Press release: PSAA Announcement of Procurement Outcome

Today Public Sector Audit Appointments Ltd (PSAA) announces the outcome of its procurement of audit services for the 470 local government, police and fire bodies (99% of eligible local bodies) that have opted into its national scheme for the next appointing period spanning the audits from 2023/24 to 2027/28.

The procurement has taken place against the challenging backcloth of a troubled audit profession, a turbulent market and a local audit system that is facing unprecedented difficulties including large volumes of delayed audit opinions. Only ten audit suppliers are currently registered to undertake local audits in England, three of which opted not to take part in this procurement.

We have offered contracts to six suppliers following a competitive process that was protracted reflecting the limited capacity available in the market. The scale of the contracts varies widely depending upon the capacity which each supplier is able to provide.

We are pleased to retain the services of three existing suppliers, Grant Thornton, Mazars and Ernst & Young, to welcome former supplier KPMG back to the market, and to be entering into contracts with two new suppliers, Bishop Fleming and Azets Audit Services. [Please refer to the pen portraits below provided by each of the successful firms]

From 2023/24 the respective shares of the audits of opted-in bodies will be as follows:

  Share of PSAA’s work
Grant Thornton        36.0%
Mazars        22.5%
Ernst & Young        20.0%
KPMG        14.0%
Bishop Fleming        3.75%
Azets Audit Services        3.25%

We have awarded contracts for a total of 99.5% of the audit work detailed in our tender, which was issued in April 2022. We have now been able to take into account the impact of recent and scheduled local government reorganisations which has resulted in a marginal reduction in the auditor capacity required to meet our needs, so 99.5% of the original capacity sought is sufficient.

The bid prices that we received in this procurement reflect a significant increase compared to our previous procurement in 2017. The audit industry has faced major challenges in the intervening period. In addition local audit faces several distinctive difficulties which have resulted in a less competitive market.

In Autumn 2023 PSAA will consult on the proposed scale of audit fees payable by bodies in respect of the audit of 2023/24 accounts. (Our consultation on the proposed 2022/23 scale recently closed on 30 September). At this stage our advice to bodies is to anticipate a major re-set of total fees for 2023/24 involving an increase of the order of 150% on the total fees for 2022/23. The actual total fees will depend on the amount of work required.

We appreciate that the extent of this likely increase in audit fees will pose a significant funding challenge for local bodies already facing a daunting range of financial pressures. We have raised this concern with DLUHC for consideration.

Awarding new contracts will help to maintain the system for the next five years, recognising that robust local audit is particularly vital in difficult times. It will also buy time for critical local audit system and framework changes to be developed and implemented.

In our view there need to be radical changes in the local audit system. Our hope is that those changes will include reductions in the volume of work which auditors are required to undertake before arriving at their opinion on the financial statements, enabled by a combination of revisions to the accounting and auditing requirements. In our view a more proportionate audit is an absolute pre-requisite to achieve a more sustainable audit system.

Steve Freer, Chair of PSAA, said,

The outcomes of our procurement reflect the backcloth of a troubled audit profession, a challenged local audit system and a sellers’ market. We are relieved to have succeeded in securing sufficient capacity to meet local bodies’ needs for the five years commencing 2023/24. Unfortunately, we simply do not have levers to mitigate the very significant increase in audit fees anticipated in twelve months’ time. We have therefore requested Government to give urgent consideration to providing further special support to local bodies to help fund the expected dramatic increase in audit fees.

 Even after a significant reset of fees, the local audit system is likely to continue to face enormous problems. The position has become far more stressed since the Redmond Review undertook its work in 2019 and 2020. Recruitment and retention and regulatory risks are now even more pronounced. In our view we need a radical examination of the measures necessary to restore order and confidence in local audit, followed by urgent decision making and rapid implementation.”

Pen pictures of the successful firms

Azets Audit Services

Azets is a UK top 10 audit, accounting and business advisory firm. The firm provides external audit, internal audit and other assurance services across the public sector and has extensive experience of auditing large Scottish councils on behalf of the Accounts Commission. While the firm operates from around 80 local offices spread across the UK, it delivers public sector audit using specialist teams in selected locations in the North, Midlands and London.

Bishop Fleming LLP

Bishop Fleming is a top 30 UK accountancy firm, providing audit, accountancy, tax and business consultancy services to both the public and private sectors. Bishop Fleming has extensive experience working with public sector organisations in the housing, education, charity and healthcare sectors along with a number of local authority subsidiaries. Their public sector audit team is led by two ICAEW registered key audit partners, both having previous experience of providing external audit services to local authorities.

Bishop Fleming have 37 partners and around 500 staff working from 7 offices across the South West and West Midlands, who are committed to delivering the very best client experience.

EY LLP

Ernst & Young LLP (EY) is a multinational professional services firm with 312,000 employees based in over 150 countries worldwide. They provide consulting, law, strategy, tax and transactions services, and are one of the “Big Four” professional services firms. EY employs around 17,000 people in the UK. There are 240 staff including 14 Key Audit Partners who currently work full-time in the Government and Public Sector assurance services team, who are also able to draw from an extensive pool of specialists.

Grant Thornton UK LLP

Grant Thornton UK is delighted to have been reappointed as the largest supplier of local government audit. The public sector has played a significant role within the firm for over 30 years and we remain committed to the success of the sector. Our UK Public Sector Assurance team employs 440 people, including 29 Key Audit Partners and specialists in financial reporting, audit quality, and Value for Money. The team is dedicated to public audit work in local government and the NHS, with contracts with PSAA, Audit Scotland and over 100 health bodies. The Public Sector Assurance team is a regular commentator on issues facing the sector and oversees the firm’s thought leadership, such as its series of publications on grants and public interest reports.

KPMG LLP

One of the ‘Big Four’ audit firms, KPMG operates in over 100 countries with over 230,000 employees providing audit, assurance, tax, consulting and advisory services to the public and private sectors. KPMG employees around 16,000 people in the UK. Within the public sector they have 14 active Key Audit Partners supported by a team of 100 staff and a range of specialists.  KPMG undertakes a range of other public sector audit work including Local Audits in the NHS, central and local government audit work on behalf of NAO and Audit Scotland and a range of external audits in the education and social housing sectors.  Prior to 2018, KPMG were appointed auditors to a range of local government bodies through previous audit procurement exercises.

Mazars LLP

Mazars is a large global audit and accounting firm with over 28,000 professionals in 90 countries and territories worldwide. In the UK the firm ranks in the top ten with 2,500 employees and 140 partners working out of 15 offices, and UK fee income in 2021 of £234m.The firm’s dedicated public audit team has significant experience in providing external audit to public sector bodies. It comprises individuals with experience of auditing councils, combined authorities, police bodies, fire and rescue authorities, local government pension funds and other public bodies.  In addition to its audit contract with PSAA, the firm provides services to Audit Scotland and has a substantial portfolio of NHS audits and is one of the National Audit Office’s framework suppliers for central government audit.