, lacked vital knowledge of local government to inform their auditing expertise. The recommendation that all auditors should be provided with the requisite skills and training should go a long way to address this. In addition, improving the capacity of the firms to meet client needs, for example by reviewing the fee structure, should support continuity within the audit team and the retention of knowledge.

The other aspect of confidence in the sector is competition. While some chief financial officers have judged that fees are now too low, they are unlikely to be comfortable with a system that results in significant audit fee inflation. They want to see value for money. A balance needs to be struck that encourages new audit providers to enter the market. This enables competition and encourages firms to invest in their audit teams, deliver a quality service, and keep in mind that audit fees are paid out of hard-pressed budgets.

Thirdly, local government wants audit and audit reporting to be better. The changes to the Code of Audit Practice already introduced by the National Audit Office are widely acknowledged to be a good step forward and the review welcomes them. Hopefully they will provide a more effective foundation for the OLAR to build on in future years. There are broader issues though that still need to be worked through, principally whether the auditors should go further than a focus on value for money arrangements and provide assurance that financial sustainability is maintained. The review has recommended that MHCLG should assess this, saying “there is a compelling argument to extend the scope of audit to include a substantive test of financial resilience and sustainability”.

After years of austerity and the impact of COVID-19, financial resilience and sustainability are right at the top of many authorities’ risk registers.These pressures will shape the ability of authorities to respond to the many pressing issues they face, including social care, climate change, housing and local economic downturn.This is not an academic discussion about what an audit should cover, but another facet of the issue of whether funding and accountability of local government is fit for purpose.

The final element of a better audit is ensuring the audit has impact and leads to change where necessary.

I would agree with many of the observations made in Redmond’s report about local authority audit committees. The review team’s findings match CIPFA’s own research and observations in the past few years. However, the recommendations could have gone further. In 2018, CIPFA recommended that local authorities should include an independent member on their audit committee in its updated Position Statement on Audit Committees in Local Authorities and Police, if the body was not already statutorily required to do so.

Wales made a lay member a requirement of their authority audit committees in 2011. The Local Government and Elections (Wales) Bill currently going through the Senedd is proposing that a third of committee members should be lay members, one of whom should chair the committee. Sir Tony’s recommendation to councils that they should consider appointing at least one independent member seems tame in comparison and many authorities have already taken this step. I do not think that this recommendation is sufficient to achieve a step-change in the impact and effectiveness of the audit committee.

But three out of four ain’t bad.

There is a lot to welcome in the report and a lot to do to implement the recommendations. CIPFA is keen to take forward a number of initiatives and to work collaboratively with other stakeholders in support. We are reviewing carefully the recommendation on auditor training to better understand how we can play a key role in providing support, both in the spirit and the substance of that recommendation.

As part of our engagement work with local government we will be holding a dedicated webinar on the review featuring a range of perspectives including, we are delighted to say, Sir Tony himself.

This article first appeared in Public Finance. 

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