Former chief executive of the London boroughs of Richmond and Hammersmith & Fulham Richard Harbord responds to parliamentary questions over the accountability of s151 officers in financial reporting.
Room151 recently carried a report of the first days of a select committee inquiry into the external audit of local authorities.
In my articles I have pointed out over a period of time that, very sadly, central government shows very little understanding of how the finances of local authorities work. It would seem that at least two members of the Levelling Up, Housing and Communities Committee felt that the section 151 officer must be at fault in some way in ensuring the audits were completed. This does indicate a large gap in understanding of what is going on.
There is hope, however, as these are reports of days of hearings. First, the chair of the select committee is Clive Betts, a former local authority leader. He is a man who has been chair of this committee for some time and has often supported local authorities in a variety of ways. Most recently, in comments on aspects of communication between the Valuation Office Agency and local authorities.
In this month’s select committee inquiry evidence session, Betts heard from a panellist that there was no silver bullet solution, responding that the current situation was a “complete mess”, and it would have to be fixed.
Secondly, there are a number of external witnesses who will understand the current situation. Tony Redmond was there to give evidence on the first day. He seems to have controlled himself and not said that if all the recommendations of the Redmond Review into external audit had been implemented, much of the current difficulties would have been dealt with.
Personally, I hope the committee will not waste time on finding out who is to blame for the “complete mess”, but instead concentrate on a sensible strategy going forward to restore the credibility of external audit as a vital part of the governance and accountability of local government.
There were comments about the complexity of local government accounts and the fact that they are too complicated for the person in the street to understand. That is a truism; local authorities are complex, and the accounting follows. Many local authorities try to produce simple summaries for mass consumption, and I think we could do more in that area. I am sure that will form a conclusion to the report.
Section 151 officers do have responsibility for ensuring the accounts are in the proper form and completed by the statutory deadline. This week will lead a number of section 151 officers to be considering if their draft reports tick all the boxes and can be published, and if not to explain on their website and to members why they cannot be published. I suspect a lot of us have been there!
Providing they respond reasonably to audit enquiries they cannot however be held liable for the delays in the completion of the audit.
However, a large number of 2021-22 audits have not been completed and many were not started until after they should by statute have been finished.
At the risk of being shot to pieces, I think the following areas have contributed to the current position.
I start from the abolition of the Audit Commission. During its time, the list of authorities not completing on time was very small and the external audit system generally ran very well. As I recently wrote here, I do not think that the abolition should not have happened. It was time to change, but there is an email chain to show the chair of the Audit Commission was sent an email telling him that the government were to review the way it worked, and two days later one saying they were being abolished. I would submit therefore that perhaps change could have had a better strategic plan.
The creation of Public Sector Audit Appointments (PSAA) and the change to entirely private sector auditors was rushed and not properly thought through.
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External audit for local authorities has in recent years been on the cheap and this has had several unintended consequences. A number of firms have left the market as they were making losses on this work, and the pool of well qualified external auditors has fallen.
Like local authorities, external auditors are having increasing difficulties in recruiting suitable, well qualified staff.
The pursuit of accounting purity led to, for example, impossible deadlines for the implementation of FRS 16 and last year the valuation of highways infrastructure. The latter being something that I felt was in reality a pointless confusion at a time nobody could cope anyway. Although this did allow me to sit through a very interesting discussion on the valuation of potholes!
Every year there is increasing tension on valuation of assets. There really needs to be some sensible discussion and compromise around this. Valuers are bound by the ‘Red Book’; auditors which other factors to be taken into account. There must be a sensible way of resolving this. In a large authority the level of materiality can be £30m.
To date, the suggestions for dealing with the situation have been unrealistic. The two most often mentioned are to have a year without asset valuations and the other to have two years accounts audited together.
The latter does not immediately seem possible, and the former could lead to a balance sheet not showing a true and fair view. An authority reported this week a loss in value of £500m!
Richard Harbord is the former chief executive of Richmond and Hammersmith & Fulham councils.
Click here to read Richard Harbord’s recent post on the results of scrapping the Audit commission, and here to read his post on the government’s initiative to move ‘further and faster’ on pension pooling.
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