The Head of Strategic Finance and Property presented a report on external audit fees, and EY’s proposal to increase the fees by 67% from £40,295 to £67,244. It was explained that each year, the Public Sector Audit Appointments (PSAA) set the scale fee for the audit. Members were referred to the two Appendices: a letter from PSAA which set out further background, and a letter from EY, which set out their rationale behind the proposed increase. Members were informed that a number of other local authorities across Hertfordshire had also been asked to consider an increase.. It was recommended that Members agree to the proposal to defer the decision to the PSAA given their experience and expertise in these matters. It was noted that the PSAA could accept the proposal in full, agree to an increase but alter the proportion of increase, or reject the proposal in full.
Suresh Patel, EY’s representative, said that there was concern over the sustainability of downward pressure on audit fees generally. He explained that more work was now involved in the external audit, so an increase in fees was necessary to maintain the quality of the audit. EY were in discussion with the PSAA and the Council regarding the fees, as well as a number of other local authorities across the country.
Councillor Alder asked whether PSAA recommended an appropriate fee. She said the tone of EY’s proposal seemed to suggest that the audit quality would fall unless the Council agreed to the increase. She felt that the standard of the EY Audit should be maintained regardless. If the Council could procure the audit at the current fee, it would not make sense to approve an increase.
EY’s representative said the current fee scale represented what PSAA thought was a fair fee for the audit.
The Chairman said that in the private sector, generally auditors were also asking for increases in fees. It seemed sensible to defer the matter to the PSAA.
Councillor Corpe said that at a time when the Council was making cuts to key public services, such as Citizens Advice, it would difficult to agree to an increase without a very compelling argument for doing so. He agreed with the proposal to defer to PSAA, and noted the increase was large. Some of the arguments made by EY for the increase were not applicable to the Council, such as increased work relating to social housing comparisons. Furthermore, the audits of Millstream Property Investments Ltd were carried out by a different auditor. It did not seem reasonable to pass on costs, such as EY’s potentially delayed investment in appropriate IT systems to the Council.
EY’s representative said that it was correct that not all of the reasoning applied directly to the Council. He said whilst the proposed fees were on the higher end of the scale compared to competitors carrying out audits on public bodies, EY were the only firm from the ‘big four’ who undertook this kind of work.
Councillor Corpe said that his impression would be that a large firm would be able to make savings elsewhere, compared to smaller competitors.
Councillors Corpe, Stowe and Ward-Booth agreed it would be difficult to justify such a large increase to residents and that it was important that PSAA made this decision, rather than the Council.
The Head of Strategic Finance and Property said Hertfordshire County Council and most of the other District Councils were audited by EY. However, Dacorum Borough Council (DBC) were audited by Grant Thornton (GT). It was noted that GT’s scale fee was higher, which could be explained by the fact DBC still maintained a housing revenue account. The Head of Strategic Finance and Property said that GT had not proposed an increased scale fee, but asked for an additional payment due to increased work, which constituted 4.4% of the overall cost. This was a much lower increase than that proposed by EY.
It was moved by Councillor Ward-Booth and seconded by Councillor Alder that the recommendation, as detailed, be approved. After being put to the meeting and a vote taken, the motion was declared CARRIED.
RESOLVED – the amount of any increase in the scale feel for the audit be referred to the PSAA to determine.