Rich Clarke, the Head of the Audit Partnership, presented a report, which outlined the three different route options the authority had in appointing its external auditor, a process which it was required to complete by 31 December 2017.
Mr Clarke advised that, before the Borough Council considered the procurement alternatives, suppliers must have had permission from the Financial Conduct Authority to provide public audit services. He added that, currently, there were five such suppliers to local authorities.
Mr Clarke summarised the advantages/benefits and the disadvantages/risks of the three options available, which were described as: (i) a solo procurement and auditor panel; (ii) joint procurement; or (iii) outsourced procurement (known as a sector-led body). Under that third category, Mr Clarke advised that, since the publication of the agenda, the Government had announced that Public Sector Audit Appointments (PSAA) had been approved as a ‘specified person’ under the legislation to procure public audit services within this category.
Mr Clarke advised that PSAA would be making contact with local authorities later this year, setting out details of their services. In the meantime, Mr Clarke invited the members of the Committee to say whether, at this early stage, they had a preferred route, based upon the options described in the report.
Mr Tony Quigley said that, based upon this initial report, it was possible that the sector-led body route might be the most advantageous but he added that this depended upon the number of local authorities signing-up to this option. He also asked how long an agreement under this option would last.
Mr Clarke advised that PSAA were saying that they believed that some 200 local authorities (which equated to approximately two-thirds of the total) might be following this option. He added that the probable time period for any such agreement would be three years, with an option of an additional two-year extension.
Mr Hedges said that the decision on which route to follow would be based on the key factor of cost versus control. He asked if it were possible to provide an estimate of the cost of the authority establishing and operating an auditor panel. Mr Clarke advised that this was not easy to estimate, as a key starting point would be whether the authority wished to pay an allowance to members of the panel and, if so, how much that would be.
Mr Shiels asked if the authority followed the option (iii) route (sector-led body), would it still be able to ensure the current provider undertook a local audit. Mr Shiels also asked if the ‘duty of care’ provisions would still exist at a local council level.
Mr Clarke advised that the issue of local audits would need to be a question to raise with PSAA. He added that, while authorities would certainly be able to comment on the arrangements, the final procurement decision would be for PSAA. Mr Clarke said that the level of influence any single authority could exert was a question to ask PSAA, as their arrangements for consulting with opted-in bodies had not yet been laid out. He added that these arrangements would come into effect from the audit of 2018/19, thus the existing system would continue until then.
Councillor Moore raised a concern at the sector-led body process under which, if the Council decided to follow that option, the ‘specified body’ (likely to be PSAA) would negotiate contracts and appoint on behalf of councils. She felt that that level of ‘loss of control’ made this route unattractive.
Mr Clarke advised that, previously, there had been a significant number of local authorities who had voiced their support for not selecting their auditor, which was why the ‘specified person’ route had been made available. However, he added that – equally – many authorities had expressed a wish to choose their auditor themselves.
Councillor Moore also asked if the statement that approximately two-thirds of local authorities might follow the sector-led body route had been based on just a 20% survey response rate; Mr Clarke could not provide any further details which might have substantiated the claim made by PSAA.
Councillor Moore raised two further questions: (a) would it be possible for the Audit and Governance Committee to act as the auditor panel under option (i); and (ii) could either the Mid-Kent Services Partnership (MKIP) or the possibility of a future West Kent devolved local authority provide a possible route for procurement?
Mr Clarke advised that, under the requirements of this process, an auditor panel would have to be a sub-committee of this Committee, because of the need to have a majority of independent members. As for a possible MKIP or other partnership route, Mr Clarke said that there had been no such proposals discussed to date.
Mr Colyer advised that the topic of appointing an external auditor under the new process had been discussed at the recent Kent Finance Officers’ Group, where it was acknowledged that there was a high degree of risk involved in authorities procuring the service either alone or as part of a small group. He added that, at that stage, the general opinion was that the sector-led route was the most favourable, as it appeared to reduce the level of risk.
Mr Hedges drew attention to the current public audit suppliers and emphasised that all five companies listed were internationally-known and recognised. He felt that the risk to the authority of selecting from this list under option (i) was very small and asked why the Council would want to be part of a national scheme.
Parish Councillor Coleman believed that there was insufficient information available at this stage to be able to express a preference. He asked firstly who was likely to be leading the possible Local Government Association group, should they be approved as a ‘specified body’ and, secondly, whether there were any other sector-led bodies likely to be approved by the Government.
Mr Clarke advised that he was unaware of any other groups or bodies who had applied to the Secretary of State for approval. He said that, from viewing PSAA’s prospectus, it was apparent that there was a great deal of relevant experience the group had to offer.
Mr Shiels sought further information about the benefits of the ‘economies of scale’ argument. He wondered whether Darren Wells from Grant Thornton was able to advise the Committee.
Mr Wells felt that, from the evidence of the NHS, who had already started on the path of this new procedure – with some authorities procuring on their own and others forming groups – the ‘economies of scale’ argument was not a significant factor. In practical terms, he added, it was unlikely that providers would submit a higher price for authorities procuring on their own.
Mr Colyer thanked the members of the Committee for their views, adding that, while it would have been helpful to have had a general steer towards a favoured option, he understood how further information was required before that could be done. He advised that, if the authority had heard more from PSAA before the September meeting, he would provide members with the details. He added that the final decision on this matter would have to be made by the Full Council.
Mr Quigley welcomed this guidance, adding that he would like to hear more about the progress of NHS bodies, when this matter was discussed again.
Mr Hedges advised that there were various frameworks in place across NHS organisations, adding that they would be required to make their decisions by 31 December this year. He asked if his request for information about the cost of the Council establishing its own auditor panel might be provided for the September meeting, as well as what the views were of neighbouring/Kent local authorities.
Councillor Moore felt that there was view amongst Committee members to obtain more control at a local level. She expressed surprise that there seemed to be a wider view that local authorities were pulling back from that opportunity, hence the need for further information before the Committee could give a firm steer.
Mr Shiels believed that the loss of control in allowing PSAA to choose for the authority would increase the likelihood of a change of auditor; he felt that this might have a disruptive effect, the risks of which should be carefully considered.
RESOLVED – That the Committee notes the latest information on external auditor procurement and welcomes further details in due course.