Delays to audit work that have seen just a fraction of local government bodies getting auditor opinions on their financial statements by statutory deadlines in recent years “could get worse before they get better”, MPs have been warned.
Members of parliament’s Public Accounts Committee have previously expressed concerns that the Department for Levelling Up, Housing and Communities’ oversight of local government finance was being hampered by “shockingly late” audit opinions.
Delayed local government accounts also impact the accounts of some central government departments and their arm's-length bodies – and the compilation of the Whole of Government Accounts.
At a PAC session today Neil Harris, who is director for local audit at the Financial Reporting Council, said there was potential for changes in NHS audit requirements to have a knock-on effect on dealing with the current backlogs in local-government audit.
Harris said a pressing issue for the FRC – which is due to become the shadow system leader for local audit ahead of the creation of the Audit, Reporting and Governance Authority – was to agree on the “whole system risk” currently faced by the sector.
Asked about the nature of the “whole system risk” by PAC member Sir Geoffrey Clifton-Brown, Harris said it was “far from certain” that delays to local audit would be progressively reduced.
He said there were “interdependencies” between the audit professionals working on NHS accounts and local government accounts that were central to the perceived whole-system risk.
“The same pool of audit resources work across both sectors,” Harris said. “The NHS has gone through some structural change over the past 12 months and there is audit of accounts happening this year and auditors need to balance their resource in terms of clearing this backlog, delivering against NHS timetables, and then moving on to current financial years.
“For me, in the shadow system leader role, that’s what we mean by whole system risk. I think it’s far from certain in answer to your question whether it will get worse before it gets better.”
Changes to local-government audit since the abolition of the Audit Commission and a lack of qualified and experienced audit staff in the sector are key drivers for the backlogs. A surge in audit work following the collapse of outsourcing giant Carillion in January 2018 has also been cited as a contributory factor to the plunge in performance.
Harris said he expected the FRC’s work on whole-system risk affecting the sector to include exploring the potential for “another infrastructure-asset issue that might be happening” and looking for “complexities in the NHS audits” that might be costing auditors time.
“The backlog is so significant that I think it’s really important to know what is holding this up and what steps need to be taken to address that in a more granular way,” he said.
According to a National Audit Office report in January, auditors gave opinions on just 12% of local government bodies’ 2021-22 financial statements by the statutory-accounts publication deadline of 30 November.
While that represents a improvement on the 9% figure for the previous year, it is significantly down on the 45% figure for 2019-20 and the 97% in 2015-16.
At today’s session, PAC chair Dame Meg Hillier asked newly-appointed DLUHC permanent secretary Sarah Healey for her 2022-23 projection.
“The fact is that there has been progress with the backlog,” Healey said. “I’m not going to predict an actual number for the percentage of audits this year, but I think we would be disappointed if the numbers were as low as they have been in the last couple of years.”