The government must act “urgently” to clear the local authority audit backlog to restore “public trust”, a report by the Levelling Up, Housing and Communities (LUHC) Committee has warned.
Today (24 November), the committee has published the findings from its inquiry into the “crisis in local audit”. It revealed that local authorities in England spend over £100bn each year delivering services, which makes it “essential” that this money is properly accounted for.
The report found that one of the most pressing symptoms of this crisis is a “large and growing” backlog of accounts whose audits have not been completed, some of them up to seven years old, an issue which is “undermining public trust”.
As a result of this, the report concluded that the Department for Levelling Up, Housing and Communities (DLUHC) must move quickly to clear the audit backlog and implement its proposed action by the end of the calendar year 2023.
Clive Betts, chair of the LUHC committee, said: “Local audit is in crisis and the government must act to fix it. Serious delays in local audits mean that many councils are not fully sighted to problems while they make major financial and service decisions, with audit delays also leaving local taxpayers in the dark.
“The growing backlog of audit opinions seriously undermines efforts to hold councils to account for their financial management. The government now needs to set out urgently what it will do to clear the backlog, re-establish trust in local audit, and accelerate its efforts to establish a local audit system leader.”
Establishing ARGA
The LUHC committee recommended that once the backlog is cleared the department should take long-term action to prevent this crisis from happening again, a key part of this being the creation of the Audit Reporting and Governance Authority (ARGA) as the “system leader”.
“The government intends to establish a new body, the ARGA as this system leader, but it is not clear that the government considers establishing the system leader as a priority, especially as the legislation required to achieve this has been delayed time and time again,” the report said.
The government confirmed ARGA as the new regulator for local audit in May 2022, but has not released an update on its implementation since.
In addition, the LUHC committee’s report outlined that local authority accounts are “overly complicated to the point of being impenetrable to most readers of the accounts”. Moreover, it stated that the accounts do not always contain all the information that users want and need to hold councils to account.
The report stated: “The government and other stakeholders have made decisions about the content and format of the accounts without there being a full and shared understanding of what the accounts should be for, who their target audience is, and how they are expected to be used.”
‘Change and improve’ accounts
In its report, the committee outlined five purposes of local authority accounts that it believes should underpin all attempts to change and improve the accounts.
These include: being a credible public record; allowing funders to hold authorities to account for the use of funds; allowing stakeholders to make conclusions on authorities’ value for money; allowing stakeholders to understand the financial activity, financial position, financial sustainability, and resilience of the authority; and allowing stakeholders outside the authorities to make informed decisions.
The LUHC recommended that the government make “some specific and straightforward changes” to accounts that would align them with these purposes such as introducing a standardised statement of service information and costs (as recommended by the earlier Redmond Review) and decoupling pension statements from the accounts.
In addition, the report recommended that the government also reform the local government legislation which overrides the ordinary accounting practice for local authority accounts as stakeholders have deemed it as “unnecessary requirements” for the accounts.
“The current format and content of accounts are so complicated that they are impenetrable to councillors and council officials, let alone the wider public. The government should now lead on work with the audit sector to ensure audits and accounts support the oversight of public spending and strengthen local democracy and accountability,” Betts added.
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