Overview of the year
The 2018/19 financial year was one of transformation for PSAA, with significant strategic changes to the service we provide, and to the company’s staffing and organisation. The company’s focus is now on providing a national auditor appointment scheme for our opted-in bodies, following completion of our work under transitional arrangements put in place in 2015 to support implementation of the new local audit framework.
Our new responsibilities as the ‘appointing person’ for principal local government, fire and police bodies, under the provisions of the Local Audit and Accountability Act 2014, began officially from 1 April 2018. This followed a preparatory year in 2017/18 when we completed a complex procurement to let contracts for audit services worth £140 million over five years, made auditor appointments under those contracts to the 486 authorities that opted into our national auditor appointment scheme (98% of eligible bodies), and set our scale fees for 2018/19 audits. These arrangements lay the foundations for the five years of the current appointing period, covering the audits of the accounts of opted-in bodies from 2018/19 to 2022/23.
We have worked hard to understand the priorities and preferences of opted-in bodies, and have put at the heart of our work significant engagement and consultation with authorities, their representative organisations and our national stakeholders. We see our Advisory Panel, whose members are drawn from representative organisations of opted-in bodies, and our Local Audit Quality Forum, targeted at audit committee chairs and directors of finance, as particularly important channels for the exchange of information and views. We will be taking this work forward in 2019/20 with audit quality surveys and increasing face to face engagement.
During 2018/19 we decided it would be helpful to have an independent view about the design and implementation of our appointing person role to help shape our thinking about future arrangements. We therefore commissioned a ‘lessons learned’ review from Cardiff Business School (CBS). The final report of the review concludes that PSAA has produced a well thought through, organised, and governed programme which delivers substantively on its objectives to the benefit of local bodies. It describes our work as “an outstanding example of sector led improvement”. The project has also identified some key messages for the future, and we have a clear plan to address its recommendations. Key challenges include sustaining a competitive local public audit market and maintaining an adequate supply of suitably qualified and experienced audit staff.
The challenges facing PSAA are made more complex by current turbulence in the wider audit market. Following a number of significant corporate failures, the role and performance of auditors is under intense scrutiny. A number of formal inquiries have been commissioned by Government with the possibility of future changes to audit regulation, auditing standards and audit firms. Although these developments are focused primarily on the audit of large commercial entities, any resulting changes are also likely to impact local public audit in due course. We are monitoring the situation carefully and working hard to understand the potential implications for PSAA, opted-in bodies and our suppliers.
We are very aware that audit quality is a high priority for our opted-in bodies and we are committed to ensuring that PSAA secures audit quality through our contracts with suppliers. This was a fundamental aspect of the procurement and remains a key strand of our ongoing appointing person arrangements. We have designed and implemented a comprehensive framework to manage the contracts robustly, monitoring audit quality against criteria relating to adherence to professional standards, compliance with contractual requirements and the effectiveness of relationship management. This includes the work performed in respect of maintaining the audit firms’ independence. We will publish quarterly reports on our website to help opted-in bodies understand how we are monitoring the performance of audit firms on their behalf.
We are also aware that value for money is an important requirement for opted-in bodies. During 2018 we completed a significant restructuring and cost reduction exercise within PSAA, reducing staff numbers by 50 per cent and cutting operating costs. Together with the favourable prices achieved in the audit services procurement, these efficiencies enable our small team to offer a cost-effective service that delivers outstanding value and quality to opted-in bodies.
This financial year saw the completion of PSAA’s work under the transitional arrangements made by the Secretary of State for Housing, Communities and Local Government on the closure of the Audit Commission in March 2015. The company has been responsible for a number of the statutory functions previously discharged by the Audit Commission, managing novated contracts in relation to audits of local government, police, fire and NHS bodies. The company now moves forward into its appointing person role.
In view of the change in our responsibilities and the restructuring of our operations, we said farewell to our chief officer, Jon Hayes. We thank Jon for his sterling work to help establish PSAA following the closure of the Audit Commission and to develop the appointing person arrangements. We have welcomed Tony Crawley into a new role as our chief executive, as we navigate this new phase of our responsibilities.