PSAA Corporate Governance Framework – December 2021

Appendix 3 – Summary of the statutory framework for the Company

Administrative law

  1. As a private limited company, PSAA Limited is subject to provisions of the Companies Act 2006. The Company must act reasonably (in the sense that it should not act in a manner in which no reasonable body such as PSAA would act) and should base its decisions on relevant considerations, disregarding irrelevant factors. The Company, and the Board, should be objective and impartial and bear in mind that the Company is an independent body with delegated statutory responsibilities under the Local Audit and Accountability Act 2014, and not part of government.

Statutory functions

  1. PSAA is constituted under the Companies Act 2006 and is subject to the principle that it can only do the things which are contained in its Articles and Memorandum of Association. It must be possible, in relation to any act or decision of the Company, to identify the legal authority on which the Company is relying.

The Local Audit and Accountability Act 2014

  1. The Local Audit and Accountability Act 2014, and for audits of the accounts of relevant authorities up to 2017/18 any provisions saved from the Audit Commission Act 1998 delegated to the Company on a transitional basis, are the principal sources of legislation relating to the Company’s functions.
  2. The Company was created by the Local Government Association (LGA) on 15 August 2014. The delegated functions for which it is responsible were conferred by the Secretary of State following a Commencement Order initially dated 23 March 2015 and updated on 27 June 2016. Letters of delegation from the Secretary of State set out the details of the transitional delegations.
  3. The Company was specified as an appointing person for principal local government bodies on 18 July 2016, under the provisions of the Local Audit and Accountability Act 2014 and supporting Regulations, for audits from 1 April 2018.
  4. The functions of the company are rooted in the Local Government Finance Act 1982, as amended by the Audit Commission Act 1998 and subsequently by the Local Government Act 1999, the Local Government Act 2003, the Health and Social Care Act 2003, the Public Audit (Wales) Act 2004, the Children Act 2004, the Fire and Rescue Services Act 2004, the Local Government and Public Involvement in Health Act 2007, the Serious Crime Act 2007, the Housing and Regeneration Act 2008, the Local Democracy, Economic Development and Construction Act 2009, the Localism Act 2011 and the Local Audit and Accountability Act 2014.

Appointment of auditors

  1. PSAA was created by the LGA to be independent of local public bodies, central government and the LGA. A letter of delegation from the Secretary of State sets out, on a transitional basis, the delegated responsibility under saved provisions from the Audit Commission Act 1998, to appoint auditors to audit the accounts of specified bodies.
  2. For audits from 2018/19 PSAA has been specified to appoint auditors under provisions of the Local Audit and Accountability Act 2014 and the Local Audit (Appointing Person) Regulations 2015 to principal local government and police bodies which elect to opt into PSAA’s national scheme.

Code of Audit Practice

  1. The Local Audit and Accountability Act 2014 (LAAA 2014) requires the Comptroller and Auditor General to prepare a code of audit practice which prescribes the way local auditors are to carry out their functions.
  2. It embodies what the Comptroller and Auditor General considers to be the best professional practice with respect to the standards, procedures and techniques to be adopted by local auditor. Auditors of bodies covered by the Act are required to comply with the Code. Guidance Notes on the application of the Code which auditors must have regard to are issued by the National Audit Office.

The statutory audit

  1. Auditors appointed by PSAA have a range of functions not normally associated with the conventional audit of accounts. They have to satisfy themselves that the audited body ‘has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources’; they have a power to issue a public report, and in some circumstances they can intervene or take a local authority to court to challenge an authority’s decision or failure to act where they reasonably believe this would affect the accounts of that authority.
  2. The organisations for which the Company has responsibility for appointing the auditors pre-date the Company’s creation and are the subject of considerable case law. The audit of accounts for some audited bodies to which the Company appoints the auditors is further regulated from 1 April 2015 by the Accounts and Audit (England) Regulations 2015 (SI 2015 No.234).

The Company is not the auditor

  1. The Company appoints the auditor. The Company does not itself have the functions of the appointed auditor. In practice this means that the Company cannot direct an auditor as to the decision he or she should reach and cannot substitute its own judgement for that of the auditor. With the power to appoint auditors comes, by implication, the power to consider whether to re-appoint or to remove an auditor.

Statutory scales of fees

  1. The Company has a duty to prescribe a scale or scales of fees for the audit of the accounts of relevant authorities. The Company must consult before prescribing a fee scale.

Restriction on Disclosing Information

  1. Under Section 36 and schedule 11 of the 2014 Act, information relating to a particular body or person and obtained by the Company or an auditor in the course of carrying out their functions may only be disclosed in specified circumstances.
  2. Unless covered by paragraphs 17 or 18 below, disclosure in any other circumstance is a criminal offence.

Governance and proceedings

  1. A Memorandum of Understanding between the Ministry for Housing, Communities and Local Government, the LGA, the IDeA and the Company details the provisions relating to the Company’s governance. In particular:
  • the Secretary of State has no power to direct the Company as to the discharge of its functions;
  • the Company has discretion to appoint such officers and servants as it considers necessary for the discharge of its functions. They may be appointed at such remuneration and on such other terms and conditions as the Company may determine; and
  • it is the duty of the Company to manage its affairs so that its income from fees and otherwise will, taking one year with another, be not less than its expenditure properly chargeable to its income and expenditure account.

GDPR and the Data Protection Act 2018

  1. The Company and its appointed auditors are ‘data controllers’ under data protection legislation. This provides a framework to ensure that personal information is handled properly and gives individuals the right to know what information is held about them. As data controllers, the Company and its appointed auditors must ensure that they process personal information in accordance with individuals’ rights under the legislation and respond to requests for personal information within the statutory time limits.

Freedom of Information Act 2000

  1. The Company is subject to the Freedom of Information Act 2000 as amended (FOIA), following changes to the legal status of the LGA from 1st April 2019 as an unlimited company under the Companies Act 2006, resulting in the IDeA becoming subject to FoIA. The Company is required to comply with requests for information unless a defined exemption applies. However, the Company’s appointed auditors exercise separate statutory powers to the Company and are not subject to FOIA.

Environmental Information Regulations 2004

  1. The Company is required to comply with requests for environmental information unless a defined exception applies.
  2. The definition of ‘environmental information’ is wide and covers elements of the environment, such as land, water, biological organisms, but also measures and any activities that may affect these, including economic analysis of such measures and activities.
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