Selection and assessment of external auditors
New requirements and considerations for CCGs and NHS Trusts
From 2017/18 onwards, CCGs and NHS Trusts will be responsible for selecting and appointing their own external auditor. This more closely aligns CCGs and NHS Trusts with NHS Foundation Trusts. In this briefing, we have provided a summary of what is required of CCGs and NHS Trusts between now and the end of December 2016. We have also provided an overview of what CCGs and NHS Trusts may wish to consider when selecting, appointing and assessing the effectiveness of external auditors.
Why is this significant?
The significance of this change is greater than just the requirement to comply with new legislation. External auditors play an important role in creating and maintaining confidence in financial and non-financial information reported by organisations. This goes beyond the provision of assurance on the annual report and accounts; it is also about adding value and making a contribution to raise the standards of an organisation.
The risks and challenges facing NHS organisations continue to increase. With limited resources, increasing demand, and greater regulatory scrutiny, CCGs and NHS Trusts are working hard to make significant changes to what they do, how they operate, and the way in which they engage with their partners and local health economies. It is vital that these organisations receive high quality, robust assurance that properly focuses on the areas of risk, at the same time as providing valuable insight.
What to consider when assessing the effectiveness of your current external auditor
A key part of your process to select an auditor, and the on-going responsibility of auditor panels, will be to assess the effectiveness of your current auditor.
In recent years, changes in regulatory and corporate governance have been made to enhance the accountability of audit committees to stakeholders both for the financial statements and for the audit process, which the audit committee is responsible for supervising on behalf of stakeholders.
We have designed a framework for audit committees which sets out the key areas where they should, in our view, have an opinion about the audit process. This framework provides a comprehensive tool for use by audit committees when assessing their current external auditor and when considering what is important when appointing a new auditor.
What to consider when selecting an auditor
Whilst in general, organisations may be looking for relatively standard attributes from their external auditors, every organisation is different and will want a slightly different relationship with its auditor.
It is important that there is clarity and agreement amongst the key decision-makers and influencers from the start of the process around the key assessment criteria so that the tender process can be designed to enable them to be assessed most effectively. For example, if the cultural fit of the audit engagement lead is the most important criterion, the process needs to be designed to allow enough ‘face-time’ for each of the decision-makers with the proposed engagement lead to enable them to have sufficient evidence upon which to make their decision.
Key questions that CCGs and NHS Trusts need to consider
The 2014 Act introduces a number of changes to the appointment of external auditors that CCGs and NHS Trusts need to consider and respond to. If planned and managed well, the process for selection and appointment of external auditors does not need to be a significant draw on CCG or NHS Trust resources, but it does present a significant opportunity for these organisations to improve the quality of assurance, and value for money, that they receive from their external audit service.
Key questions which CCGs and NHS Trusts need to ask themselves are:
- Have you selected an auditor panel that meets the requirements of the 2014 Act?
- Have you established a project plan for your procurement process that will meet the deadlines set by the 2014 Act and follows the guidance issued by the HFMA, Department of Health and the National Audit Office?
- Have you recently assessed the effectiveness of your current external auditor and used that process to inform your planning for a procurement process in 2016?
- Have you determined what criteria you will use to assess audit providers, taking into consideration the specific risks, challenges and developments at your organisation and the cultural fit you are looking for from an external auditor?