YORKSHIRE DALES NATIONAL PARK AUTHORITY ITEM 11 THE PROCESS OF APPOINTING THE AUTHORITY S NEXT EXTERNAL AUDITOR

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1 YORKSHIRE DALES NATIONAL PARK AUTHORITY ITEM 11 Date: 20 December 2016 Report: THE PROCESS OF APPOINTING THE AUTHORITY S NEXT EXTERNAL AUDITOR Purpose of the report 1. To establish the appropriate mechanism for the appointment of the Authority s next External Auditor. RECOMMENDATION 2. That Members accept the Public Sector Audit Appointments (PSAA) invitation to opt in to the sector led option for the appointment of external auditors for the five financial years commencing on 1 April Strategic Planning Framework 3. The information and recommendation contained in this report are consistent with the Authority s statutory purposes and its approved strategic planning framework, and in particular Corporate Action Plan Objective 31, to operate corporate governance and financial arrangements that are fit for purpose. Background 4. As part of the planned wind-down of the Audit Commission, external audit work for local authorities was contracted out to a number of private sector audit firms. The management of these contracts were transferred to PSAA, a not-for-profit company set up by the Local Government Association, for the remainder of their term. For this Authority, the final audit to be delivered under this regime will be that for the financial year 2017/18, on which Ernst & Young LLP will duly report in the summer of Following changes to audit appointment regulations that accompanied the windingdown of the Audit Commission, this Authority in common with all of Local Government is required to make its first independent external auditor appointment by 31 December The regulations require auditors to be in place no later than 31 December in the financial year preceding the financial year of the accounts to be audited (in this case, the 2018/19 accounts).

2 6. We have three options for appointing our next auditor: We can go it alone, which would require us to set up a separate Independent Auditor Appointment Panel and to run a full external procurement exercise; With other local government bodies, we can establish a joint Auditor Panel, with joint procurement arrangements; We can opt in to a sector-led body, which will then procure external audit services for all participants. PSAA has been designated by the Department for Communities and Local Government to operate a collective national scheme for auditor appointments for principal authorities (including National Park Authorities) in England. PSAA is now developing the process that would see the appointment of auditors for opted-in authorities for each of the five financial years beginning on 1 April These possibilities were discussed by the Audit & Review Committee on 12 July 2016, with Members inclined to support the third of these options. Further information on each option is included in the Appendix. 8. We have now been formally invited by PSAA to become an opted-in authority, and are required to confirm our acceptance by 9 March In line with the Local Audit and Accountability Act 2014 and Regulation 19 of the Local Audit (Appointing Person) Regulations 2015, a decision to do so must be made by the members of an authority meeting as a whole. Conclusion 9. It is concluded that the option to take up the PSAA offer is in the best interests of the Authority, in terms of efficiency and effectiveness. To date, this is the consensus opinion amongst other English NPAs. 10. Contracts with external auditors are likely to be awarded by PSAA at the end of June 2017, and at this point the overall costs will be clear. In autumn 2017, PSAA intend to consult all participating bodies on a proposed scale of fees (and on the appointment of auditors to each body), with the fees applicable to 2018/19 published in March PSAA s Procurement Strategy states that they will pool scheme costs and charge fees to audited bodies in accordance with a fair scale of fees which has regard to size, complexity and audit risk, most likely as evidenced by audit fees for 2016/17. For this Authority, the current external audit fee for 2016/17 is 12k. Richard Burnett Director of Corporate Services 23 November 2016 Background documents:

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4 Option Appraisal APPENDIX Option A procure our own auditor The Authority can choose to find its own auditors but the processes it would have to undertake are highly controlled and could become overly onerous. The Authority would be required to set up an Auditor Panel of which a minimum of 50% of the members would need to be newly appointed independent members with specific skills in finance and/or audit. The panel would remain in place throughout the audit contract and would initially draft and oversee the procurement exercise. Advantages of this option are the full ownership of the process and the ability to produce a bespoke tender aligned solely to this authority. Disadvantages would be difficulty/timeliness of appointing new expert members, all costs of the process borne alone and the potential inability to procure at a low cost i.e. no economy of scale. This latter point is a real concern: given the relatively small size of the Authority, we might not get sufficient interest in our tender, particularly given that only a limited number of larger audit firms will qualify under the regulations to act as local government auditors. There would be additional costs, in terms of money and staff time, in maintaining the Auditor Panel throughout the life of the contract. Option B procure an auditor with other bodies The Authority could choose to join other bodies to jointly procure an auditor for all of those bodies; this would involve creating a joint panel. Advantages include sharing the work and cost burden amongst a number of bodies and some potential economies of scale. Disadvantages include the potential complexity of the joint working arrangements of a group of bodies, and whether the group would be large enough to achieve the best possible price. In any case, there have as yet been no proposals for such joint procurements which this Authority could participate in. Option C join a sector-led body Advantages include: (i) (ii) Economies of scale in achieving the best price for external audit work. Saving a considerable amount of time which would otherwise be expended on managing our own procurement, including avoiding the need to: Establish and maintain an audit panel with independent members. This is a pre-requisite if the Authority were to run its own procurement process, and is

5 required to be independent to the Audit (& Review) Committee; there would be significant staff time costs setting up the panels, as well as potentially challenges in recruiting to it. Monitor the independence of the appointed auditor for the duration of the appointment. Although this is a task that would fall to an Audit Panel (if established), the advantages of a larger body monitoring independence include their greater experience and knowledge of best practice across local government. PSAA already has considerable experience in this area, deriving from their management of the current audit contracts. Manage the contract with the auditor, and deal with the replacement of an auditor if required. As above, PSAA now have significant experience of managing external audit contracts. (iii) Minimising the risk of a poor external auditor appointment. The scope of public audit is wider than for private sector organisations, involving, for example, forming a conclusion on an organisation s arrangements for securing value for money and, in some circumstances, issuing public interest reports. PSAA will ensure that the auditors it appoints are the most competent to carry out these functions, by contracting only with firms which have a proven track record in undertaking public audit work. Such firms will be subject to regulatory oversight, including by the Financial Reporting Council. Disadvantages may include the production of standardised contracts and tenders issued which would not be specific to this Authority and its needs. In mitigation of this point, this Authority doesn t have any substantial needs that are different to other local authorities taking part.