Agenda item

Consideration was given to a report advising on changes to external audit arrangements that were expected to commence on 1 September 2012.

It was explained that subject to the enactment of the new legislation audit of the Council would transfer from the Audit Commission to a private sector auditor, Grant Thornton (UK) LLP, the successful bidder for the West Midlands area, including the Borough Council.

The Audit Commission would remain in place until April 2015 to oversee the contracts and other statutory functions but would be significantly smaller after the outsourcing, most of its audit staff having been transferred to their new employers by October 2012.  A new body, as yet unspecified would take over from April 2015 to manage the final two years of the outsourced local audit contracts.

The audit of the 2011/12 accounts, which was currently taking place, would be carried out under the present arrangements by the Audit Commission practice.  This would include preparing and presenting the Annual Governance Statement attendance at the Audit and Risk Committee when it, and the Statement of Accounts, were considered and certification of the 2011/12 accounts.  The intention was that the work in relation to the 2011/12 accounts would all be completed by the Audit Commission practice, enabling a ‘clean’ handover to the new firm, would then be responsible for 2012/13 audit work.  Clearly. however, if any issues arose in relation to 2012/13 in the period before 1 September, these would have to be dealt with under the present arrangements since Grant Thornton would complete the certification of the housing and Council Tax benefit subsidy claim relating to 2011/12 because this had a submission deadline of 30 November 2012.

Audit Commission staff currently employed by the Commission would transfer to the new audit firms on 31 October 2012.  The current District Auditors within the area had been appointed as ‘Engagement Leads’ for Grant Thornton’s Midlands Audit Practice.  It was likely that, in the beginning at least, the Council would be dealing with largely the same audit teams as now exist, although  this may change over time.  This should assist with continuity, hopefully avoiding the need for a completely new set of auditors to have to become familiar with Newcastle’s financial situation, processes and accounting system, which would take up some of your officer’s time as well.  It should also be noted that Grant Thornton have substantial experience of public authority auditing, including local authorities, through their absorption in 2008, of accountancy firm Robson Rhodes, who specialised in this area of work.  The general approach to the audit process is as yet an unknown quantity but the above factors perhaps indicate that there may not be a radical change from present practices.  Other local authorities, including in Staffordshire, have reported positively on their experience of private sector auditors.  Hopefully, Grant Thornton will make contact with your finance officers before they become officially responsible in order to discuss their approach to the audit.

Having one firm responsible for the audits of all authorities in a region may also assist in achieving a consistent approach across those bodies.  Overall, the principle of the change did not, therefore, give rise to any particular concerns.

The Midlands Audit Practice was based in Birmingham.  It was not clear whether there would be a more locally based office but the firm has said that they intend to have an on-site presence, which presumably means audit staff visiting the Council and using the dedicated external audit room on an ad hoc basis in order to keep in touch with audit issues affecting Newcastle and with relevant Council officers.  They have said that, as now, they will attend all of the meetings of the Audit and Risk Committee and will liaise with Internal Audit, with whom they would expect to work closely.

The Audit Commission will continue to update its VFM comparator tool and make it available on its website.  This is a useful means of comparing the cost of services over a range of local authorities (which can be selected by the user) and it is pleasing that this is being maintained.  There will be no more research studies carried out and published by the Commission.  However, the Local Audit Bill gives powers to the National Audit Office (NAO) to undertake studies of thematic value for money issues related to local government and it remains to be seen whether the private sector firms will carry out similar work.  The NAO will also be responsible for setting the code of audit practice for local government.

The National Fraud Initiative was to be retained, although Ministers had yet to decide which body its work will transfer to.

These arrangements were an interim measure.  The new contacts would last for five years, although there may be provisions for the successor body to the Audit Commission to extend them for a further period, particularly to spread bids over a year or two to give better opportunity for a wide range of firms to bid.  The exact process will not be known until the Bill relating to the future arrangements for local public audit has been enacted.  It is intended that once the new contracts expire, local authorities would appoint their auditors themselves, following a procurement process, including an independent audit panel to advise on the appointment.

Resolved:-   That the information be noted.