Terms of appointment and further guidance 1 July 2021

4. Exercise of specific powers and duties of local government auditors

4.1  This section covers additional requirements relating to how auditors fulfil their functions relating to electors’ questions and objections and the other specific powers and duties of local government auditors. This includes:

  • objections at audit;
  • cost of objections at audit work;
  • communications with objectors;
  • public interest reports;
  • advisory notices; and
  • judicial review.

4.2  The NAO has issued guidance to auditors on exercising statutory functions in AGN04 (Feb 2018) ‘Auditors’ additional powers and duties’ and AGN07 (Dec 2017) ‘Auditor Reporting’. AGNs set out guidance from the Comptroller and Auditor General to which local auditors must have regard under s20(6) of the Act.

4.3  An aide memoire on the process is included as Appendix 6.

4.4  Regulation 17(3) of the Regulations provides that the costs of the local auditors are recoverable from an authority as part of the fee for the audit where statutory powers are being exercised.

Objections at audit

4.5  Firms should provide PSAA with updates on the progress of dealing with eligible objections on a quarterly basis. The notification, updates and the outcome should be emailed to PSAA via [email protected].

4.6  Chapter 5 of the 2020/21 Code of Audit Practice specifies that when considering objections, the auditor should do so in a timely manner, keeping the objector and the authority updated as to their progress. It states that the auditor should use best endeavours to determine whether the objection is eligible within one week of receipt, and to determine whether to consider that objection within a further month.

4.7  Chapter 5 of the 2020/21 Code of Audit Practice also specifies that the auditor should use best endeavours to conclude on an objection within six months of his or her decision. Where the auditor is not able to decide the objection within six months he or she should inform the objector and the authority, and provide a further update on progress every three months until the objection is decided.

4.8  For the avoidance of doubt there is a distinction between objections received but not accepted (e.g. because they were made outside of inspection period) where auditors are not required to inform PSAA, and objections accepted but not considered under s27(4) where auditors are required to inform PSAA. This is because electors may have a right of appeal against a decision not to consider an objection under s27(4). Step 2 of AGN04 provides guidance to auditors on the process of determining whether to consider an eligible objection and the risks that derive from significant delays occurring between the receipt of an eligible objection and the auditor’s decision as to whether it is accepted for consideration.

4.9  All firms are required to have systems and processes in place to provide support to their staff in dealing with objections.

4.10  PSAA does not provide advice to firms on the exercise of the statutory powers and duties of local auditors and it is for each firm to take its own legal advice as necessary. PSAA does provide comments on draft Statements of Reasons in so far as they might impact on the application of the general indemnity that it provides to audit firms (Paragraph 5.20).

4.11  PSAA may share summarised information on auditors’ use of statutory powers and duties with the NAO and as otherwise may be required.

Cost of objections at audit work

4.12  Fees for the auditor’s work on objections (determining eligibility, deciding whether or not to consider and drawing a conclusion) will be considered via the fee variation process is set out in paragraphs 5.8 and 5.9. Auditors should discuss proposed fees with audited bodies as soon as practicable.

Communications with objectors

4.13  Where an auditor determines not to consider an eligible objection under s27(4) of the Local Audit and Accountability Act 2014 (2014 Act), then the auditor should provide written reasons for the decision to the objector (AGN 04 paragraph 37), including where requested to do so by the objector in accordance with s28(3) of the 2014 Act.

4.14  Where an auditor has considered an objection under s27(1) of the 2014 Act and has determined not to apply for a declaration that an item of account is unlawful under s28 of the 2014 Act, then the auditor should provide written reasons for the decision to the objector (AGN 04 paragraph 52).

4.15  Where an Auditor has considered an objection under s27(1) of the 2014 Act, and determined not to issue a PIR, he or she should write to the objector setting out the reasons for the decision (AGN 04 paragraph 52).

4.16  These communications are commonly referred to as ‘statements of reasons’.

4.17  Before issuing ‘a statement of reasons’ for a decision, a copy of the draft should be submitted to PSAA via [email protected]. PSAA will use best endeavours to respond with any comments on the draft report within two weeks.

4.18  Auditors must notify PSAA when sending a final version of the ‘statement of reasons’ via [email protected].

4.19  Firms should redact personal information when sending copies of communications with objectors to PSAA.

Public Interest Reports and written recommendations

4.20  Draft Public Interest Reports (PIRs) and written recommendations issued under s24 and Schedule 7 of the 2014 Act must be submitted to PSAA as soon as local consultation allows via [email protected]. For the avoidance of doubt these are the recommendations commonly referred to as ‘statutory recommendations’ that have specific publicity requirements, rather than recommendations under s27(6).

4.21  PSAA will use best endeavours to respond with any comments on the draft report or recommendations within two weeks.

4.22  Final reports and recommendations must be submitted to PSAA at the same time as they are issued. Auditors should log these documents via [email protected].

4.23  Auditors should send final versions of PIRs and Schedule 7 recommendations to the Secretary of State at the same time as they are issued.

4.24  For local government bodies, auditors should send final versions of PIRs and Schedule 7 recommendations to the following Ministry of Housing, Communities and Local Government (MHCLG) email address at the same time as they are issued: [email protected].

4.25  For police bodies the relevant Secretary of State is the Home Secretary. The Home Office has confirmed that auditors will comply with the requirement under the Act to notify the Secretary of State by sending final versions of PIRs and statutory recommendations to the following email address at the same time as they are issued: [email protected].

4.26  For combined fire and rescue authorities, the relevant Secretary of State is the Home Secretary. The Home Office has confirmed that auditors will comply with the requirement under the Act to notify the Secretary of State by sending final versions of PIRs and statutory recommendations to the following email address at the same time as they are issued: [email protected].

4.27  For county fire and rescue services, auditors are requested also to send final versions of PIRs and statutory recommendations to MHCLG at [email protected].

4.28  Under the 2014 Act, in addition to the auditor’s powers to report in the public interest, apply to the court for a declaration that an item of account is unlawful, or to make statutory recommendations under Schedule 7, the auditor may make a recommendation as referred to in s27(6) of the Act. These are often referred to as non-statutory recommendations. They do not impose requirements on audited bodies for public consideration and response and auditors do not have to send them to PSAA otherwise than as part of a statement of reasons.

Advisory notices

4.29  If the Auditor thinks that an authority (or an officer of an authority) has made or is about to make a decision which would involve the authority incurring unlawful expenditure, taking action which is unlawful and likely to cause a loss or deficiency, or entering an unlawful item of account, then an advisory notice under s29 of the 2014 Act can be issued.

4.30  If an auditor is considering issuing an advisory notice (and associated statement of reasons) then they must notify PSAA via [email protected] in order that arrangements can be made for PSAA to comment on a timely basis.

4.31  Before issuing an advisory notice (and associated statement of reasons), a copy of the draft should be submitted to PSAA via [email protected].

4.32  Auditors must notify PSAA when issuing an advisory notice (and associated statement of reasons) via [email protected].

Judicial review

4.33  Under s31 of the 2014 Act Auditors may make an application for judicial review of a decision of an authority, or of a failure by that authority to act, which it is reasonable to believe would have an effect on the accounts of that body.

4.34  If an auditor is considering applying for a judicial review then they must notify PSAA via [email protected] in order that arrangements can be made for PSAA to comment on a timely basis.

4.35  Auditors must notify PSAA before applying for a judicial review under s31(1) of the 2014 Act. A copy of the draft application should be submitted to PSAA via [email protected].

4.36  Auditors must notify PSAA when applying for a judicial review via [email protected].

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