Section 172 (1) Statement 2022/23


PSAA’s Section 172(1) Statement has been published in accordance with the Companies (Miscellaneous Reporting) Regulations 2018 as set out in Section 172(1) (A) to (F) of the Companies Act 2006.

The Board takes very seriously its duty under Section 172 of the Companies Act 2006 to promote the success of the company. The Act states that:

’A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:

  • the likely consequences of any decision in the long term;
  • the interests of the company’s employees;
  • the need to foster the company’s business relationships with suppliers, customers and others;
  • the impact of the company’s operations on the community and the environment;
  • the desirability of the company maintaining a reputation for high standards of business conduct’ and
  • the need to act fairly as between members of the company’. (Note 1)

Note 1: PSAA is a company limited by guarantee and does not have different classes of members of the company. Hence, this requirement does not apply to PSAA.

The Board has satisfied itself that consideration of the requirements of Section 172, and the directors’ duties under it, have informed and guided its work throughout the year. This statement explains how the Board has had regard to promoting the success of the company in relation to each of the specific requirements of the legislation.

(a) The likely consequences of any decision in the long term

All decisions are taken with due regard to PSAA’s purpose and objectives (as set out in the Articles of Association and other relevant documents), the effective and efficient use of public funds and meeting our statutory obligations as an Appointing Person.

The Board considers how to promote the long-term success of PSAA on a continuous basis, providing effective leadership and oversight of the company’s work and functions. It also ensures that PSAA plays an active role in discussions with partners concerning the development of the local audit system and sustainability of the market as a whole. The Board is mindful of the fact that PSAA’s success depends to a large extent upon the ability of the wider system to deliver for and meet the needs of opted-in bodies and users of audited accounts. With this in mind, PSAA meets and works closely with other key players in the local audit system, seeking to influence decisions for improvement of the system overall.

PSAA has two distinct business cycles which each require their own governance and decision- making processes. Every five years PSAA undertakes a significant project to develop a national appointing person scheme and procure audit services for opted-in bodies. Over a period of approximately 18 months this project requires intensive Board input at every stage from development of a procurement strategy to approving the appointment of auditors for every opted-in body. During this period, a Board working party is established and the Board meets monthly to consider and approve key decisions. More conventionally, PSAA also has an annual business cycle designed around delivery of the appointing person functions and monitoring the performance of contracted suppliers. The corporate governance framework sets out the scheme of delegation and the controls in place in relation to each of these two cycles.

PSAA’s procurement strategy reflects detailed consideration of the long-term sustainability of the local audit system with an aim to strengthen the system. The Board deliberately opted for the longest term for both the first and second procurements and incorporated options for contracts to be extended beyond the five-year contract period.

PSAA is represented on the Local Audit Liaison Committee (LALC) along with representatives of relevant government departments, the National Audit Office (NAO), the Financial Reporting Council (FRC), Institute of Chartered Accountants in England and Wales (ICAEW), the Chartered Institute of Public Finance and Accounting (CIPFA), and NHS England. The LALC strives to provide a joined-up response to the challenges and emerging priorities across local audit. It is currently chaired by the Department for Levelling Up, Housing and Communities (DLUHC). However, the FRC will assume this role at some point during 2023/24 to coincide with the FRC taking on the responsibilities of the shadow system leader.

In February 2023 PSAA published the Business Plan for the period to 31 March 2025. It sets out the activities planned for the next two years. Importantly, these include supporting efforts to address the challenges to move towards a local audit system which is more stable, more resilient, and more sustainable.

Recognising the future uncertainties, the Board keeps the Business Plan and activities under review and where necessary responds to emerging issues and developments within the local audit system as well as any relevant government decisions. The Business Plan is regularly monitored by the Board using a suite of KPIs.

The five-year Medium-Term Financial Plan (MTFP) is regularly reviewed and updated to ensure that it continues to reflect a healthy financial position. PSAA operates on a not-for-profit basis. From time to time the Board approves the distribution of surplus funds to opted-in bodies after ensuring PSAA has sufficient funds to pay for its operating expenses and manage its cash flow. The transitional arrangements (2015-2018) and each appointing period are accounted for separately in the MTFP to acknowledge the different groups of bodies receiving services from PSAA at each stage. The Board also regularly reviews performance against the company’s annual budget.

(b) The interests of the company’s employees

PSAA’s staff are its key resource. PSAA aims to be a good employer, encouraging a culture of openness and transparency, developing people to the best of their abilities and offering competitive remuneration and benefits to recruit and retain staff. The Board recognises that a team of well-qualified staff is critical to the success of PSAA and its ability to respond to anticipated challenges to local audit. The Board monitors PSAA’s work streams and related capacity via regular updates from the Chief Executive.

The company’s structure is designed to ensure that PSAA is fit for purpose to fulfil the company’s appointing person responsibilities, including supporting the periodic requirement to undertake major procurement projects. The roles in the structure are filled by employees with the necessary skills, qualifications and experience. Staff are encouraged and funded to attend training and development activities including, where staff are members of professional accountancy bodies, in order to fulfil continuing professional development obligations. Employees and Board members have access to the LGA e-learning platform (provided as part of the agreement with the LGA for back-office support services) for training on a variety of topics including annual mandatory refresher training on IT security and information governance.

Like many businesses, PSAA had to adopt different working practices during the COVID-19 pandemic, and subsequently has continued to embrace the benefits offered by hybrid working arrangements. Team members attend the office when required to meet the needs of the business. The Board has recognised the importance of supporting the workforce and has put in place measures to ensure that staff are able to work effectively and remain connected.

During 2021 PSAA commissioned an independent review of working arrangements. A key element of the review involved listening to staff and taking on board their views for the design of a model for effective working for the future. The recommendations for a combination of home working and flexible use of office space as appropriate to accommodate effective working and personal preferences were adopted. Quarterly team awaydays take place which cover a range of well-being and business focused topics. Staff have been supported with workplace wellbeing surveys and awayday sessions on personal resilience.

Given the challenges faced by audit suppliers and PSAA, and in preparation for the new contracts commencing in April 2023 involving enhanced contract management arrangements, the Board has reviewed PSAA’s staff establishment and recognised the need to revise the existing structure. During 2022/23 new posts of Assistant Finance Manager and Procurement Manager were approved which has increased the establishment to 13 posts (11.7 FTEs).

With a small team, good communication is imperative. Board, Audit Committee and Procurement Committee papers are accessible to all staff. All employees are kept up to date with items considered at Board meetings and in relation to PSAA’s finances, and these are standing agenda discussion items at weekly team meetings. The quarterly team awaydays provide further opportunity for communicating information.

Where PSAA has needed additional short-term capacity to deliver focused time-limited assignments, such as the research to inform the fee setting process, the organisation has drawn on external consultancy and advisory services. This approach brings in extra capacity and specialist skills to support the internal team.

All permanent and fixed-term staff receive annual appraisals and have personal development plans including training aligned to both company and personal career goals.

The Board recognises the benefits of retaining well-qualified, experienced staff. They provide specific knowledge and expertise to support our functions and are likely to be difficult to replace.

(c) The need to foster PSAA’s business relationships with suppliers, customers and others

Local audit as a sector is facing significant challenges and there are many uncertainties about the future. Uniquely, PSAA has relationships with both auditors and opted-in bodies, which means that PSAA is often in a strong position to identify emerging issues.

PSAA operates in a diverse and complex stakeholder landscape, so effective communication and engagement are crucial. The Board recognises that PSAA’s stakeholders’ requirements and expectations will vary significantly, which means there is a need to use a range of ways to communicate and engage.

Strong relationships with a diverse range of stakeholders are crucial to PSAA’s work. Relationships with audit firms are of vital importance. Local audit requires specialist knowledge and expertise. Retaining existing suppliers and supporting efforts to encourage new firms to enter the market help to address the crucial challenge of moving towards a more sustainable and competitive market capable of delivering the capacity the sector requires.

Close links and open communications with opted-in bodies enables PSAA to understand and better meet sector needs. The Board is committed to building and maintaining strong, effective links with the organisations which perform specialist roles in the local audit system so that the system as a whole operates efficiently and in a way that meets the needs of opted-in bodies and users of accounts.

PSAA’s communications strategy identifies the companies’ key stakeholders and the channels of communication through which the organisation engages with each group. PSAA keeps this under constant review and intensifies activity as appropriate when the periodic procurement is undertaken.

PSAA’s role is often to influence others by raising awareness of key issues. The breadth of PSAA’s work – covering almost 100% of eligible bodies – and the organisation’s unique position with relationships with both auditors and opted-in bodies enables early identification of emerging issues and early sharing of intelligence with those partners in the local audit system who have the remit to take action.

The long-term success of PSAA is therefore critically dependent on the effectiveness of its work and the strength of relationships with customers, suppliers and other stakeholders.

PSAA’s customers

PSAA’s customers under the appointing person arrangements are opted-in local authorities, police, fire and other local government bodies. PSAA operates on a not-for-profit basis, and any surpluses are returned to the opted-in bodies.

During 2022/23 PSAA published the prospectus for its national scheme for the second appointing period, spanning the financial years 2023/24 to 2027/28. Local authorities, police, fire and other local government bodies were invited to opt in and, following an extensive communications campaign, 99% of eligible bodies chose to do so.

PSAA engages with customers through a variety of different means:

  • PSAA’s Advisory Panel – the panel members represent the finance communities within different types of opted-in bodies. This forum provides an important mechanism for communicating with our opted-in bodies by cascading information and obtaining helpful feedback and insights into all aspects of our national scheme and procurement arrangements. This has been particularly useful in relation to our preparations for the second appointing period and has enabled us to engage with bodies on opt-in arrangements.
  • PSAA ensures that all stakeholders have sufficient information and time to enable them to respond effectively to PSAA consultations (for example, in relation to audit fees and appointments) and to the invitation to join PSAA’s national scheme for the second appointing period. Additionally, relevant bodies are consulted in relation to proposed auditor appointments in accordance with PSAA’s governance framework.
  • PSAA’s Local Audit Quality Forum (LAQF) provides an important channel for communicating and engaging with both officers and members of opted-in bodies. In particular PSAA aims to help local audit committees to play their critical and demanding roles effectively. Where the events are held in person, the forum provides a meeting place in which all of the parties that have a responsibility for audit quality can share experiences and good practice.
  • During 2022/23 PSAA moved to a virtual delivery model and hosted three LAQF webinars for opted-in bodies designed to provide information and answer questions on different aspects of the national scheme including key aspects of PSAA’s work. Using this platform, PSAA was able to reach out to eligible bodies and audit suppliers. In total these events attracted over 300 attendees from eligible bodies, existing and potential suppliers. Given the success of these events, PSAA plans to continue with this form of delivery and is developing a further programme of webinars for 2023/24. There are plans to host an annual in-person event with the first one scheduled to take place during 2023/24.
  • PSAA has continued to support the LGA and CIPFA to provide leadership essentials training specifically tailored to meet the needs of audit committee chairs. This training is provided to LGA member organisations.
  • PSAA surveys opted-in bodies annually as part of our monitoring arrangements for the quality of the audit services they are receiving. The results of the third survey, in respect of the 2020/21 audits, were reported in August 2022. The key messages were discussed with the audit firms and feedback was used to inform the design of the procurement documentation for the second appointing period.
  • During the year PSAA engaged with opted-in bodies on a number of topics and issues including PSAA’s procurement strategy and presented at a number of local finance, audit and networking group events.
  • PSAA distributes a bi-monthly e-bulletin to opted-in bodies, using this as a mechanism for providing information on a regular basis to bodies on a wide range of topics including PSAA updates and events, the opt-in and procurement processes, and wider local audit issues and developments in the sector.

PSAA’s suppliers

PSAA’s main suppliers are the audit firms who are contracted to provide audit services to opted-in bodies. The development of strong, long-term relationships with audit firms is not only critical for delivering quality audit services under current contracts but also for developing PSAA’s procurement strategy and informing efforts to move towards a more sustainable local audit market in the future.

As outlined elsewhere on PSAA’s website, market engagement with the audit suppliers was a major part of the procurement and in the development of revised contract terms.

Suppliers contracted for work from 2023/24 audits, whether continuing, new or returning will be subject to an active contract monitoring regime introduced by the revised contract terms. A fixed programme of review meetings will build significantly on the current arrangements, with a rectification, change and challenge process included within the contracts.

PSAA has a duty under the Local Audit (Appointing Person) Regulations 2015 to set fee scales and determine proposed fee variations. This is achieved by using a fair approach, working on the basis of contractually set prices, to remunerate firms for the audit work undertaken to deliver an NAO Code of Audit Practice compliant audit.

PSAA will also continue wider engagement with firms on local audit matters, including the challenges of tackling the significant backlog of audit opinions. PSAA’s position is unique within the local audit framework with many touch points across the different stakeholders. PSAA is able to reflect the views of suppliers at fora at which they are not directly represented, for example the Local Audit Liaison Committee.

PSAA carries out annual monitoring of each contracted firm addressing both financial health and significant threats to reputation which might be relevant to the firm’s contractual responsibilities to PSAA. The results of this work are reported to the Board by the Chief Executive. PSAA also publishes audit service quality monitoring reports on the website on the performance of the contracted firms and the quality of the audit services they deliver. Latest fee variation information is also included in these reports.

Other stakeholders

Given PSAA’s unique position within the local audit environment, the organisation has worked with key stakeholders and regulators to ensure the quality of local audit services and is represented on various important fora.

PSAA has good working relationships with key stakeholders including DLUHC, the Local Government Association (LGA), the NAO, CIPFA, the FRC, and ICAEW, as well as other organisations with an interest in the local audit system, including relevant sector groups and the media.

In preparation for its role as shadow system leader prior to the intended establishment of the Audit Reporting and Governance Authority (ARGA), when full system leadership will commence, the FRC appointed its first Director of Local Audit to lead its work in this area. The Director will lead a dedicated local audit unit and we have and will continue to work collaboratively with the FRC to share emerging issues, risks and contribute our views and ideas on local audit system reform.

Throughout the year PSAA has worked closely with DLUHC to both support their work (and that of other local audit players) to address the many challenges facing local audit and to share PSAA’s plans to develop the arrangements for the second appointing period. 

PSAA engages with sector-wide initiatives and contributes views, information, intelligence and data for Government commissioned reviews and the production of targeted and meaningful reports on local audit.

Other key suppliers of services to the company are: Bevan Brittain who provide legal advice, the LGA which provides our back-office support services and accommodation; and CIPFA which provides technical reports and publications including the sector Accounting Code. PSAA staff meet regularly with these suppliers to ensure positive relationships and early resolution of any concerns.

(d) The impact of the company’s operations on the community and the environment

The Board regards local audit as an important cornerstone of local accountability. PSAA’s most significant contribution to the community therefore lies in its responsibility to ensure that Code-compliant audits which meet quality standards are delivered at every opted-in body by competent suppliers.

The LGA provides PSAA with a range of support services, including provision of serviced accommodation, HR, ICT and payroll support. This service level agreement for back-office services was renewed for a three-year period commencing in April 2021 and the license for accommodation is reviewed and renewed annually. As well as securing operating efficiencies and economies of scale, this arrangement enables PSAA to subscribe to and participate in a range of LGA policies and initiatives. These include an office recycling scheme and use of energy efficient office equipment. Our aim is to reduce our environmental footprint by:

  • continually reducing waste and increasing PSAA’s recycling rate;
  • reducing paper use;
  • ensuring that procurement of goods and services adheres to the green purchasing and procurement policy; and
  • complying with all applicable legislation, regulation and other relevant requirements relating to environmental impacts.

Due to the measures put in place in response to the pandemic, remote working has had a reduced impact on the environment.

PSAA’s current audit services contracts for the financial years 2018/19 to 2023/24 require suppliers to identify the social value benefits which accrue from any contract award. This secured commitments to apprenticeships, training and other arrangements. On-going monitoring of the contract reviews performance against this commitment. Across the five contracted firms over 400 positions were committed to be provided across the life of the contract. Returns from suppliers show that over 320 positions have so far been created in positions for graduate trainees and school leavers, including year-long work placements. In addition, there have been a further 160 summer holiday work experience type placements.

The contracts awarded for the second appointing period include further social value commitments by firms to:

  • generate new jobs;
  • provide wider support work for the local audit sector;
  • reduce carbon footprint; and
  • support employees’ charitable contributions.    

PSAA staff complete mandatory e-learning training modules on dignity at work and equality in the workplace and awareness of modern slavery. The Board approves a statement on modern slavery annually which is published on the website.

(e) The desirability of PSAA maintaining a reputation for high standards of business conduct

High standards of corporate governance are a key factor in underpinning the integrity and efficiency of PSAA. The Board believes they are critical in helping PSAA to achieve its core objectives as set out in the Articles of Association. PSAA’s arrangements draw on a number of good practice sources including the principles set out in the Code of Conduct for Board Members of Public Bodies (issued by the Cabinet Office) and in the UK Corporate Governance Code, to the extent that the latter can be applied to a small company without shareholders. PSAA has in place a robust corporate governance framework which is reviewed annually to ensure that it remains fit for purpose and full details are published on our website.

PSAA is transparent in its operations in line with its role in managing and safeguarding public money in the form of fees charged to audited bodies and strives to be as open as possible about costs and procedures. PSAA aims to make information available in accordance with the Local Government Transparency Code. From April 2019 PSAA has been subject to the requirements of the Freedom of Information Act. PSAA’s publication scheme is available on the website and provides detailed information about the company and its functions.

As a not-for-profit organisation any surpluses generated are returned to scheme members at appropriate intervals determined by the Board. The most recent distribution, in September 2021, totalled £5.6m, paid to opted-in bodies in proportion to their scale audit fees.

Value for money is an important requirement for PSAA’s opted-in bodies. PSAA’s financial policies set out the high-level financial controls for securing value for money for the taxpayer and form part of the Corporate Governance Framework.

PSAA’s financial procedures describe the day-to-day arrangements and delegated responsibilities for implementing the financial policies. They are consistent with the relevant sections of the Companies Act 2006 and the principles of HM Treasury’s Managing Public Money. PSAA follows the Public Contracting Regulations 2015 for above-threshold procurements.

In Autumn 2022, the Board established a Procurement Committee to guide and oversee procurement activity and PSAA completed the re-procurement of several essential services including PSAA’s own internal and external audit services and legal advice. In addition, PSAA has renegotiated the agreement with the LGA for office accommodation and support services. This resulted in a cost saving due to a reduction in desk space.

PSAA has in place a rolling programme of compliance checks built into the business cycle supported by assurance from internal and external audit reviews, to ensure that internal processes and systems are up-to-date and effective.

The Board has continued to conduct an annual survey of the effectiveness of Board and Audit Committee arrangements to identify both good practice and any areas for improvement. The Audit Committee reviewed its terms of reference in the latter part of 2022.

Approved by the Board of Directors on 25 July 2023

Steve Freer