Response to consultations on proposals for arrangements from April 2023

Consultation findings - key themes from topics asked of all stakeholder groups

Many consultation responses provided detailed additional comments for each question and on the consultation in more general terms. While there is clearly overall support for the majority of PSAA’s proposals, the comments suggest that some respondents have different views and concerns in a few aspects of the detail.

Prioritisation to award new longer-term contracts, holding in reserve the option to extend one or more of the existing audit services contracts for up to two years if required

There was overwhelming support (83%) for this proposal as respondents at eligible bodies recognised the importance of having contingency arrangements. Some respondents (14%) answered “Maybe”, caveating their responses with the need for improved performance management of suppliers – which is a recurring theme across some responses. Less than 2% of respondents stated that the current contracts should not be extended in any circumstances.

Market respondents expressed strong support for our preference to enter into new long-term contracts, but were less persuaded (40%) on our thinking about the circumstances in and basis on which we might invoke the option to extend one or more of the current contracts.

PSAA response: Our intention remains to continue to prioritise new longer-term contracts.

Five-year duration of scheme membership

Again, the vast majority (88%) of respondents at eligible bodies supported our proposal, with a few supporting comments which mainly related to the need for improved performance management of suppliers.

A few respondents suggested there should be an exit clause to enable them to leave the scheme. This is not statutorily possible as the appointing person regulations state that an opted-in body cannot exit the scheme until the end of the appointing period for which it has opted in.

PSAA response: No change: adopt a five-year appointing period spanning the audits of 2023/24 to 2027/28.

Contract duration of five years with the option to extend for up to two years subject to PSAA and the supplier’s agreement

Again, the vast majority (83%) of respondents at eligible bodies supported our proposal with very few providing supporting commentary. Comments focused on the need for ensuring appropriate contingency arrangements, auditor independence and flexibility to accommodate the possibility of bodies merging during the contract term.

A range of alternative options for the contract duration were suggested by some respondents (14%).

The vast majority of market (90%) respondents were supportive of our proposal, with individual respondents indicating they would also support a longer contract term or some form of staggered approach. Conversely, one respondent felt that the term should be shorter given potential changes to the market.

PSAA response: No change: adopt a contract duration of five years with an option to extend for up to a further two years by mutual agreement. We will seek to use the DPS to support market sustainability and address bodies’ concerns regarding independence and the need to accommodate merging bodies during the second appointing period.

Evaluation of tender submissions on the basis of 80% quality and 20% price

Just over half (57%) of respondents at eligible bodies supported our proposal, many commenting on the need for a proportion of the quality score to be focused on delivering the audit on time. Several respondents made the point that public funds are limited, and it is essential that value for money is achieved in agreeing fees. Some respondents (6%) were keen to understand how we will evaluate quality.

Just over one third (36%) of respondents did not support such a ratio commenting that an 80% quality weighting was too high. Within this group, some suggested we consider alternative quality/price ratios of 70:30, 60:40 or 50:50.

There was universal support (100%) from market respondents for our proposal to have an increased weighting on quality in the tender evaluation than in the 2017 audit services procurement. Half of this group commented on the need for careful consideration of the ways in which quality will be evaluated and to ensure that price does not become the distinguishing factor, despite its decreased weighting.

PSAA response: No change: evaluate tender submissions on the basis an 80% weighting for the quality aspects of tender responses, including social value, and 20% weighting for price. PSAA will seek the views of the FRC to inform the development of our approach to the evaluation of quality. In due course we will also consider how we can best share details of our approach with eligible bodies.

Encouraging market sustainability

Over half of respondents (56%) at eligible bodies supported our proposal, with a further 37% answering “Maybe”.  Three quarters of these respondents commented that encouraging market sustainability should not result in either increased costs (or effort) or a reduced quality of service for local bodies.

Overall market respondents (70%) agreed in principle with our proposal whilst also raising questions about how such arrangements would work in practice.

PSAA response: No change, implement arrangements with a strong focus on market sustainability. PSAA will seek the support of the ICAEW to facilitate the exploratory discussions between interested experienced suppliers and potential new entrants.

Approach to social value in the audit services procurement

The vast majority (81%) of respondents at eligible bodies supported our proposed approach to focus solely on audit apprenticeships which demonstrate a commitment to local audit and are awarded to residents of deprived areas, with around a quarter commenting that it was the most obvious choice for a contract of this nature, especially given the shortage of skills facing the local audit profession.

Other respondents (13%) commented that we should also consider other relevant social value factors in our social value considerations such as equality, diversity and inclusion, sustainability and environmental concerns, and the provision of training for local councillors.

There were also a few comments about how the scheme would work, whether each audit firm should demonstrate how they will deliver proportionate and relevant social value to those bodies they audit and that our proposal value of 5% weighting is less than applied in their own organisations.

Some caution was urged by the market (30%) who commented that criteria should support the delivery of a high-quality audit and that commitments on local social impact/apprenticeships may conflict with changing service provision modes and recruitment necessities.

PSAA response: PSAA will review its proposal including seeking the views of MHCLG and the LGA.

Consideration of setting a minimum audit fee in the next appointing period

A significant majority (69%) of respondents at eligible bodies supported the proposal for a minimum fee. Around one third of these provided comments, which were broad ranging including citing the potential financial impact on smaller authorities, better quality of service and timeliness would be a pre-requisite for a minimum fee, or that the level of additional fees would need to reduce.

One quarter of respondents did not agree that a minimum fee is appropriate, citing reasons such as the market, rather than PSAA, should determine the minimum fee, and that a minimum fee will not in their view secure the best quality at the lowest price.

Some respondents were keen to understand in more detail the potential impact on their organisations of the proposal.

PSAA response: The PSAA Board at its September meeting will consider the potential to introduce a minimum fee based on the outcome of the independent research undertaken. If a minimum fee is to be introduced, the reasoning and arrangements will be explained in the prospectus.

Prioritisation of the timeliness of audit opinions in the next appointing period

Almost all (96%) of respondents at eligible bodies agreed that PSAA and others should prioritise timeliness, with the remainder stating that quality should be the priority.

Most respondents consider that audit resources are the primary cause of delays, although other factors were acknowledged such as the scope of the audit, the timetable and need for audited bodies to deliver on their responsibilities.

More than half (60%) of market respondents called for the audit deadlines to be realistic for the complexity of accounts and modern audit requirements, with two referring to the challenge of the sector being juxtaposed with NHS audits.

Some market respondents (40%) referenced insufficient audit capacity and issues at the audited bodies as being underlying causes of the delays. For example, the limited capacity of finance teams, the limited ability to use the latest audit techniques due to bodies’ working practices, and the quality of the accounts and working papers submitted for audit.

There was also a reflection that the Redmond reforms will impact on the medium to long term position, but that the short term may get worse before it starts to improve. There is a concern that new entrants to the market might simply recruit the staff of existing suppliers making no impact upon the overall pool of people with the credibility to deliver the sector’s audits.

PSAA response: We will take the feedback on capacity into account when designing the quality evaluation questions and seek the support and advice of the FRC. We recognise that acting alone PSAA can have limited impact on these issues. We will therefore continue to collaborate with partners and to urge a system-wide response aimed at delivering improvements.

Specific benefits of the national scheme

The benefit most frequently cited by respondents of eligible bodies (64%) is that the national scheme is simpler and likely to deliver lower fees than achievable through a local procurement with less administrative cost and less effort.

Other benefits frequently mentioned by respondents were:

  • consistency and standardisation (27%);
  • ability to hold auditors to account, scrutiny of scale fee variations (15%);
  • risk mitigation by having a central body to negotiate on problems or changes to the audit processes on behalf of individual bodies (14%); and
  • not having to appoint our own independent Auditor Appointment panel (11%).

When asked whether there are other benefits that PSAA should strive to develop, the most mentioned were:

  • provision of more management information around quality metrics and more robust contract management;
  • greater consistency, particular in relation to fees; and
  • more ongoing engagement with bodies (as was undertaken as part of this consultation).

PSAA response: We will develop a series of short, single topic focussed webinars during the Autumn/Winter period aimed at S151 Officers and Audit Committee Chairs with the aim of furthering understanding of PSAA’s role and remit, specific areas of its work highlighted by consultation feedback and the wider local audit framework.

Key issues which will influence your decision about scheme membership

The key issues that were mentioned by multiple eligible bodies were:

  • improvements to the existing issues related to quality of service, delays in audits and auditors staffing issues, more assurance of contract management, and timely resolution of issues (46%); and
  • ensuring value for money (31%).

PSAA response: We will take the feedback into account when developing the detailed terms of the new audit services contracts. Importantly we will continue to communicate that PSAA is unable to address these issues on its own, highlight the challenges to other stakeholders in the local audit system and play an active role in a system-wide response aimed at delivering improvements.

Do you anticipate that your organisation is likely to opt into our scheme?

Over half of eligible bodies (57%) answered “Yes”, with a further third of respondents (34%) answering “Maybe”. Only one respondent from an eligible body answered “No”, other “No” respondents represented stakeholder organisations for whom the question was not relevant.

The most frequently cited supporting comments related to:

  • the fact that the decision to accept the opt-in invitation requires members’ approval;
  • seeing evidence of the current issues being addressed and/or PSAA responding to the consultation feedback; and
  • the outcome of consideration of the option to make local arrangements.
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