Levelling Up Committee launches inquiry on local audit

• Inquiry: Financial Reporting and Audit in Local Authorities
• Levelling Up, Housing and Communities Committee

The inquiry will scrutinise the role of audit in local accountability and democracy and the extent to which accounts provide a clear picture of the financial sustainability and resilience of a local authority.

The inquiry is also likely to explore how local authority financial reporting could be made more accessible, the role of local audits in acting as ‘red flag’ for action by councils to address financial issues, and how auditors in local government could work together to share best practice.

The full inquiry terms of reference are included further below.

Clive Betts, Chair of the Levelling Up, Housing and Communities Committee, said: “Councils across England face a series of cost and service pressures. Many local authorities are struggling financially with some councils in recent months even warning that they could be forced to declare effective bankruptcy within the coming year. When council finances are under greater pressure than ever before, the need for effective financial accountability for local government is put into even sharper focus.

“Local public bodies are responsible for billions of pounds of expenditure each year, delivering public services that taxpayers rely on every day. Effective financial reporting at the local council level is important not only for delivering value for money for these services but is also key to democratic accountability. As a Committee, we are keen for our inquiry to examine how local authority financial reporting could be improved to better engage with taxpayers and other stakeholders. We will also want to explore how local audit fits into the ‘checks and balances’ of how councils operate and the effectiveness of audit in acting as a ‘red flag’ to councils to address financial issues.”

The LUHC Committee’s inquiry comes in the wake of a recent declaration by Woking Borough Council that it was “in the territory” of being unable to meet its financial obligations and at risk of issuing a section 114 notice, which would force central government to intervene. The Committee’s inquiry also follows the news of Thurrock Council issuing a section 114 notice in December, and other recent failures at Northamptonshire County Council, Croydon London Borough Council, and Slough Borough Council.

Financial reporting and local audit – inquiry terms of reference

The Committee welcomes written evidence on the terms of reference outlined below. The closing date for submissions is Monday 17 April.

Evidence sessions for the inquiry are likely to begin after the Easter Recess.

Users and uses of local authority accounts and audit 

• What is the purpose of local authority accounts? 
• What role do they play in local accountability and democracy? 
• Building on that answer, what is the purpose of local audit? 
• Does it ensure compliance with requirements, assure the credibility of the accounts, assess the local authorities themselves through value for money work, etc.? 
• Who currently uses local authority accounts? 
• What do they use the accounts for? 
• Who should be using local authority accounts? 
• If these groups of users aren’t the same, why not? 
• What information do citizens need in order to hold their local authorities to account? 
• Is this information available in the local authority accounts as they stand? 

Understandability and accessibility of local authority accounts and audit 

• Do the accounts provide a clear picture of the financial sustainability and resilience of a local authority? 
• How well do users understand the financial position and performance of a local authority from its accounts? 
• Do the accounts provide a clear picture of the level of reserves within a local authority, and how these might be used?
• How easy do users find it to locate key information they are looking for in accounts? 
• Electors have a statutory right to inspect and object to pre-audited accounts. How widespread is this, and how does the current format of local accounts affect it? 
• How well do users understand published audit findings and reports? 
• Are some outputs more understandable and accessible than others? 

Making local authority accounts meet the needs of users better 

• Are local accounting requirements proportionate? 
• Are the bespoke reporting requirements for local government accounts (as opposed to central government accounts or non-government accounts) beneficial? 
• Do local authority finance teams have sufficient expertise and capacity? 
• Could changes be made to local authority accounts that would both simplify their production and improve understandability for users? 
• How could local authority annual report and accounts be more accessible? 
• What is the role of the new local audit system leader in improving local authority accounts?

Addressing findings in audits and sharing best practice 

• To what extent can local authority audits identify issues prior to the most significant difficulties being known? 
• Is there a sufficient advance warning mechanism when issues are identified to ensure action is taken? 
• To what extent is there a framework for auditors in local government to work together and to share best practice? Should such a framework be formalised? 
• To what extent has a recent absence of multi-year funding settlements hindered budgeting and forecasting?

Further information

• About Parliament: Select committees
• Visiting Parliament: Watch committees

Image: PA