- PSAA is an independent company limited by guarantee, incorporated by the Local Government Association. The company was established in August 2014 to fulfil a short-term and time-limited role as a transitional body following the closure of the Audit Commission in March 2015. From April 2015 the company undertook functions delegated by the Secretary of State, including making and managing auditor appointments and setting fees for local public bodies in England, under contracts originally let by the Audit Commission.
- In July 2016 the Secretary of State appointed PSAA to the role of appointing person for principal local government bodies. The requirements of the appointing person are set out in the Local Audit (Appointing Person) Regulations 2015, issued under provisions of the Local Audit and Accountability Act 2014 (the 2014 Act). The legislation requires the appointing person to discharge its responsibilities for consecutive appointing periods of up to five years. The first appointing period began in April 2018 and covers the audits of the financial years 2018/19 to 2022/23. The appointing person role became fully operational from 1 April 2018.
- PSAA let five-year audit services contracts to five audit firms in 2017 to enable it to make auditor appointments for the 484 opted-in bodies for the 2018/19 to 2022/23 appointing period, with the option to extend for up to two years. There was a further contract let to a consortium of two firms with no guarantee of appointments – however, that contract is redundant following firm mergers.
- Implementation of the local audit legislation has occurred in parallel with a period of government and public concern about the role of the auditor. Several national reviews are relevant, including those published in 2018 by Sir John Kingman, and the Competition and Markets Authority, and Sir Donald Brydon in 2019, as is the latest NAO report on governance in the sector, published in January 2019.
- In 2019 Government also announced an independent review to examine the effectiveness of the local authority financial reporting and audit regime. It is led by Sir Tony Redmond and is expected to report in September 2020.
- Local audit is a small market in which there are fewer than ten active suppliers, and six currently carrying out local government audits (five of which have a contract with PSAA).
- Information on PSAA and its Appointing Person scheme is available on the company’s website: www.psaa.co.uk.
- In Autumn 2019, PSAA commenced its preparations for the next appointing period, ahead of detailed work on the next opt-in exercise which is scheduled to start in the 2021/22 financial year.
- PSAA commissioned an independent review of the sustainability of the local government audit market undertaken by an independent consultancy, Touchstone Renard (TR). It draws on the views of audit firms active in the local authority market as well as others that are not. It identified several distinctive challenges in the current local audit market. The full report is available at PSAA – Future Procurement and Market Supply Options Review.
Market Engagement Overview
- In recognition of the current challenges including those highlighted in the TR report, and to support longer-term sustainability within the local audit market, PSAA is considering whether it might be able to encourage additional, good quality capacity into the market through a further procurement exercise. The aim is, if possible, to seek to relieve some of the existing pressure within the local audit market.
- PSAA sought the views of all registered audit firms to inform its consideration of the potential value that might be derived by undertaking a further procurement and the potential characteristics of a strategy for a procurement, should it proceed, to complement the existing 2017 audit services contracts. There is no commitment to undertake a further procurement in the current Appointing Period.
- PSAA were very pleased that all nine firms registered as local auditors submitted a response and engaged with this exercise.
- Follow-up discussions were offered to all respondents and held with the majority of firms. These were very helpful and enabled clarification of several points.
- All responses received remain confidential. This summary report of key messages will be shared with keys stakeholders including the Redmond Review team, MHCLG and the LGA, and published on the PSAA website.
- PSAA issued the questionnaire on 1 June 2020 and it was open for 30 days. It was structured with an introduction, background information, purpose and five question sections covering:
- Coverage of service provision;
- Procurement Approach – methodology;
- Procurement Approach – basis for pricing;
- Tender Evaluation; and
- Other Comments.
- Firms were able to choose whether to respond to each individual question. The majority of firms responded fully to all relevant questions.
- The remainder of this report summarises the key messages contained in the responses by section and outlines the next steps that PSAA intends to take.