DLUHC gets new warning on crisis in local government audit

MPs say problems with councils’ £100bn-a-year spend are being exposed too late, and “the rot risks spreading” to central government and the NHS
Latest casualty: Woking Borough Council Photo: Google Maps

By Jim Dunton

23 Jun 2023

Members of parliament’s Public Accounts Committee have warned that backlogs in local-government audit are running at “unacceptably high” levels and are hindering accountability for the £100bn a year of taxpayers’ money spent by bodies such as councils, police and fire services.

A report from the committee today says there are currently 632 unpublished audit opinions and that the situation is likely to get worse before it gets better – with knock on impacts for central government, notably in the form of the Whole of Government Accounts, and the NHS.

The backlogs are due to a shortage of auditors that can be traced back to the coalition government’s abolition of the Audit Commission. But the PAC has criticised the current Department for Levelling Up, Housing and Communities for being too slow to set up a new body to oversee local-government audit and deal more proactively with the shortage.

Meanwhile, in recent years a number of councils have made so-called Section 114 declarations, effectively a statement that they are unable to balance their books. Woking Borough Council in Surrey is the latest authority to do this, mainly because of around £1.9bn in debt relating to two major property developments, one of which features three skyscrapers.

Housing secretary Michael Gove last month appointed commissioners to help the authority deal with the scale of the commercial and financial risks it faces following its “failure” to provide assurances over the adequacy of the actions it is taking to deal with the situation. A report to the secretary of state said the annual cost of servicing Woking’s £2.4bn total debt was £62m. The council’s annual budget is £24m.  

PAC chair Dame Meg Hillier said the risk of significant financial or governance issues being detected too late increased significantly where audits are delayed and that there are knock on effects for other parts of the public sector where the same pool of auditors operates.

“Our inquiry heard there are fewer than 100 key audit partners registered to perform local audit, a worryingly low number,” she said.

“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.

“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.”

Deputy chair Sir Geoffrey Clifton-Brown questioned how many more “horror stories” like those councils remained undetected.

“The cumulative delay of auditing 632 Local Authority 2021-2022 accounts is a really serious matter, hindering accountability of £100bn of local government spending,” he said.

“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.”

The PAC’s report calls for the Audit, Reporting and Governance Authority, the government’s preferred choice as system leader, to be established as soon as possible. But it acknowledges that this will not happen before 2024.

It also calls on DLUHC to explain what it is doing across the local audit sector to mitigate the impact of delays on local-government accountability, on the accounts and audit of central government departments, and in relation to late identification or reporting of “significant local audit issues”.

A DLUHC spokesperson said: “Local audit plays a vital role in ensuring transparency and accountability within local bodies and the timely completion of high-quality audits is essential.

“We recognise the concerns that have been raised and are working with stakeholders to ensure issues are resolved quickly and sustainably.

“We will consider the committee’s recommendations and respond in due course.”

DLUHC added that the establishment of ARGA required primary legislation and that the government was committed to legislating for it “when parliamentary time allows”.

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