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40% reduction in audit fees as contracts awarded

The Audit Commission is set to reduce audit fees by 40% over the next five years, as it proposes to award contracts to four private sector firms.

Public bodies are expected to save over £30m a year for the length of these contracts, and with additional internal efficiency savings of £19m per year, audit fees are predicted to fall by £250m.

The procurement process will also create a more diverse audit market, as two new suppliers are introduced. This is the first time all public accounts will be audited by private firms.

The contracts should be confirmed tomorrow and auditors will transfer this autumn.

The contracts covering the North West, West Midlands, London (South) Surrey & Kent, and South West are going to Grant Thornton; the contracts covering Humberside & Yorkshire, the East Midlands, and London (North) are going to KPMG; the contracts covering the Eastern and South East regions are going to Ernst & Young; and the North East & North Yorkshire contract has been awarded to DA Partnership, a wholly-owned subsidiary of Mazars.

Chairman of the Audit Commission, Michael O’Higgins, said: “This procurement has been the result of a rigorous assessment of each bidder against published cost and quality criteria, and will mean significant audit fee savings for local councils, NHS trusts and other local bodies. Its outcome will promote a skilled, well-resourced and diverse public audit market.

“The procurement process has ensured that the specialised skills and experience of over 700 public sector auditors will be retained in an outsourced market.

“I am glad to see the cost benefits of bulk-buying audit services and prices being locked in for at least five years – these £250m savings will be passed on to local public bodies when we announce the detail of fee reductions in April.

“We will continue to spread the cost of audit across all local public bodies, ensuring that smaller and geographically remote public bodies enjoy the benefits of the low prices this procurement has secured.”

Following the end of the procurement process, there will be a consultation period with audited bodies on the appointment of their new auditors. The appointments will be formally approved by the Commission’s board in July. Appointments for 2012/13 will commence on 1 September, with Audit Commission staff transferring to the new suppliers on 31 October 2012.

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