But two thirds do not feel well-prepared to do so
Senior local authority executives support Government proposals to enable them to appoint their own auditors, according to a survey by KPMG, and believe that such proposals will enable them to gain better value for money.
Seventy percent of respondents believe it will be a “good thing” to be able to appoint their own auditors in the future, and over 60 percent also agreed that it will result in better value. This comes as half of respondents said they do not believe their current audit arrangements represent value for money. Views on whether the change will increase audit quality were split, with half undecided. Nearly nine in ten respondents said that they are satisfied with their current auditors.
The survey - carried out amongst 68 chief executives, directors of finance and chairs of audit committees of local authorities in England – also highlighted that many authorities do not feel well-prepared for the changes ahead. Over forty percent of respondents (44 percent) admitted that neither they nor anyone in their team had been part of an audit procurement before and the issue was “not yet on the radar”. A further quarter of respondents (24 percent) said they felt only “fairly” prepared for the process.
At the current time, some 70 percent of authorities are audited by the Audit Commission but the Government is proposing to disband the Commission and give authorities the power to procure their own auditors. The Government has recently announced that before this happens the Audit Commission will run a significant procurement process to appoint auditors to those bodies currently audited by the Commission’s in-house audit practice. The Government has recently consulted on how the future audit regime should operate and is currently analysing the responses before refining its proposals.
Mike McDonagh, public sector audit partner at KPMG, said: “Our research shows that the appetite is clearly there amongst authorities to appoint their own auditors. They now need a detailed timescale and process in order to proceed. For many this will be completely new territory and the learning curve will therefore be steep. With authorities under pressure to deliver more for less across the board, the financial stakes are high. Robust audit and assurance services will play a key role in ensuring the effective delivery of services to the public.”
KPMG’s research found that authorities have already given some thought to the procurement process however. Most authorities are keen to pursue some form of joint procurement. Geographically focused approaches were the most popular options, with joint procurements with neighbouring authorities in the same tier (an option for 79 percent of respondents) and different tiers (50 percent) seen as the most likely route. However, a significant number of authorities are considering running a procurement process solely for their own authority, with one third of respondents indicating that this was under consideration.
The survey also showed that authorities are looking for auditors who can do more than simply cross-check the numbers. When asked what they look for in an auditor, the majority of authorities (58 percent) said that it is “crucial” the auditor understands their business and the sector in which they operate. For four in five respondents (78 percent), it is important that the auditor gives them assurance on key financial risks as well as the audit opinion itself. The key areas to gain assurance over beyond the financial statements are issues triggered by change in the business (59 percent) and internal controls (51 percent). The biggest issues facing authorities that relate to the external auditors are maintaining services while reducing cost (87 percent) and the adoption of International Financial Reporting Standards (63 percent).
Mike McDonagh concluded: “The public sector audit marketplace is heading for major change which will bring both challenges and opportunity to authorities. They will need to be able to show that they have made the right choice of auditor and are receiving value for money for the taxpayer. Those that do should see the benefits of a highly competitive marketplace which is likely to drive audit quality up and audit fees down.
“As KPMG stated in our response to the Government’s consultation, we agree that the Government’s key design principles of localism, transparency, lower audit fees and high standards of auditing are appropriate. The most important of these is high standards of auditing – whatever changes are introduced must ensure that the quality of audit work remains high. We also believe that the changes made by the Government must support public confidence in the audit regime. For this to be the case it is essential that the right safeguards are introduced.”
Notes to editors:
KPMG’s report Preparing for changes to the external audit regime is available here.
The research was carried out online in April and May 2011.
Media enquiries to:
Mark Hamilton, KPMG Corporate Communications 020 7694 2687
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.