Restoring trust in audit and corporate governance. Consultation on the government’s proposals. LGA response.

The consultation and its proposals are wide ranging. In our response we will only comment on aspects of the consultation document that are of direct interest to local government.


About the Local Government Association

1.    The Local Government Association (LGA) is the national voice of local government. We are a politically led, cross party membership organisation, representing councils from England and Wales.

2.    Our role is to support, promote and improve local government, and raise national awareness of the work of councils. Our ultimate ambition is to support councils to deliver local solutions to national problems.

Introduction

3.    The consultation and its proposals are wide ranging. In our response we will only comment on aspects of the consultation document that are of direct interest to local government. This response has been cleared by lead members of the LGA’s Resources Board.

Individual questions

4.    There are nearly 100 questions in the consultation. However, none of the proposals or questions arise from the section on local audit (section 11.5) and so do not directly relate to local government. 

5.    Question 8, page 37, in the section on Public Interest Entities (PIEs) asks “Should any other types of entity be classed as PIEs? Why should those entities be included?”. Currently local public bodies, including local authorities, audited under the Local Audit and Accountability Act 2014, are generally not classified as PIEs, and the National Audit Office (NAO) sets appropriate guidance for auditors consistent with that under the local Code of Audit Practice. We are not aware that there are serious proposals to reclassify local authorities as PIEs, but for the avoidance of doubt we believe that it is not clear that there would be any benefits from making such a change and that it is unlikely that such a change would be either necessary or helpful.

6.    We have no other responses to individual consultation questions.

General points

7.    Local government is one of the best regulated and most transparent parts of the public sector in this country. As democratically elected bodies, councils understand the need for good governance, of doing the right things at the right time and to spend public money well and wisely, and to be seen to be doing so. The system is a complex web of checks and balances, ensuring that decisions are made in public by default and the outcomes of those decisions are also made plain. Despite escalating pressures, examples of councils failing in their responsibilities remain rare. Councils are complex organisations, and the LGA together with the sector, is committed to ensuring that the way public money is spent, and local decisions are made is as clear and relevant to local residents as possible. External audit is an important part of this system.

8.    External audit of local government currently faces a number of problems. The local government audit market is very fragile. The late delivery of many 2019/20 audit opinions is concerning, and it is apparent that that the system has “worsened” and it seems that missing audit deadlines has become normal. We recognise that extra demands on auditors over the last two years has led to the de-prioritisation of deadlines. This places additional burdens on councils and needs to be addressed.
 
9.    Since the consultation was published, it has been announced, as an update to  the government’s response to the Redmond Review, that the Audit, Reporting and Governance Authority (ARGA) will act as system leader for local audit. We look forward to working with the government and other agencies in the system on this and to commenting on proposals on how the ARGA will work as system leader. It would helpful to have an updated version of the section on local audit in the consultation that gives a higher profile to the specific problems faced by the sector and proposals for a way forward.

Specific correction

10.    Section 11.3 covers Investor Stewardship relations. We would refer you to any response to these points of the consultation submitted by the Local Government Pension Scheme Advisory Board.
 
11.    Paragraph 11.3.5 on page 237 specifically refers to “considering the case to amend DWP legislation or FCA and Local Government Association rules to introduce stronger requirements for reporting on the (stewardship) Code”. This seems to be based on a misapprehension of the role of Local Government Association. To be clear, the LGA does not set such rules.

Contact:
Bevis Ingram
Senior Adviser Finance
Phone: 079 2070 2354
Email: bevis.ingram@local.gov.uk