Appointment of External Auditors 2018/2019

Transcription

1 OFFICIAL Appointment of External Auditors 2018/2019 Executive Committee Date: 8 April 2016 Submitted By: Chief Finance & Procurement Officer Agenda Item: 5 Purpose To seek approval in principal of the proposed method of Auditor Appointment for 2018/2019. Recommendations That the Authority notifies the LGA of its interest in using its resources to appoint external auditors for the financial year 2018/2019 onwards. Summary Under the Local Audit and Accountability Act 2014, the Authority is required to establish an Audit Panel to recruit and appoint its external auditors for the financial year 2018/2019. The report examines the three main alternatives and proposes that the Authority registers an expression of interest with the LGA to use its sector led appointment body. Local Government (Access to information) Act 1972 Exemption Category: Contact Officer: Nil Geoff Maren Chief Finance & Procurement Officer T: E: geoff.maren@westyorksfire.gov.uk Background papers open to inspection: CIPFA Guide to Auditor Panels Local Audit and Accountability Act 2014 Annexes: 8

2 1 Introduction 1.1 Following the abolition of the Audit Commission in 2013, the Government appointed Auditors for each local authority by means of a national procurement exercise, the auditors being appointed on a regional basis. The Auditors were appointed with effect from the financial year 2013/2014 on a three year contract with an optional extension for a further 2 years. The parties have agreed to extend the contract which now expires at the completion of the 2017/2018 audit. 1.2 With effect from the financial year 2018/2019, public bodies must appoint their own auditors following a process of competition. 1.3 This report sets out the requirements to comply with the appointment legislation and recommends a proposed course of action. 2 Establishment of an Auditor Panel 2.1 Under the Local Audit and Accountability Act 2014, authorities are required to establish an auditor panel to advise the Authority in the appointment of the Auditor. Under the regulations there are three options for the establishment of an auditor panel available to this Authority: a) An authority sets up its own panel, b) Set up a joint panel with one or more other authorities, c) Use a sector-led body as the appointing person under the Act. There is a further option which is use of an existing audit committee, however, as this Authority s does not have independent members this is not available 2.2 Before examining the pros and cons of each of the options it is important to understand the requirements of the Audit Panel both in terms of its make-up and expertise. 3 Composition of the Panel A panel must have a minimum of three members, two of which must be independent. 3.1 Independent Members The act includes a clear definition of independence No previous involvement in the last 5 years as a member or officer of the Authority or any other connected body, No relationship (familial or friendship) with a member or officer of the authority or connected body, No contractual relationship, No potential conflict of interest with the current or potential auditor, or within the previous 5 years having been an employee, partner or director. 9

3 3.1.2 In addition to their independence it is important the Authority considers the knowledge and experience of the panel. Whilst there is no set requirement it lists the following key areas where there should be some knowledge. Local authority finance Accountancy Audit processes and regulations The role and responsibility of a local public auditor 3.2 Role of the Panel Chair The legislation does not specify whether the chair should be recruited or appointed from within the panel, it does however set out the characteristics required to be an elected chair. Ability to plan the work of the panel and provide focus Skills of managing meetings An objective apolitical view Core knowledge and skills required of panel members Ability to form good working relationships within the authority. Once established there is a requirement to maintain competence of panel members through selfassessment and training. 4 Functions of the Auditor Panel 4.1 The overall role of the Auditor Panel is wider than the appointment of the Auditor and would be expected to advise on the following:- the selection and appointment of the auditor, whether the authority should adopt a policy on obtaining non-audit services from the auditor, any proposal by the authority to enter into a liability limitation agreement, maintaining an independent relationship with the auditor, the outcome of any investigation should the auditor resign from office or any proposal to remove them, receipt of documents relating to public interest reports. 4.2 As it can be seen there are specific requirements as to the make-up of the audit panel and its role which will require some dedicated administrative support and training which will result in additional costs. Added to this, the Authority will have to consider the ongoing role of the Auditor Panel in relation to the existing Audit Committee. 10

4 5 Options for the Auditor Panel The table below considers the pros and cons of the three options for the provision of the Auditor Panel. A. Set up a separate panel for WYFRA Full ownership of the process Fully bespoke contract with the auditor Tendering process based on local circumstances Possible cost advantages resulting from proximity to Leeds and large audit firms including the existing provider. Difficulty attracting independent members for the panel Need to ensure members are suitably qualified and maintain competence Will have to meet all ongoing costs of the panel May not achieve the financial benefits of larger procurement process B. Set up a Joint panel with the other West Yorkshire Authorities Less of an administrative burden on this authority Shared administration costs with other authorities Easier to attract suitable members Would remain a local process but offer a greater market share May achieve some economies of scale The size of the combined contracts is likely to be more attractive An opportunity to bespoke the contract The opportunity of a softer tendering process involving existing suppliers May have to compromise on the contract arrangements May not end up with the first choice auditor Need to be clear on the decision process covering all the Authorities C. Use of the LGA supported sector led body Administratively much less burden Do not have to establish and auditor panel and consequently overcome the problem of recruitment and training Easier to attract bidders because of the size of market share Likely to build up a pool of expertise Should see some savings through economies of scale The cost of maintaining the panel would be recovered in the audit fee. Little or no control over the final appointment May have to compromise on the contract arrangements May not end up with the first choice auditor Need to be clear on the decision process May end up paying more to subsidise less viable audits As it can be seen, each of the alternatives has their own merits. 11

5 6 Financial Implications 7.1 The cost of establishment and maintenance of the Auditor Panel will have to be met by the Authority. 7 Equality and Diversity Implications 7.1 None 8 Health and Safety Implications 8.1 None 9 Service Plan Links 9.1 The provision of independent external auditors forms a key part of the governance process of the Authority and supports the priority to provide effective and ethical governance and achieve value for money > 10 Conclusion 10.1 Separate Panel for WYFRA On balance I would not recommend the establishment of a single Auditor Panel for this Authority, principally because of the problems recruiting and training the independent members which proved a problem in the past when recruiting for the standards committee Joint Panel for West Yorkshire In my view this would be the preferred option as we have the dual benefits of economies of scale coupled with a closer control of the appointment process. However, this would be dependent on the agreement of the 5 district authorities, one of which would have to lead the process. I have made contact with the districts but as yet the authorities have not made clear their own position 10.3 Use of LGA Sector Led Body In the absence of a regional solution this offers the best alternative, it is not administratively burdensome for this Authority and is likely to deliver some economies of scale. However, we are still unclear on what basis the tenders will be issued (by region or by type of organisation) nor do we have any details of how the panel and the process will operate. The LGA are asking for an expression of interest (in principal) in early April to enable them to go to the market and provide an indication of the proportion of the public service they are representing. Therefore it is proposed that we express an interest to reserve our position pending the deliberations of the 5 district councils. It is likely we will have to make a final decision by late summer when we should be clearer as to the overall position locally. 12