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How can local authority finance teams make the audit process easier?

Author: ICAEW Insights

Published: 25 Nov 2022

What steps can local government finance teams take to cut the pain points in audit and pave the way for a smooth, productive process? Three experts provide their thoughts.

Local audit is in a state of crisis – just 9% of English councils and other local government bodies published 2020/21 audited financial statements by last year’s 30 September deadline.

Peter Worth, Director of Worth Technical Accounting Solutions, tells us that some authorities are facing a much graver situation than a failure to publish audited accounts by that date. “I know of councils that have three or four years of accounts still open,” he says. “Once you have a backlog, the task gets exponentially harder. Slipping behind one year impacts the next, and so on. It becomes painful, it becomes a slog, and you have to resource up to get out of it.”

While the causes of the delays in local audit are complex and will require concerted action from a variety of stakeholders, Insights spoke to expert voices in this field to find out what local authority finance teams can do to expedite the audit process.

Audit Wales Technical Manager Kate Havard provides thoughts from a part of the UK that has not yet seen the level of audit delays present in England. David Ellis is an Advisor for the Financial Advisory Network at the Chartered Institute of Public Finance and Accountancy (CIPFA), where he provides technical guidance to public sector practitioners on reporting requirements for local authorities and police bodies. They join Worth who, alongside his advisory work, doubles as an observer of the CIPFA LASAAC Local Authority Code Board.

Focusing resources

Why is it so valuable for local authorities to have a grip on this crucial part of the financial calendar and all the data gathering that leads up to it? “Producing the annual accounts and having them audited promptly provides assurance for decision makers about the level of usable reserves available to the local authority,” Worth says. 

“That’s essential for setting a lawful budget for the next financial year. The risk is that if the accounts and audit are two-to-three years behind – and the audit of the earliest year finds a problem – then the authority could potentially be facing a negative General Fund balance that it didn’t know about when the budget was set,” Worth adds.

For Havard, mastering the annual rhythm of the work towards the audit underpins the smooth running of the local authority. “It’s not just a compliance exercise,” she stresses. “To get a robust set of accounts, you need an up-to-date ledger that enables you to prepare better budgeting information and make, for example, more accurate grant returns. If you have decent information, all of that flows much more easily.”

Havard notes: “By freeing you up for budgeting, an efficient audit saves you from stacking up tasks into the autumn. If you get the audit out of the way over the spring and summer, you can then spend the autumn on budgeting, rather than having two major tasks on the go at once. So, it enables the finance team to properly focus often quite scarce resources.”

As part of establishing a rhythm for audit work throughout the year, all three experts highlight the importance of communication at every level. Havard and Ellis urge finance teams to establish a constant dialogue with auditors to find out what they need, and relevant internal teams to ensure they will have the information required.

Streamlining data

In Worth’s view, it is important for local authority finance teams to take a critical look at what the accounts themselves must communicate, to pave the way for a focused end product and avoid unnecessary work. “The Code requires only specific bits of information,” he says. “So, focus on what the Code requires, review how you’re delivering on that and take a ‘no more, no less’ approach.” 

Ellis recommends that local authorities should document each stage of their accounts production and all the relevant data sources. “We’re facing a huge turnover of capacity in this field,” he says, “and loss of knowledge from the departure of long-serving staff. As the audit happens once a year, there’s a risk that teams could forget where certain pieces of data come from, or who they need to talk to. Documentation boosts the resilience of the team. It supports succession planning, and helps to ensure you don’t go down dead ends.”

“The better local authorities set up file structures that mirror the Statement of Accounts,” Worth points out. “For example, a folder for each disclosure note and primary statement. That enables working papers to be filed logically, so there’s a clear trail tying them to the Statement of Accounts and underlying evidence. In turn, that provides a degree of resilience to closedown – so, if staff change, new recruits can just pick up the reins.”

On a related note, Worth says: “Getting the accounts audited is a project-management exercise – so apply that mindset. Break it down into targets and milestones to hit along the way.”

Emphasising quality

One major milestone that a local authority finance team must hit during the accounts and audit schedule is the production of draft accounts – the deadline for which has moved forward in England. In Havard’s assessment, ensuring quality at that stage makes the whole process easier to manage for all concerned. 

“Getting the draft accounts right first time saves a lot of back-and-forth,” Havard says. “There’s an increased cost at Audit Wales if we have poor-quality or incomplete accounts rushed to us purely to meet a deadline.”

“There’s also an integrity point here,” Havard adds. “Producing high-quality accounts is a statutory duty. If local bodies are struggling with other statutory duties, substandard accounts will undermine efforts in those areas, too. I understand the assumption that auditors are trained to spot errors – but it’s not necessarily their job. And for me, the big issue is the cost and time required in finance and audit teams alike to unpick a poor-quality set of accounts.”

For Ellis, the same goes for ensuring quality in working papers. “There are two beneficiaries here: the auditors, who have strong and reliable information to work with – but also, the local authority finance team itself. Good working papers will provide the team with confidence, assurance and a consistency of understanding around where their numbers have come from. As well as leading to potential time and cost savings, that will help to future-proof the team and make it more resilient.”

With all that in mind, Ellis recommends that finance teams get a working paper schedule from their auditor as early as possible. “Ensure it is specifically tailored to your council. Review and agree with the auditor the most efficient way to provide them with the information they need. That may include allowing the auditor access to your systems to extract source data and evidence themselves, rather than asking council staff to undertake the audit by proxy via email.”

Worth notes: “Having a standard suite of template working papers – including extracts from the Code disclosure, analytical review and quality assurance review checklists – provides clear evidence to the Section 151 Officer of a quality-assured process. That will help the Officer to confirm that the accounts present a ‘true and fair’ view.”

Throughout the cycle, ‘sooner is better’ is a good mantra for local authority finance teams looking to best manage the working relationship with their auditors. “Identify what can be done early,” Ellis advises, “including agreeing expectations and protocols for handling audit questions, and/or reviewing accounting proposals for any new technical issues. And share learning each year to improve processes and minimise snags – for example, through a post-audit washup session.”

Top tips

  1. Start early
  1. Treat the process as a project management exercise with deadlines and targets
  1. Consider materiality when producing the accounts and remove immaterial disclosures
  1. Produce high-quality draft accounts and working papers
  1. Foster a close, collaborative relationship with your auditors

Further reading

Download CIPFA’s free local audit guidance paper Streamlining the Accounts

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