July 2026
Summary
This consultation invites comments on our proposal for a one-off standardised fee variation relating to audit firms’ project costs arising from the local audit backlog solution, with the costs counting towards MHCLG’s funding route for that solution.
The Local Audit (Appointing Person) Regulations 2015 provide the statutory framework for setting and varying fees for bodies. This consultation is being undertaken under Regulation 17(2A) which allows us to charge a larger or smaller fee to all or a group of bodies where audit work was, or is likely to be, substantially more or less than envisaged by the relevant scale fee. Regulation 17(2B) requires us to consult the bodies affected and the relevant local auditors before charging the fee.
This consultation forms part of the wider local audit reset and recovery arrangements following the statutory backstop dates introduced to address the audit backlog. These arrangements were set out in the statement on the local audit backlog published by the MHCLG in July 2024 and confirmed in the Accounts and Audit (Amendment) Regulations 2024.
The proposed fee variation relates only to firms’ project costs for the work required to deliver the backlog solution and to prepare building-back of assurance. It does not cover work on individual audit opinions or build-back audit work which will be considered through normal fee variation arrangements.
MHCLG has provided the following statement on firms’ project costs, which is reflected in their letter to relevant Section 151 Officers issued on 26 June 2026 on rebuilding assurance, audit fees and the build-back grant:
‘MHCLG has also been working closely with PSAA on firms’ project costs as part of their build-back work. These costs are part of the wider work needed to support an effective building-back of assurance, and it is reasonable for auditors to be reimbursed for necessary project costs that are not directly attributable to individual audits. This position is underpinned by clear legal advice.
The only mechanism to reimburse the audit firms for these costs is to charge them to relevant bodies through PSAA’s fee variation process, and PSAA will consult shortly on the details of how this will work and which bodies will be affected. All fee variations are scrutinised and approved by PSAA before they are billed to local bodies. These project costs will be included in the review of the grant allocation formula in the autumn. This will ensure that eligible project costs charged to bodies are funded in build-back grant payments and that the funding model overall remains fair and appropriate.’
The total project costs to be charged under this proposal is £4.5m based on information submitted by firms and reviewed by us. We propose to charge bodies that received a disclaimed and/or qualified opinion due to the backstop dates a one-off fee variation of 7% of the 2024/25 scale fee. This approach retains proportionality by linking the charge to the size and complexity reflected in each body’s scale fee rather than applying a fixed amount to all bodies and levies the fee only on those bodies that are receiving relevant MHCLG funds.
MHCLG’s on-going funding route is to reimburse bodies for eligible amounts invoiced by firms that relate to the backlog solution. MHCLG published a technical note on 10 July 2025 confirming arrangements for distributing funding to support clearing the backlog and rebuilding assurance.
The consultation period is shorter than our annual scale fee consultation because this is a targeted, one-off fee variation for a defined group of bodies, backed by MHCLG’s funding route for eligible costs.
This proposal does not amend the 2024/25 scale fee but is a one-off standardised fee variation.
Subject to the outcome of the consultation, we will work with MHCLG and firms on the timing of invoicing and reimbursement.
Our Board will consider consultation responses carefully and publish the outcome by 17 August 2026.