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Over half of English local authority audit opinions late despite deadline extension

Author: ICAEW Insights

Published: 16 Mar 2021

An extra four months was not sufficient as the NAO reports that 55% of local authorities’ March 2020 accounts had not received an audit opinion by the revised deadline of 30 November 2020.

The National Audit Office (NAO) has released a report on the timeliness of local auditor reporting on local government in England, setting out how the majority of local authorities, police and fire bodies failed to achieve reporting and audit deadlines despite a four-month extension in recognition of the pandemic. 

In 2019-20, local authorities were responsible for £100bn of net revenue expenditure. They deliver vital local services which we all rely on every day – even more so during the pandemic.

Local auditors have a responsibility to give an audit report that contains opinions on whether published accounts give a true and fair view of the financial position of the local body concerned and of its income and expenditure and whether it has put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources during the financial year. Where there are serious concerns about the financial statements, or how a local authority has used its resources, the auditors may issue a public interest report. 

Financial statements and audit reports should be issued on a timely basis so any issues arising can be quickly addressed. Councils, police and crime commissioners and fire service authorities all need the information in the financial statements so they can plan effectively. Councillors, local residents and Parliament all need assurance on how taxpayers’ money has been used.

Preparers and auditors faced significant practical challenges as a consequence of the pandemic, with remote working and the diversion of council staff to pandemic-related tasks. Additional audit work was also required on the valuation of commercial property and investments and extensive post-balance sheet event disclosures. The precarious state of some council finances required greater scrutiny. 

However, the report suggests that Covid-19 is not entirely to blame for the delays. There was a deterioration from 87% in 2018 to 57% in 2019 in the proportion of local bodies publishing their audited financial statements by the normal 31 July deadline. Only 45% of the 487 local authorities, local police and local fire bodies in England subject to audit under the Code of Audit Practice met the extended deadline of 30 November 2020.

The NAO reports that a decrease in the numbers of experienced staff, both in local authority finance teams and in audit firms, has put greater pressure on already stretched resources. Audit firms are facing tougher regulation from the FRC and have found it difficult to deliver audits for the audit fees provided, while local authority finance teams have struggled to provide the information required by the auditors to a sufficient standard. 

The NAO finds that the pandemic has exacerbated problems that already existed in the local audit landscape, with the Public Accounts Committee expressing concern about the system of local audit. This led to the commissioning of the Redmond Review in 2019, with the Secretary of State for Housing, Communities and Local Government accepting some of Sir Tony Redmond’s recommendations made in September 2020. The central recommendation to establish a new independent regulator for local audit was not accepted but is being considered further.

Council activities have become more varied, complex and commercial. This in turn presents greater risks leading to external audits playing a more important role in assuring the expenditure of public monies. 

The NAO concludes that given the increasing financial challenge and service pressures on local authorities since 2010, local councils need strong arrangements to manage

finances and secure value for money. External auditors have a key role in providing independent assurance on whether these arrangements are strong enough and recommending any action. The late delivery of 2019-20 audit opinions is concerning, given the important part that external audit plays in assurance over taxpayers’ money both centrally and locally.

The government has provided additional funding of £15m to local authorities in 2021-22 to cover higher audit fees, in recognition that increasing regulation, greater scrutiny and strengthened audit quality will cost money. Whether this will be sufficient is as yet unclear.

Alison Ring, Director Public Sector for ICAEW, commented: “The National Audit Office findings were predictable, if disappointing. The situation facing local authorities and their auditors in 2020-21 is likely to be even more difficult, and all the stakeholders that play a part in the local audit system need to work together to find practical solutions that will improve the quality and timeliness of both local authority financial statements and their audits.

“The value of strong financial management and external audit cannot be underestimated. We need long term investment in local authority finance teams and clear direction from government about how it plans to strengthen local audit in England.”

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