Summary
We consulted on a one-off fee variation to recover audit firms’ project costs arising from the local audit backlog solution. MHCLG has confirmed that build-back grant payments will fund eligible costs charged through our fee variation process. The final fee variation applies to bodies that received a backstop-related disclaimed or qualified opinion. It equals 7% of each audit’s 2024/25 scale fee and totals £4.5m.
The consultation ran from 6 to 20 July 2026. We invited 282 bodies, six audit firms and 26 national stakeholders to respond. We received 71 responses: 68 from bodies, two from audit firms and one from a national stakeholder. The response rate was 23%.
Most respondents supported the proposal. Fifty-seven respondents, or 80%, agreed or agreed with reservations. Fifty-four respondents, or 76%, supported using 7% of the 2024/25 scale fee rather than a flat fee.
Respondents asked for greater assurance on funding, fairness, our review of the costs and safeguards against double recovery. The Board considered these reservations in reaching its decision and agreed that we should address them through clearer supporting information. The frequently asked questions published alongside this outcome explain our cost review, MHCLG’s funding arrangements, the allocation method and the controls we will apply to reduce the risk of double recovery.
Funding certainty was a common theme in responses. We therefore asked MHCLG to clarify how the project costs would be treated through its build-back grant arrangements. MHCLG restated its position:
“MHCLG has restated its position that it will incorporate the project change costs into its review of the grant allocation formula this autumn so that the project change costs charged to bodies are reflected in future build-back grant payments.”
We will now issue or revise 2024/25 fee variation statements. Firms will then invoice bodies for the amounts determined by us.
We thank everyone who responded. We have used the feedback to shape the final approach and the frequently asked questions published with this outcome.
Context and Funding
The backlog solution required firms to develop methods for an unprecedented volume of disclaimed opinions and to prepare for the build-back of assurance. Firms did not know, and could not reasonably have foreseen, the nature, scale or complexity of this work when they bid for the current contracts in 2022.
The fee variation covers central project activity, including methods, guidance and training. It does not cover work on individual audit opinions or body-specific build-back work. We will assess that work separately through the normal fee variation process.
MHCLG confirmed its position in a letter to affected Section 151 Officers on 26 June 2026. The letter covered rebuilding assurance, audit fees and the build-back grant. MHCLG confirmed that the fee variation process is the only route for reimbursing firms and that the autumn review of the grant formula will include eligible project costs.
We reviewed firms’ submissions before the consultation and found the £4.5m total reasonable. We will keep these central project costs separate from future claims for body-specific audit work.