Unacceptably high backlog in local government audit system may get worse before improving

23 June 2023

Delays in publication of audited accounts hinder accountability for £100 billion in local government spending
Governance and financial issues risk being identified too late with knock-on impacts for central government and NHS

The unacceptably high backlog of audit opinions for local government bodies may get worse before it gets better. A Public Accounts Committee report today says that delays to publishing audited accounts for local government bodies increases the risk of governance or financial issues being identified too late, and hinders accountability for £100 billion in local government spending, with knock-on impacts for central government and the NHS.

Only 12% of local government bodies received audit opinions on their finances in time to publish accounts for 2021-22 within the already extended deadline for local authority accounts publication. Over 400 local government bodies missed this deadline, with the cumulative backlog of unpublished opinions rising to 632 for 2021-22. The scale of the issue suggests the position for 2022-23 may deteriorate, with the Government and Financial Reporting Council (FRC), worryingly, unable to say when these issues will be addressed.

The risk of significant financial or governance issues being detected too late increases significantly where audits are delayed and with the same pool of auditors working across other sectors, audits of other areas of public spending including the NHS and central government risk being delayed.

The PAC’s report calls for the Audit, Reporting and Governance Authority (ARGA), Government’s preferred choice as system leader, to be established. While PAC stressed this point in a 2021 report, there are still few signs of it happening. ‘Shadow’ arrangements with the FRC taking on responsibility to lead local audit have also not yet formally started, meaning the system remains fragmented with deep-rooted challenges remaining unaddressed. The Committee also urges the Government and FRC to set out how it will tackle the long-standing challenges in building capacity, capability and leadership in local audit, while expressing disappointment that there has been little progress despite warnings in the past.

Chair's comments

Dame Meg Hillier MP, Chair of the Committee, said:

“Our Committee warned in 2021 that the system of local government 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.

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 tax payers in the dark.”

Deputy Chair's comments

Sir Geoffrey Clifton-Brown MP, Deputy Chair of the Committee, said:

"The cumulative delay of auditing 632 Local Authority 2021-2022 accounts is a really serious matter, hindering accountability of £100 billion of local government spending.

How many more horror stories such as Croydon, Slough, Thurrock, and more recently the shocking case of Woking council are there remaining undetected, which ultimately always have to be bailed out at huge costs to the taxpayer? The fragility of the number of qualified people and firms tending to carry out these important audits means that the system will only get worse before it gets better.

Our report makes a number of important recommendations, such as the role of the Financial Reporting Council (FRC) to strengthen Local Government Authority, and importantly when its successor the Audit, Reporting and Governance Authority (ARGA) will be set up.”

Further information

Image: CCO