Audit delays are hindering the accountability for £100bn in local government spending and increasing the risk of financial issues at councils, a report by the Public Accounts Committee (PAC) has revealed.
Only 12% of local government bodies received audit opinions on their finances in time to publish accounts for 2021/22, which was within the extended deadline for publication, the report – published today (23 June) – outlined.
It also stated that over 400 local authorities missed the deadline, with the cumulative backlog of unpublished opinions rising to 632 for 2021/22.
The PAC’s report said that delays to local audit reduce transparency over approximately £100bn of council spending for local taxpayers and their elected representatives, and impact on other areas of government spending, such as the NHS and central government.
It also highlighted that the delays to publishing accounts means that auditors cannot “sound the alarm” on governance or financial issues at councils before their audits are completed.
Sir Geoffrey Clifton-Brown, deputy chair of the PAC, said: “The cumulative delay of auditing 632 local authority 2021-2022 accounts is a really serious matter, hindering accountability of £100bn of local government spending.
“How many more horror stories such as Croydon, Slough, Thurrock, and more recently the shocking case of Woking Borough Council, are there remaining undetected, which ultimately always have to be bailed out at huge costs to the taxpayer?”
The report also suggested that the risk of significant financial or governance issues being detected too late increases significantly where audits are delayed.
Dame Meg Hillier, chair of the committee, added that the PAC warned the government in a 2021 report that the system of local authority audit was “close to breaking point”.
“Disappointingly, since then the situation has only gotten worse. The cases of Croydon, Slough, Thurrock and Woking councils all should serve as flashing red signals for the government, and our report finds that the rot risks spreading to central government finance and the NHS,” she said.
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The PAC’s report also highlighted that there are still too few key audit partners and other experienced staff working in the local audit market. The committee warned that if the Department for Levelling Up, Housing and Communities don’t develop the long-term market and workforce, the crisis in local government audit “will only get worse before it gets better”.
Hillier added: “There needs to be more resilience in the local audit market if the situation is to improve.
“Our inquiry heard there are fewer than 100 key audit partners registered to perform local audit, a worryingly low number. The government must get its hands round this problem as a matter of urgency. It’s local taxpayers and service users who lose out when serious financial issues arise. The lack of timely accounts leaves council taxpayers in the dark.”
The PAC’s report stated that to deal with the ongoing crisis within local audit there is a “pressing need for leadership”.
It called for the Audit, Reporting and Governance Authority, the government’s preferred choice as system leader, to be established.
The committee stated that this point was already stressed in their July 2021 report, “yet there are still few signs of it happening, and no guarantee that the necessary legislation will be in place during this parliament”.
It also added that “shadow” arrangements with the Financial Reporting Council to lead local audit have not yet formally started, which means that “for now the system remains fragmented and deep-rooted local audit challenges remain unaddressed”.
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