Tendering for a new external audit service

In 2023, we re-tendered our external audit service. Our Executive Director of Finance, Andy Speer, recently shared our top tips on this process with the National Housing Federation ahead of this year's Housing Finance Conference 2024.

"We had the same auditors for the last six years, and our existing audit contract was due for review. Our Group Audit Committee reviewed the service, supported the recommendation to undertake a tender, and approved the process and delegations.

Our existing auditors had indicated that they did not intend to re-tender in case of a re-procurement. This did not reflect the audit relationship, which had been good throughout.

Our Audit Committee was mindful that the market for external auditors was small, and it had been widely reported in the sector that some associations had struggled to receive many tender responses. Considering these challenging market conditions, our approach was carefully considered. 

Firstly, we started early and planned the audit tender with the aim of concluding the appointment by September or October of the year before the commencement of the audit. I would encourage others to do the same, as it gives bidders sufficient time to plan their people resources well in advance. Governance rules may require a special general meeting to confirm the appointment, with its attendant notice period.

We had a dialogue with potential firms in advance of the formal process. Audit firms are less likely to respond to tenders if they arise out of the blue and are unfamiliar with the tendering organisation; having knowledge about the potential client's scale, scope, and unique features will be helpful.

We had been able to meet some of the new entrants into the audit market 12 months earlier at "speed dating" sessions arranged by the National Housing Federation at the National Housing Federation Finance Conference in March 2023. We followed that up with separate exploratory meetings with four or five firms months before the formal tender. It will be more challenging for housing associations that are Public Interest Entities as they have listed bonds. The number of firms who can accommodate this work is fewer, and the scale of resources required is greater.

Next, we found it important to consider the funders' requirements. There may be provisions in the funding agreements that might influence or limit the choice of auditor, and there may be special requirements in addition to statutory audits, such as the audit of covenant calculations. Funders should be notified once an appointment is confirmed.

I suggest considering which firms you currently work with for your outsourced or co-sourced internal audit service. The same firm cannot provide a client with other internal and external audit services as it would likely compromise audit independence.

Consider your ideal timetable and share it with tenderers, but have some flexibility.

Don't make the procurement documents too onerous, and provide sufficient time to complete the tender. We have all experienced tender documentation and responded to requirements of limited relevance to the work or struggled to access the portal.

Be clear about what you want to achieve. Our tender scoring focussed on timing and a desire to complete more audit work at the interim stage, along with the capacity to deliver, communication and fair cost.

We had a good response to our audit tender, which resulted in a long list of four firms. We felt all were of high quality and appointable. 

Our panel shortlisted two firms to go through to the final interview stage, followed by a second Q&A session led by the Group's Audit Committee to make the final decision. The committee appointed Beever and Struthers in Autumn 2023."

You can read this article on the National Housing Federation's website here: National Housing Federation - Tendering for a new external auditor