External audit 2000/01 fees

Report: 3
Date: 8 March 2001
By: Treasurer

Summary

This report sets out the Audit Commission's fee recommendations and further information provided by the external auditor in support of his fee proposal. Members are asked to review the information and agree the external audit fee.

A. Recommendation

Members are asked to review the additional information provided by District Audit and agree the external audit fee.

B. Supporting Information

Introduction

1. At the meeting of the Audit Panel on 8 February 2001, Members approved the external audit programme for 2000/01 but deferred agreement to the proposed fees pending consideration of a more detailed report.

Audit Commission fee scale

2. The determination of external audit fees is a matter for agreement between the individual audited local authority and its appointed external auditors. Until recently this took the form of agreeing a number of days of input required to complete the audit programme charged at a standard daily rate determined by the Audit Commission.

3. With effect from the 2000/01 audit year, the Audit Commission has extended to all audited bodies a new basis for assessing external audit fees, known as Fee for the Audit. This is based on delivering a range of audit outputs at an agreed price. Instead of setting a daily rate, the Commission has established fee scales appropriate to different classes of local authority.

4. The fee scale applicable to police authorities comprises four elements as follows:

• a standard minimum fee for each police authority, which takes account of the range of services undertaken (£40,000);
• a percentage of the authority's gross revenue expenditure to reflect relative size (0.0125 per cent);
• a band either side of the sum of the first two elements to allow for local variation to reflect risk assessment and other local factors (+/- 30 per cent);
• an uplift of 20 per cent for fees in London.

5. Applying the scale to the Metropolitan Police produces a fee band of £248,000 to £460,000. The Commission recognises that in certain circumstances an authority's audit fee may fall outside the fee scale. This still has to be a matter for negotiation and agreement and such fees will be reviewed by the Commission to ensure they are justified by local conditions.

6. The Fee for the Audit covers all the external audit work (with some very limited exceptions). The agreement between the audited body and its external auditors should include deliverables in terms of agreed outputs to an agreed timetable. Audit outputs should also be assessed in terms of quality.

Proposed audit fees

7. I have received the attached letter from the District Auditor (Appendix 1, see Supporting material) in support of his proposed fee of £500,000 for 2000/01.

8. As early as June 2000, I expressed my concern to the Authority about the need to improve internal control and about the capacity of the Finance Function to operate effectively in the local government financial environment and to support the devolved budget management. Although programmes are in place to address these issues, the concerns have not yet diminished. I have no basis at this stage to argue against the external auditor's risk assessment, which is driving his proposed programme of work and therefore the fees.

9. The Panel, with my support, will need to monitor outputs and their quality as the audit progresses.

10. We will also need to seek to reduce the fee in future years by reducing the risks through securing demonstrable improvements in internal control, developing the capability of the Finance Function, ensuring that the work of internal audit is reliable and relevant, and requiring high standards of financial management within the MPS. The programme of monitoring and scrutiny to be established by the Finance Planning and Best Value Committee will play a key role here.

Review arrangements

11. The Audit Panel will review external audit outputs and quality throughout the year.

C. Financial implications

The 2001/02 budget contains provision to meet the proposed fees.

D. Background papers

• Report to Audit Panel -  External Audit – Audit Plan 2000/1 - 8 February 2001

E. Contact details

The author of this report is Peter Martin, Treasurer, MPA.

For information contact:

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

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