Audit Contract Monitoring Report 2023/24

Compliance with contractual requirements

40. We contract with firms to deliver audit services to audited bodies in accordance with:

• the Local Audit and Accountability Act 2014 (the Act), the 2015 Regulations and any other relevant Law or arrangement;
• the Code of Audit Practice (COAP);
• any Supplementary Guidance;
• the Contract;
• Good Industry Practice;
• any requirements contained in the Terms of Appointment or Supplementary Guidance including reporting requirements; and
• Performance Indicators.

41. We have regular engagement with our contracted firms on specific matters and hold formal quarterly monitoring meetings to discuss audit delivery progress.
42. We monitor firms’ compliance with contractual requirements across a range of measures including complaints, compliance with our Terms of Appointment (ToA) and their Method Statements, performance against key indicators and various other assurances as described in the following sections.
43. Where our audit contract monitoring arrangements find that a firm may not have met a contractual requirement, there are both informal and formal mechanisms through which we can seek rectification by the firm.

Compliance with Terms of Appointment

44. We issue the ToA under our audit services contracts with firms. They apply for all audit appointments that we make.
45. The ToA forms part of the systems that we are required to design and implement under the 2015 Regulations as a specified appointing person to:

• oversee issues of independence of any auditor which it has appointed, arising both at the time of the appointment and when undertaking work;
• monitor compliance by a local auditor against the contractual obligations in the audit contract; and
• resolve disputes or complaints from local auditors, opted-in bodies and local government electors relating to the audit contracts and the carrying out of audit work by auditors it has appointed.

46. The ToA clarifies the standards for performing the Services under the contracts and provide a single point of reference for recurring matters of practice and procedure that auditors must comply with, over and above those set out in legislation, the Code of Audit Practice, guidance to auditors provided by the NAO, and by professional regulators (FRC and ICAEW as Recognised Supervisory Bodies (RSBs)).
47. Details of the firms’ collective activity and performance under the different elements of the ToA are set out below.

Audit opinion delivery

48. Revisions to the Accounts and Audit Regulations and the Code of Audit Practice came into force on 30 September 2024 and 14 November 2024 respectively and gave legal effect to measures to deal with the backlog. These set a backstop date of 28 February 2025 for the delivery of all 2023/24 audit opinions with exemptions in a limited number of specified circumstances (e.g. if there is a material outstanding objection, or the auditor is unable to reach a conclusion on VFM arrangements). Once any conditions preventing an auditor from reporting no longer apply, the auditor should issue their audit report as soon as possible.
49. At the backstop date there were 180 unmodified audit opinions including six with additional disclosures, 224 opinions disclaimed or qualified due to the backstop, and a further seven non-backstop disclaimed or qualified opinions. There were 48 unsigned audits which included five that are exempt due to a material objection, legal matter or because of VFM arrangements work. Our press release set out the position at the February backstop date. In broad terms the position achieved by the firms by the backstop date aligned with their forecasted predictions.
50. Table 4 breaks down this data as of 28 February 2025, and an updated position as of 30 June. Out of the 33 audit opinions not yet delivered, 2 are exempt due to a material objection or legal matter and one is exempt due to VFM arrangements work.

Table 4: 2023/24 Opinion delivery (excludes pension fund audits)

	Opinion delivery as of 28 February 2025	Opinion delivery as of 30 June 2025
Not yet delivered	48	33
Unmodified	174	178
Unmodified with additional disclosures*	6	7
Disclaimed (backstop)	216	227
Qualified (backstop)*	8	8
Disclaimed (non-backstop)	2	2
Qualified (non-backstop)*	5	5
Total	459	460**

51. Our contracted audit firms reported issuing 417 Annual Auditor’s Reports for the 2023/24 audits, out of 427 signed audit opinions.
52. Table 5 provides a summary of weaknesses reported by auditors in their reviews of VFM arrangements. The number of weaknesses recorded has risen year on year, with the number for the 2023/24 audits being almost double the number in 2020/21.

Table 5: VFM commentary capturing significant weaknesses (excludes pension fund audits)

Significant weaknesses	2023/24	2022/23	2021/22	2020/21
Financial Sustainability	68	65	27	28
Governance	121	117	92	70
Economy, Efficiency and Effectiveness	79	61	47	34
Total	161	152	109	84

Specific Powers and Duties of Auditors

53. Auditors have specific powers and duties under the Act. These include considering whether:

• to issue a public interest report concerning any matter that comes to their attention during the course of the audit which they judge should be considered by the audited body or brought to public attention;
• an audited body should consider formally and respond in public to the audit   recommendations (Schedule 7 of the Act); and
• to apply to the court that an item of account is contrary to law.

54. Table 6 shows how auditors have used their specific powers for audits of accounts up to 2023/24. Recent years have seen an increase in auditors making statutory recommendations; these have mostly been in respect of financial sustainability and meeting statutory accounting requirements.

Table 6: PIRs and Statutory Recommendations issued by year at the time of writing

Specific Power	2023/24	2022/23	2021/22	2020/21	2019/20	2018/19
Recommendations under Sch 7 (2)	12	14	11	2	4	3
Public Interest Report under Sch 7(1)	2	1	1	–	3	–

Objections

55. Local electors have the right to raise formal objections with the auditor about the financial statements and other matters, a unique feature of local government audits.
56. The introduction of backstop dates has given increased focus for firms to conclude their objections and certify audits as closed. At the time of writing responses have been issued to 103 objections for the 2018/19 to 2023/24 audits, as shown in Table 7. Completed objections have resulted in two Stat Recs Written Recommendations under Sch 7(2) (reflected in Table 6), and in addition 28 Written Recommendations under s27(6).
57. We indemnify auditors for legal costs (capped at £75,000) they incur when carrying out their special legal functions that are otherwise irrecoverable. We provide auditors with feedback as part of these arrangements but we neither instruct them nor challenge their judgements, as we have no power to do so.

Table 7: Objections summary by year by its status at the time of writing

Audit year	Received by firm (1)	Not accepted (2)	Accepted (3)	Not considered (4)	With firm post imdemnity feedback (5)	Issued (6)
2023/24	2	4	19	0	4	9
2022/23	–	2	3	5	1	18
2021/22	–	–	4	4	1	14
2020/21	2	–	2	1	1	23
2019/20	1	–	1	24	–	16
2018/19	–	–	–	2	–	23

58. The Code of Audit Practice (paragraph 5.6) requires auditors to use best endeavours to complete their work on objections within six months including informing the objector and the body of their decision. It is recognised that not all cases can be resolved within six months, for example, where objections are related to complex or difficult legal cases, or where a resolution is delayed because an auditor is reliant on others for responses.
59. The Code of Audit Practice states “where the Appointed Auditor is not able to decide the objection within six Months, they should inform the objector and the Audited Body and provide a further update on progress every three Months until the objection is decided.” This is one of the performance indicators built into our contract monitoring arrangements.
60. At 30 June 2025 there were 10 unresolved objections for the 2023/24 audits beyond the six-month timeframe, including some unresolved for significantly longer periods.

Threats to independence and conflicts

61. We monitor how firms are operating their internal control systems for maintaining their independence, covering the four types of threats detailed below. Should an incident occur, we review the underlying cause and the mitigating actions taken to prevent recurrence.
62. The Code requires auditors to carry out their work in accordance with the ethical framework applicable to auditors, including the requirements set out in the FRC’s Ethical Standard and to comply with the NAO’s General Guidance to Auditors contained in AGN01. Each firm’s Ethics Partner should determine whether arrangements should be put in place locally to mitigate any actual or perceived threats to the independence of the auditor and/or firm.
63. We had six matters to consider in respect of the 2023/24 audits:

• On the conclusion of the 2023/24 audit, we revoked AZ’s appointment to Tamworth Borough Council for the audits from 2024/25 to 2027/28 as they identified that a staff member was elected to the Council in May 2024. AZ let us know as soon as they became aware and took the appropriate action. We then appointed BF as auditor from 2024/25 to 2027/28.
• An audit team member at GT became a school governor at a Council-audited school, but as we considered the firm had responded appropriately, no further action was necessary.
• GT were appointed as administrator for a company may have had a claim against Swindon Council, but no further action was necessary following a review of the firm’s mitigating actions.
• There were three instances where BF resigned from audits, including at Gloucester City Council, Bromsgrove District Council and Redditch Borough Council. All councils had unaudited accounts for 2020/21, 2021/22 and 2022/23. On the presumption that each audit opinion would be disclaimed (which it subsequently was by the 13 December 2024 backstop date) and having given the circumstances appropriate professional consideration, BF determined the risk profile of these engagements was such that they needed to resign. We subsequently appointed EY as auditors from 2023/24, who already had audits in their PSAA portfolio where multi-year disclaimed opinions were anticipated.

Rotation of Key Staff

64. To minimise the threat of familiarity arising from long association our general policy expectation is that:
    • a firm’s appointment to an audited body does not exceed a term of twenty years;
    • the KAP at an audited body should act for a term of no more than five years, then have no further direct relationship with or involvement until a further period of five years has elapsed; and
    • the Audit Manager at an audited body should act for a term of more than seven years, then have no further direct relationship with or involvement with that body until a further period of five years has elapsed.
65. There may be circumstances where it is necessary and/or beneficial for an appointment to continue for a longer term. This is limited to seven years for a KAP and 10 years for an audit manager. Subject to receiving sufficient assurance that an auditor’s integrity, objectivity or independence is not or could not be perceived to be compromised, we may approve a longer term.
66. Table 8 details the exceptional extensions that we approved for the 2023/24 audits.

Table 8: Exceptional extension requests

Firm	Role	Number approved
Azets	–	–
Bishop Fleming	–	–
Ernst & Young	Key Audit Partner	2
Forvis Mazars	Key Audit Partner	4
Grant Thornton	Key Audit Partner Audit Manager	6 2
KPMG	–	–

Gifts and hospitality

67. There are no matters to report in respect of the 2023/24 audits.

Non-audits services

68. Firms may provide certain non-audit services to audited bodies subject to the requirements of the FRC’s Ethical Standard and the NAO’s Auditor Guidance Note 1. Where the fee for such services exceeds the higher of £18,000 or 20% of the scale fee, then the firm must seek our confirmation that undertaking such work will not compromise their independence as auditor. The requirement for local auditors to provide a VFM arrangements commentary is relevant to our judgement.
69. The number of requests approved is shown in Table 9 below.

Table 9: Non-audit service requests

Year	Number of requests approved for non-audit services	Total fee value of requests approved £
2024/25	2	108,365
2023/24	1	68,365
2022/23	1	56,500
2021/22	3	185,500
2020/21	0	0
2019/20	5	203,550

70. We approved two requests for the 2024/25 audits between 1 April 2024 and 31 March 2025 and did not reject any requests during this period. We were satisfied the firms had appropriately assessed and mitigated the threats to independence.
71. The first was for West Midlands Combined Authority (WMCA) for GT to undertake non-audit services work at WMCA relating to the provision of background information on developing a regional rail service. The value of the work was £40,000, which equates to 23% of the 2024/25 scale fee.
72. The second was for Hampshire County Council’s 2024/25 audit and related to EY providing assurance about the financial services provided by the County to other organisations. This was a Type 2 assurance engagement under ISAE 3402. The value of the work was £68,365, which equates to 21% of the 2024/25 scale fee.

Data Confidentiality

73. Firms must keep confidential information secure and treat it with appropriate care based on its format and sensitivity. It must not be shared without written permission, nor used for any purpose other than fulfilling their contractual duties. On suspecting or becoming aware of any unauthorised access, use, or disclosure, a firm must inform us and take mitigating steps immediately.
74. Three data incidents have occurred:

• The accidental sharing of elements of one Council’s data with another Council. We concluded that upon discovering the incident the firm took appropriate action.
• A staff member of a third party copied audit client data to an encrypted external hard drive before a laptop upgrade against the firm’s IT policy. Their investigation showed the individual was unaware of the restriction, rather than knowingly acting inappropriately. The third party deleted the report from the customer’s Huddle workspace, received confirmation from the customer that no copies were downloaded and verified this in the Huddle activity log reports. The firm has taken appropriate action to reduce the possibility of a recurrence. 
• An inadvertent data breach when personally identifiable data was shared with us as part of processing an objection. The firm has ensured that all engagement leads have been reminded that no personally identifiable data should be shared when submitting an objection.

Intellectual Property Rights

75. We did not receive any requests in respect of the 2023/24 audits.

Publicity, Media or Official Enquiry

76. A firm must not make any public announcements or share information publicly about its contract without prior written approval, except where legally required or when disclosing its role as Appointed Auditor to the relevant audited bodies.
77. Between 1 April 2023 and the backstop date of 28 February 2025 we received one request to use our logo in a firm’s company report, which we agreed to. Throughout this period there continued to be significant media coverage about local audit, including the backlog, audit fees, local government reorganisation, MHCLG’s reform strategy and plans and updates on the firms and opted-in bodies.

Compliance with Method Statements

78. Our procurement of audit services from 2023/24 to 2027/28 required firms to provide method statements covering five areas. Audit is a highly regulated profession, so the firms’ Method Statements are framed to meet the expectations of the auditing standards for planning, conducting and reporting on an audit.
79. Throughout a five-year contract period it is highly likely that aspects of how a firm delivers its services will evolve. We require firms annually to review and confirm that their method statements accurately describe how they are delivering audit services. All firms confirmed their 2023/24 audit delivery aligned with their Method Statements (latest version).
80. The contractual Review Procedure provides the mechanism through which we manage changes to firms’ Method Statements.
81. In Table 10 we report by Method Statement question and provide only a brief description of the change to protect potentially commercially sensitive information. Where possible, we triangulate with information from other sources such as the professional regulatory reviews (as covered in the section on Adherence to Professional Standards and guidance) and client feedback.
82. For the 2023/24 audits, we have completed 12 Review Procedures as set out below.

Table 10: Use of Review Procedures for each Method Statement (MS) theme

MS Question theme	Number of Requests	Brief description of the changes made
2.1: Approach including transition between audit firms	2	Change of audit software and Public Sector Challenge Process
2.2: Approach including transition between audit firms	0	N/A
3.1: Audit delivery – quality assurance and capability	0	N/A
3.2: Audit delivery – quality assurance and capability	1	Change of audit software
3.3: Audit delivery – quality assurance and capability	4	Change to key contacts within local government team
4.1: Audit delivery – resourcing and capacity	1	Public Sector Challenge Process
4.2: Audit delivery – resourcing and capacity	1	Change to key contacts within local government team
5.1: Communications	0	N/A
5.2: Communications	1	Change of protocol for key interactions
6.1: Social value	2	Removal of an element for practical reasons and rollover delivery shortfall to the following year

Audit delivery resourcing and capacity

83. Each firm must have sufficient capacity to enable audit work to be planned and performed appropriately and in a timely manner. A suitable level of resourcing must be in place to provide service delivery consistent with the natural peaks of work that occur, and to ensure that the auditor can fulfil its responsibilities in relation to additional powers in line with the Act and guidance from the setter of the Code of Audit Practice.
84. Firms set out their audit resourcing levels in their response to the procurement. Each year we discuss their resourcing to assess sufficiency and any variations. We acknowledge that the impact of delayed audits and the introduction of backstop dates and building back assurance means that predicting and profiling the resourcing requirements is challenging.
85. The role of the KAP is crucial and it is important they have a manageable portfolio. Working with the firms and using the publicly available ICAEW Local Auditor Register, we monitor the number of KAPs and how many audits are within their portfolio.
86. Since the procurement in 2022, all firms have made changes to their KAPs. Table 11 shows the change in the number of KAPs allocated to the PSAA contracts across all firms from November 2022 to the position at the statutory deadline for the 2023/24 audits.

Table 11: Number of KAPs across all firms – November 2022 and 28 February 2025

Firm	Number of KAPs at November 2022	Number of KAPs at 28 February 2025
Azets	5	5
Bishop Fleming	2	3
Ernst & Young	12	15
Forvis Mazars	12	10
Grant Thornton	28	30
KPMG	15	18
Total	74	81

Sources: PSAA KAP schedule in the contract at November 2022 and number of KAPs allocated to the PSAA contract at 28 February 2025   

Social Value

87. Under the Public Services (Social Value) Act 2012, we are required to seek to improve economic, social and environmental well-being through the delivery of audit services under our contracts.
88. Our procurement required each firm to quantify the additional social value that it would deliver wholly because of the PSAA contract. Our aim is to encourage firms to address important social value aspects within the local audit environment, particularly by promoting careers in the local audit industry. 
89. Information provided by our six contracted firms shows that for the 2023/24 audit contract period over 315 positions were created for professional staff, graduate trainees, apprentices, interns and school leavers, with trainees and graduates being the largest group.
90. Collectively the firms delivered over 800 days of volunteering, including school outreach activities and giving time to local charities. They raised the equivalent of over £70,000, with more than £50,000 donated directly to charity.
91. Firms provided local audit sector support by hosting national and regional events, supporting finance director networks, offering sponsorship, and engaging with a wide range of regulatory and other stakeholder groups. During this reporting period, GT published three national reports¹ that focused on local audit and local government.

Rectification Plan Procedure

92. Our contract includes a rectification plan procedure that we or a firm can invoke when a Notifiable Default occurs. Examples of Notifiable Defaults include if a delay occurs or is likely, if the firm fails to meet key performance measures, commits a default that negatively affects service delivery, or does not follow agreed procedures in a way that could impact service delivery. The rectification plan process aims to resolve the issue.
93. We issued seven Notifiable Default Notices during this reporting period, two of which progressed to a rectification plan. Two Notices related to data quality issues in financial billing returns, two were concerned with not submitting draft statutory reports to us for review before issuing the final version, one was about multiple discrepancies with a WIP return, and the remaining two related to exceeding the KAP rotation limit and the sharing of personal data of an elector that should have been redacted.
94. The two that progressed to a rectification plan related to data quality issues in financial billing returns and not submitting draft statutory reports to us for review before issuing a final version.

1. Value for money audits: lessons for local authorities | Grant Thornton;
   Local government reorganisation: Lessons from new unitaries | Grant Thornton: and
   Renewing and Reforming Local Financial Governance Towards Long-Term Resilience and Sustainability | Grant Thornton ↩︎

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