Government hands new responsibilities for local audit over to Financial Reporting Council

The Government has announced new responsibilities for the Financial Reporting Council (FRC) aimed at improving the local audit system.

Among the list of duties outlined in a Memorandum of Understanding published jointly by the Department for Levelling Up, Housing and Communities (DLUHC) and the FRC this week is 'system leadership'.

The call for creating a system leader came out of the Redmond Review, an inquiry into England's local audit system that warned the system was too fragmented to operate effectively.

The Redmond Review recommended that the Audit, Reporting and Governance Authority (ARGA), which the Government intends will replace the FRC, should act as the system leader for local audit.

Since July 2021, the DLUHC has acted as interim system leader by establishing and chairing the local audit Liaison Committee of senior stakeholders and by leading work to agree on a system-wide package of measures to reduce local audit delays.

But under the memorandum, the DLUHC has committed to handing the role of system leader over to the FRC during a "shadow period" between now and when the ARGA is prepared to take on the responsibility.

Neil Harris, Director of Local Audit at the FRC, will lead the FRC's new department local audit as a shadow system leader and will have five key responsibilities:

• leading a coherent and coordinated policy response to challenges arising across the local audit system;
• facilitating stronger governance across the local audit framework;
• leading work to improve competition, bolster capability and market supply;
• overseeing the entire quality framework for local audit; and
• reporting on the local audit system.

Lee Rowley, Minister for Local Government, said the Government "remains strongly committed to building a stronger, more resilient local audit system, properly equipped to deliver the transparency and accountability which local taxpayers deserve".

Sir Jon Thompson, CEO of the Financial Reporting Council, added: "We welcome this new role for the FRC and are committed to working with DLUHC and the rest of the local audit system to address the challenges facing the sector."

The memorandum comes as the Levelling Up, Housing and Communities Parliamentary Committee has launched a new inquiry into local authority financial reporting and auditing.

Announcing the move, the committee said that as council finances are "under greater pressure than ever before, the need for effective financial accountability for local government is put into even sharper focus".

The committee also referenced a number of councils that are in financially precarious positions as cause for the inquiry.

Adam Carey