We all rely on local public services to be able to function in our day-to-day lives, and in these challenging times, we’re even more reliant on those services. Whether from local authorities, local NHS organisations police forces and fire and rescue organisations, to keep us safe and take care of us should we need it.
At the National Audit Office (NAO) we’re responsible for scrutinising the spending of central government departments, agencies and other national public bodies but who audits local public services? And what do those auditors do?
Local public bodies are audited by firms appointed as local auditors. Every year, they carry out their work auditing these bodies’ accounts and assessing the adequacy of their arrangements to secure value for money. They carry out this work in accordance with the Code of Audit Practice and, although the NAO doesn’t audit local public bodies, the Code they must follow is set by the Comptroller and Auditor General (C&AG) who leads the NAO.
The law requires the Code to be reviewed at least once every five years, which meant a revised Code was due by April 2020. So, back in the summer of 2018 we started on the project to review and prepare a new Code.
Our review of the Code
The review of the Code came at an interesting time in the audit world, given both the increased level of interest in the audit profession more widely, and the announcement of a number of independent reviews across the profession. The review by Sir Donald Brydon and, more recently, the review of local authority audit and financial reporting being undertaken by Sir Tony Redmond. To add to this complex environment, the review started under the NAO’s previous C&AG but was to be completed under our new C&AG, Gareth Davies, who arrived at the NAO in June 2019.
We wanted to ensure that we were engaging as widely as possible, so last Spring we began the first stage of our consultation process, seeking views about the issues people considered were relevant to the development of the new Code. We received over 40 formal responses to the first stage of the consultation and gathered further useful information from wider engagement through attendance at conferences and other events
Having taken into account those views, we drafted the text of the new Code and undertook a further public consultation on the draft text in the autumn of 2019. The draft was further refined in light of this second round of feedback, and the final draft of the Code was then laid before Parliament in January 2020. It received approval in March and, almost two years after the project began, came into force last week. The Code applies to audits of 2020-21 financial statements onwards.
What’s changed under the new Code?
In the first part of our consultation, we received a lot of feedback telling us that people wanted auditors’ work to be more useful to the bodies being audited as well as the wider public, that reporting by auditors should be more timely, and that much of the language used by auditors was not readily understandable to a non-accountant.
A significant proportion of these comments were made in relation to the work auditors do assessing and reporting on the arrangements that local audited bodies have in place to secure value for money. Unlike the NAO’s studies, where we report on whether value for money has actually been achieved, local auditors look at the overall arrangements that bodies have in place across a range of areas covering decision making, governance, and working with others through partnerships. From the consultation, it was clear that people wanted to see more information being reported from auditors’ work, and in particular in relation to financial sustainability.
The new Code looks to address these issues by requiring auditors to issue an annual commentary on the arrangements that bodies have in place, under three focussed headings:
- Financial Sustainability
- Governance and
- Improving Economy, Efficiency and Effectiveness
Where an auditor finds significant weaknesses in a body’s arrangements, they are expected to bring this to the body’s attention promptly, and to accompany it with clear recommendations setting out what the body should do to address the weakness. The commentary and recommendations will be set out in an Auditor’s Annual Report, that will bring together all of the work the auditor has undertaken in the previous year, including following up on recommendations made previously.
For the NAO, the publication of the new Code is not the end of the story. Colleagues are now working hard to develop the detailed guidance that will sit underneath the new Code, and we’re again looking to consult the relevant sectors extensively as we take forward its development.
I’m delighted that the new Code has now come into force and would like to thank colleagues in the NAO’s Local Audit Code and Guidance Team for their work in bringing the new Code into being, and to all of you who responded constructively to our various consultations over the last 18 months. I look forward to seeing the impact that the approaches I’ve outlined here will have on helping to ensure that local public bodies continually improve their arrangements to make best use of their scarce resources.
2020-21 will be a very challenging year for local bodies as they put in place all kinds of arrangements to cope, with the new reality presented by COVID-19 Coronavirus. Through the new Code, local auditors will have an opportunity to use their reporting to help their clients rise to the challenge.