The government’s proposals for clearing the audit backlog will require local authorities to make some “difficult decisions” and “uncomfortable trade-offs”, Sarah Healey, the permanent secretary of the Department for Levelling Up, Housing and Communities (DLUHC) has warned.
In July, DLUHC announced a range of proposals to address the backlog of local audits in England. These included enforcing setting statutory deadlines and issuing qualifications and disclaimers of opinion in the short term.
In a letter responding to a Treasury Minute by Dame Meg Hillier, chair of the Public Accounts Committee (PAC), Healey outlined that the DLUHC and the National Audit Office will be working together to set a series of final deadlines for councils and auditors to close down outstanding accounts, which will ensure that the accounts backlog is cleared “as quickly as possible”.
“This will involve some difficult decisions for auditors and local authorities; it is likely that qualified opinions and, in some cases, disclaimers will be necessary to allow the system to reset effectively.
“While this is an uncomfortable trade-off, a consensus has developed across the system that urgent action is required,” Healey wrote.
Both qualified and disclaimer opinions mean that auditors have found issues or limitations in a council’s audit. In regard to a disclaimer opinion, it does not involve the auditor providing or expressing an opinion.
Instead, it states that the auditors cannot form an audit opinion due to the absence of sufficient appropriate audit evidence. With this opinion, auditors withdraw any responsibility that comes with auditing the financial statements.
Healey added that DLUHC will work with local authorities to ensure that it mitigates any “unintended consequences” as part of a broader programme of engagement.
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‘Bold’ audit proposals
This comes as Neil Harris, the director of local audit at the Financial Reporting Council (FRC), warned at CIPFA’s Public Finance Live conference in June that the sector should “be under no illusion” that proposals to sort out the audit backlog will contain “some very difficult messages on what needs to be done because you’ve got to do something bold to be able to reset the system”.
However, in his address at the conference, Harris stated that dealing with the audit backlog is only a short-term priority for the FRC and building a workforce strategy is key in terms of ensuring the long-term sustainability of audit and that the current situation is not repeated.
He said: “The next step for me is building capacity and capability and restoring pride in the local audit profession.”
Shortly before Harris’ address at CIPFA’s conference, a PAC report found that audit delays are hindering the accountability for £100bn in local government spending and increasing the risk of financial issues at councils.
The report also highlighted that there are still too few key audit partners and other experienced staff working in the local audit market. The PAC warned that if DLUHC doesn’t develop the long-term market and workforce, the crisis in local government audit “will only get worse before it gets better”.
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