News & Publications

The government has published its response to the consultation to overhaul local audit in England.

There is a broad commitment to establish a new Local Audit Office (LAO), which will be a statutory and independent body, with a remit to streamline and simplify the system.  It will assume the functions of appointing and contracting auditors for (principal) local authorities. It would also adopt ownership of the Code of Audit Practice from the National Audit Office (NAO) and deliver relevant training. It would hold responsibility for quality oversight of local audit, including overseeing an inspection programme, enforcement and some elements of supervision, and publish national insight reports on local audit health.

It will be enabled to take over these functions for smaller authorities, including town and parish councils in England, in time. But its immediate focus will be the backlog in principal council audits in England.

The following five paragraphs outline how the government’s response will apply to local councils in England:

• ’25. The government recognises that challenges faced by the smaller bodies’ system are not as extensive as those faced by principal authorities. The LAO will prioritise stabilising the audit system for principal authorities. In the longer term, the LAO’s appointment and contract management function will expand to include smaller authorities’ appointment and assurance framework to minimise fragmentation in the system and share good practice. This response does not set out a timeline for this change as the government accepts the priority must be to focus on the primary audit market, which will take some years to reform. The government commits to continuing to engage with the Smaller Authorities’ Audit Appointments (SAAA) with a view to transition once the LAO has been securely established and demonstrated its strategic capacity to take on additional responsibilities. The LAO will conduct a review of SAAA and the operation of the Smaller Authorities’ Proper Practices Panel (SAPPP), and their wider role in the smaller authorities’ regime including standardised reporting and contracting, prior to any transfer.’
• ’96. The government will introduce legislation to move away from audit regimes based solely on thresholds and give the LAO the power to decide the appropriate regime for bodies to ensure a risk based and proportionate approach which could include general exemptions for types of bodies. … The government will also introduce secondary legislation to raise the smaller authorities’ upper audit threshold.’
• ’97. The government will ensure internal audit capacity and capability are strengthened in smaller authorities, including publication of reports. The government will review the Annual Governance and Accountability Return (AGAR) process.’
• ’98. The government will seek to address the cost and burden of vexatious complaints, ensuring they do not disproportionately impact smaller authorities.’
• ’99. The government commits to:
  • Raise the upper audit threshold to ease administrative burdens
  • Introduce a risk-based approach to enable the LAO to determine audit regimes that are proportionate and appropriate.’

We expect that SAAA will lead the local council sector’s relationship with the LAO, once this is established.

Read the government’s full response here.