Appointment of external auditor

Report: 7
Meeting: Metropolitan Police Authority
Date: 10 July 2000
By: Treasurer

Summary

To consult the Authority on the proposals of the Audit Commission for the appointment of external auditors to the MPA.

A. Supporting information

Arrangements for external audit

1. Prior to the establishment of the Metropolitan Police Authority the Metropolitan Police Service was subject to external audit by the National Audit Office (NAO) in line with central government departments and related bodies. The MPA, as a local authority, comes under the aegis of the Audit Commission for external audit purposes.

2. The Audit Commission, operating under statutory provisions, sets the framework within which local authority audits are conducted and appoints the external auditor for each authority. The external audit arrangements will be reported in detail to the Audit Committee. However the appointment of the external auditor needs to be confirmed by the Audit Commission as soon as possible and before doing so the Commission is required to consult the audited body. The purpose of this report therefore is to effect that consultation.

Pre-3 July audit

3. Arrangements are in hand to complete the audit of the accounts up to 2 July 2000. In order to bring the audits up to date the NAO has sub-contracted KPMG to carry out the audit work for the final three accounting periods, ie 1997/98, 1998/99, and April 1999-2 July 2000 (fifteen months). KPMG have just completed the second period and plan to finish the final period before the end of this calendar year.

Dialogue with the Audit Commission

4. In advance of the MPA coming into being the Audit Commission entered into a dialogue with myself, as MPA Transition Treasurer, and the Receiver of the MPS. The Commission wrote in December 1999 proposing to appoint District Audit as the MPA's external auditor. The Receiver responded expressing concern at the potential for continued disruption of the financial work of the MPS with a third set of external auditors in little more than a year, ie NAO, KPMG and District Audit. My principal concern was the need for early validation of the opening balance sheet of the MPA to enable us to address strategic issues such as the level of reserves and I could not see how District Audit would be in a position to do that.

5. The Commission's initial response to our concerns was to suggest a joint audit by District Audit and KPMG. However in discussion with the two auditors the Commission has modified this and its final proposal is that District Audit be appointed as the external auditor with KPMG assisting in a similar way to their current relationship with the NAO. This is set out in the letter attached at Appendix 1 from the Audit Commission. The appointment will run to 2003.

Consideration of Audit Commission's proposal

6. The Commission's proposal does reflect the views expressed previously by myself and the Receiver and has the following advantages:

• having a single appointed auditor, rather than a joint appointment, ensures clear accountabilities;
• involvement of KPMG secures retention of the knowledge and experience which they have developed over the last year;
• KPMG will be working on the final accounts audit and will thereby provide continuity;
• district audit is extensively involved with other police authorities which should assist in importing lessons from elsewhere and facilitate comparisons;
• the combination of District Audit and KPMG gives a good mix of public and private sector audit skills.

7. In practice the options available to the Commission in terms of external audit providers are quite limited and one of the obvious alternatives, Price Waterhouse Coopers are already involved with the MPS as a contractor on internal audit.

8. We are already developing the working relationship with the proposed external auditors. I am having monthly liaison meetings with District Audit, together with the MPS Director of Resources. At the request of the MPS District Audit have commenced a non-statutory audit of the 2000/01 Best Value Performance Plan. In addition KPMG are reviewing the work to create the accruals-based opening balance sheet for the MPA.

Conclusion

9. Members will appreciate that the earlier dialogue has already significantly influenced the Audit Commission's proposals to reflect the particular conditions of the MPS and the requirements of the MPA. There really is very limited scope for any further change in the Commission's position. Responsibility for the appointment lies solely with the Commission.

B. Recommendations

That the Authority accepts the proposal of the Audit Commission to appoint District Audit as the external auditor, with assistance from KPMG, for the period to 31 October 2003.

C. Financial implications

The external audit programme and fees will be agreed by the Audit Committee in due course. The current budget provision for external audit fees is £0.2 m. Given the more extensive nature of external audit under the Audit Commission compared with the NAO the fees are expected to be higher.

D. Review arrangements

The Audit Committee will be consulted on future proposals from the Audit Commission to review the external audit appointment.

E. Background papers

The following is a statutory list of background papers (under the Local Government Act 1972 S.100 D) which disclose facts or matters on which the report is based and which have been relied on to a material extent in preparing this report. They are available on request to either the contact officer listed above or to the Clerk to the Police Authority at the address indicated on the agenda.

F. Contact details

The author of this report is Peter Martin.

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Send an e-mail linking to this page

Feedback