Understanding the Escalated Reporting Framework in Local Audit
Published: 17 October 2024
5 minute read
In this latest 'In Conversation' podcast episode, Daniel Ellis, Senior Public Affairs Manager is joined by Ellen Millington, Senior Project Manager in the FRC's Local Audit team to discuss the recently launched Escalated Reporting Framework (ERF) and how it will support the FRC as local audit system leader, gathering early intelligence on local bodies and their auditors ahead of the government's local audit backstop dates.
You can also listen on Spotify.
Transcript
0:09
Hello and welcome to this In Conversation podcast with the FRC.
0:12
My name is Daniel Ellis, I'm Senior Public Affairs Manager here at the FRC and today I've been joined by Ellen Millington, Senior Project Manager in the FRC's local audit team.
0:21
Hello, nice to be here today.
0:23
Thanks Ellen.
0:23
And we know that the FRC has had long standing regulatory responsibilities for local audits.
0:29
However, last year we took on responsibility for system leadership and today we're talking about the Escalated Reporting Framework, also known as the ERF, which was launched recently as part of this leadership role.
0:39
So Ellen, if we start off with quite, quite an obvious question, what is the ERF and why has the FRC launched it?
0:46
The ERF is a pathway for auditors to provide early intelligence on any systemic issues which may lead to local bodies being unable to meet the Government's backstop dates.
0:55
Following the Government laying their legislation introducing statutory backstop dates last month, we've done an initial launch of the ERF to support the first two deadlines of 13th of December 2024 and 28th of February 2025, which will cover the audit years up to and including 20/23/24.
1:12
So the FRC has launched the ERF to support the backlog measures.
1:15
Yes, from an early stage system.
1:17
Partners involved in the local audit system recognise the need for a framework to be able to resolve issues between auditors and local bodies ahead of any statutory deadlines.
1:26
The provision of this early intelligence on system issues will help system partners to take mitigating action where possible to help bodies and auditors meet these backstop dates.
1:34
In practise, we think that mitigating actions will be more feasible from the second phase of the roll out, which will take place from March 2025.
1:41
And this first phase, which has been launched last month, is more likely to be useful in gathering intelligence around the likely impact of the reset measures in December.
1:49
Thanks Ellen.
1:50
So you've just been talking about the audits of local bodies, so we're not just talking about local councils, are we?
1:55
Understandably, when we talk about this issue, people do think straight away about local authorities.
2:00
Given the timeliness issues that we've seen in England with publishing audited accounts over recent years.
2:05
That ERF is open to auditors of other types of local bodies which are incorporated into the Local Audit and Accountability Act, such as police bodies, Fire and Rescue authorities, National Park authorities and internal drainage boards.
2:18
At the moment that ERF isn't open to auditors of NHS Trusts and Integrated Care Boards who should be engaging with NHS England for similar matters they do at the moment.
2:26
Thanks Ellen, that's a helpful explainer.
2:28
So how does the ERF actually gather this early intelligence on these issues?
2:33
So ahead of the 1st 2 backstop dates in December and February, the FRC will be holding meetings with the audit firms who are responsible for auditing these local bodies to provide an opportunity to discuss any system issues which are emerging.
2:46
Audit firms are also able to contact the FRC directly and via a new mailbox which has been set up to raise any issues.
2:53
The ERF is operated by the FRC's local audit audit team and is independent of the FRC's wider supervision and inspection activity.
3:00
So how will the FRC use this early intelligence?
3:03
Can you give listeners an example of how it would work in practise?
3:07
We expect that the ERF will be useful in identifying themes for why audits might miss one of the backstop dates.
3:13
So for the first phase of the rollout, this will permit preparation for evaluating the impact of the measures which the government has put in place.
3:19
And for the second phase, this will permit escalating these issues and themes to relevant system partners who may be able to take mitigating action.
3:27
For example, it might be that local bodies have not published their draught financial statements and this could be then escalated to MHCLG who may be able to implement appropriate support for those authorities.
3:37
It could be that the ERF identifies a widespread financial reporting issue which is emerging through the audit process in a particular year, and this would permit the issues to be escalated to relevant technical forums.
3:48
Who could be engaged to determine whether this issue has been raised centrally and then for us to convene collaborative effort from system partners to develop relevant guidance for the audit firms.
3:57
What are the benefits then of engaging with the FRC through the ERF?
4:01
So the ERF is based on the principle that if you want something fixed, then you first have to identify the problem and then inform someone who can help you solve it.
4:09
The FRC may not necessarily be the person to solve the problem, but they can help to convene an appropriate response.
4:15
We hope that the ERF will eventually expedite solutions to issues which are causing delays to audits across the system.
4:20
And depending on the type of issue, audit firms could receive additional guidance or communication from system partners letting them know how they could most effectively respond to the issue.
4:29
That's a helpful explainer.
4:31
So now that the ERF has been launched, who is able to use it?
4:35
So ahead of the 1st 2 backstop dates in December and February, the ERF will be accessible to those audit firms who have local audits, which we described earlier within their audit portfolios.
4:45
And will these local bodies, and I'm particularly thinking of local authorities, know about these issues which are being reported by firms to the FRC.
4:53
While the ERF is not accessible directly to local authorities, it's terms of use which are published on our website do require local audit firms to have first discussed the matters that they're raising with the relevant local bodies before making a referral to the ERF.
5:06
We also have an expectation that where possible, the local body is notified where an issue is going to be reported through the ERF to the FRC.
5:14
Depending on the type of issue which is raised in parallel to local audit firms, local bodies could also receive additional guidance or communication from system partners and this could be helpful for them knowing how they can play their part and most effectively responding to the issues that have been raised as well.
5:28
So it's good to hear that local bodies, in particular those local authorities will know about these issues raised through the ERF.
5:34
So as you mentioned, we've got the ERF in place and we've done an initial roll out covering the first two backstop dates.
5:41
Will it be running beyond that second backstop date?
5:44
That's right.
5:45
So the ERF has had an initial rollout to cover the 1st 2 backstop dates, 13th of December 2024 and 28th of February 2025.
5:53
The ERF will cover all of the backstop dates legislated for by the government in due course.
5:58
And we will announce further details on the second phase of its rollout for 202425 audits in spring 2025.
6:05
Thanks, Ellen.
6:06
I think that's been a really helpful deep dive into the ERF and how it will be supporting the FRC in our system leadership role through this provision of early intelligence.
6:14
As Ellen mentioned, there's more information regarding the ERF on the Fr CS website, including its terms of use.
6:19
So all that's left for me to do is to thank you, Ellen, for joining.
6:23
Thank you very much for having me and obviously thank you everyone else for listening.