NAO refuses to sign off Whole of Government Accounts due to missing data

PAC chair says impact of local authority auditing crisis on cross-government snapshot is "deeply unsatisfactory"
Birmingham City Council was among the local authorities that did not submit data to the 2021-22 WGA. Photo: Adobe Stock

The National Audit Office has refused to give an opinion on the latest Whole of Government Accounts for the first time ever because of major backlogs in local-authority audits.

Gareth Davies, head of the NAO, said he had disclaimed the WGA for 2022-23 – which brings together data on assets and liabilities from around 10,000 organisations, including central government departments, NHS bodies, councils and schools – because he had been “unable to obtain sufficient, appropriate evidence upon which to form an opinion”.

Out of 426 local authorities across England, just 43 – around 10% – submitted reliable data to the WGA. Just over half of those remaining submitted information that had not been audited, while 187 councils – 44% of the total – did not submit any data at all.

The disclaimed opinion follows three years on the trot when Davies has qualified his opinion on the spending snapshot because of unreliable data. In 2021-22, 211 bodies – mostly English local authorities – submitted data from draft accounts because of audit delays. At the time, Davies said the "quality and completeness" of the dataset was "being eroded" by missing and unaudited data.

In this year’s report, Davies said the missing data was “both material and pervasive to the 2022-23 financial statements”.

Davies said the audit backlog in local councils, which the Ministry of Housing, Communities and Local Government admitted earlier this year will take years to clear, was to blame for the incomplete data.

The move came more than a year after parliament’s Public Accounts Committee warned that local government audit backlogs were running at “unacceptably high” levels and were hindering accountability for the £100bn a year of taxpayers’ money spent by bodies such as councils, police and fire services.

PAC chair Sir Geoffrey Clifton-Brown said today that it was “deeply unsatisfactory” that the auditing failures had prevented Davies from issuing an opinion on the accounts. “If these issues are not addressed, it will become increasingly difficult to hold local leaders to account and more horror stories of failing councils will follow,” he said.

“The government should press forward with its plans to permanently resolve the local audit crisis. The whole of government accounts must be made fit for purpose again.”

In a statement, Davies said: “It is clearly not acceptable that delays in audited accounts for English local authorities have made it impossible for me to provide assurance on the whole of government accounts for 2022-23. It is essential that the steps being taken by government to restore timely and robust local authority audited accounts are effective.”

The comptroller and auditor general's report urged the Treasury to work with MHCLG "to ensure that the steps being taken to restore timely and robust audits of local authority accounts are effective".

In August, local government minister Jim McMahon called the local audit system in England “broken” and set a backstop for completing 2022-23 audits of 13 December, with subsequent backstops for the next five years.

Davies also said the Treasury "must drive financial accountability within government to reduce the number of missing and unaudited entities".

"This includes clearly outlining expectations and introducing consequences for failing to meet deadlines. This will ensure that the WGA is a more complete and accurate consolidation which can provide more insight and be better utilised as a fiscal tool," he said.

DHSC accounts 

Even without the missing data, Davies said there were a handful of issues that would have caused him to issue a qualified opinion on the WGA – meaning that accounts are fairly presented, aside from a specific issue.

Among them were issues in the data provided by the Department for Health and Social Care. Last year, the NAO head issued a qualification because DHSC had been unable to perform stock takes or provide a paper trail for £1.56bn in write downs and £8bn of inventory consumed during the year, which he said were "material" to the 2021-22 accounts.

In this year's WGA, Davies said DHSC's accounts would also been qualified for 2022-23 because of data on the consumption and value of PPE stock depending on the previous year's shaky figures.

The NAO also disclaimed the UK Health Security Agency's accounts for both years as Davies had been "unable to obtain sufficient, appropriate audit evidence" to support UKHSA's figures on its expenditure and assets.

Davies said that while DHSC and UKHSA's balances "were not material for 2022-23 WGA figures, the combination would materially misstate the opening balances of the 2022-23 accounts and comparative expenditure disclosures".

The NAO head said that had he not disclaimed his opinion, he would have issued a qualification for WGA on the basis of these issues in the underlying data from DHSC and UKSA.

"In 2022-23 I confirmed this remained the only underlying component where my qualifications were material to WGA," he wrote.

Qualified opinion

Two further longstanding issues raised by Davies related to “accounting boundaries”, on which he bemoaned a “lack of progress”.

The first was the Treasury’s decision not to consolidate NatWest into the WGA. Davies qualified the 2021-22 accounts for the same reason, after the government reduced its shareholding in the bank to less than 50% as part of a push to dispose of all shares by 2025-26.

As of 31 March 2023, the government owned 41.5% of NatWest, which Davies said means it “currently still maintains control of NatWest under accounting standards, and therefore should be consolidated into the WGA”.

The government has also yet to include English further education institutions in the accounts, for which Davies qualified his opinion last year. The comptroller and auditor general noted that Treasury “has been working with the Department for Education to identify a method and timetable to start consolidating these bodies in the WGA”, but said their omission has led to a £13.3bn understatement of gross assets and £2bn understatement of gross liabilities in the WGA. 

“The lack of progress on resolution of these longstanding issues means that I would have continued to raise the application of the accounting boundary as a qualification issue had my opinion not been disclaimed,” Davies said.

Another area where Davies flagged concerns was “inconsistent accounting policies, mainly relating to the valuation of infrastructure assets”, having also raised inconsistencies between approaches to valuing infrastructure assets in central and local government as an issue for the previous year’s WGA. “In 2022-23 this inconsistency remains, and I estimate the difference in valuation to be at least £97.8bn,” he said.

Under the same qualification, Davies said he could "place no reliance" on the valuation of non-privatised water infrastructure in Scotland owing to discrepancies in how it is valued compared to other infrastructure. He said while the Treasury had adjusted the figures in line with other data in the WGA, "this information is produced with the express caveat that it is not suitable for audit".

Davies also raised concerns for the second year running over the implementation of a new accounting standard for leases, which was adoped by central government in 2022-23 but will not be taken up by local government until 2024-25. The Treasury has been unable to calculate the impact of this discrepancy as it has not requested the required information from local authorites – but Davies said it is "highly likely to be significant to the WGA, and potentially material".

And he said the Treasury and the Department for Education had made "no significant progress" towards resolving inconsistencies in the annual reports and accounts across the academies sector, for which he issued a qualification last year.

He urged the Treasury to continue working with with DfE to "resolve the historic qualification issue", as well as on bringing FE institutions into the WGA.

Davies said he was "conscious that the scale of qualifications (and indeed a disclaimed opinion) in WGA is very unusual and not something seen in many sets of financial accounts".

He acknowledged that while many governments compile equivalent accounts, the WGA is unique in its scale as it consolidates financial information from across the whole public sector.

"Whilst this breadth and scrutiny creates many challenges, I am keen that we continue to do all we can to reduce the qualifications in WGA and limit our exposure to additional qualifications in future. This is something that HMT are prioritising for future years’ WGA," he said.

'Recovery timetable' on track

While today's publication showed the Whole of Government Accounts remain dogged by delays, data gaps and unreliable data, Davies did strike a hopeful note on the timing of WGA publications. In recent years, the Treasury has failed to meet its target deadline of publishing them within 15 months of the end of the financial year.

The 2019-20 figures were not published until July 2022, owing to delays caused by the Covid pandemic and the subsequent redeployment of staff. Later that year, the PAC said the Treasury had been suffering from “optimism bias” in its updates on when the spending snapshot would be published.

The Treasury published the 2020-21 WGA in July 2023 and the 2021-22 snapshop this March, missing the deadlines it had told PAC it was aiming for by four months in both cases.

The Treasury now has a "viable" timetable to get back on track for the annual publication by releasing the 2023-24 WGA next July, Davies said.

A Treasury spokesperson said: “The whole of government accounts remains a valuable and reliable source of information for a wide range of stakeholders.

“We are working with local authorities to improve reporting and transparency and ensure the accounts are as detailed as possible, while making significant additional disclosures to the National Audit Office to address any missing data.”

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