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Local audit crisis requires urgent attention, warns NAO

Author: ICAEW Insights

Published: 25 Jan 2023

NAO warns that English local authority audit delays have “potential implications for governance and accountability” as it publishes a “progress update” on the timeliness of English local auditor reporting.

The National Audit Office (NAO) has warned that delays to local authority audits have significantly worsened since its last review in March 2021, prompting calls for the crisis in local audit to be addressed with a sense of urgency.

An update on the timeliness of local auditor reporting on local government in England published today by the NAO finds that 88% of audit opinions on 2021/22 were still outstanding at the 30 November 2022 deadline. 

At that date, 161 of the 467 bodies that had opted into the Public Sector Audit Appointments (PSAA) national procurement scheme had still not received an audit opinion on their 2020/21 accounts, 45 had still not received an audit opinion on their 2019/20 accounts and 10 were still waiting for their 2018/19 audit opinion.

It follows a March 2021 report on the same subject in which the NAO reported that 55% of 2019/20 English local authority accounts had not received an audit opinion by the extended deadline of 30 November 2020. At the time, Dame Meg Hillier MP, the Chair of the House of Commons Public Accounts Committee (PAC) warned that delays and quality issues “undermine the value and purpose of audit”.

Commenting on the delays outlined in today’s report, Gareth Davies, the Comptroller and Auditor General and Head of the NAO, said: “It is essential to transparency that the timeliness of local auditor reporting improves and does so quickly.”

In addition to concerns about transparency, the update reiterates points raised in the March 2021 report that the delays have major consequences for local authority governance and financial management, bearing in mind that the audit provides assurance over the financial information that local authorities use to set budgets and plan services.

This latest progress update also provides more detail about how the local audit delays “have impacts elsewhere in the public audit system”. This includes delays to the certification of central government accounts with material Local Government Pension Scheme liabilities and reduced capacity in the local audit market to audit NHS bodies. 

The third and final part of the report sets out the actions that government and other bodies have taken to tackle challenges in the local audit market. These include changes to the PSAA procurement that are designed to encourage new suppliers into the audit market; a new training route to obtaining the Key Audit Partner status required to sign off local authority audit opinions; and the announcement of plans to establish the proposed Audit, Reporting and Governance Authority (ARGA) as the system leader for local audit.

The report is designed as a “factual update” and does not seek to evaluate the “sufficiency or effectiveness” of government measures. However, Oliver Simms, ICAEW’s Manager for Public Sector Audit and Assurance, commented: “The report lays out clearly how little progress has been made in response to the local audit crisis. ARGA will not be established and made system leader for local audit until at least 2024 and the technical advisory service announced in December 2021 has still not been launched”.

The NAO also set out the progress in improving local authority accounts in response to PAC concerns that accounts are “impenetrable to many stakeholders”. The Department for Levelling Up, Housing and Communities (DLUHC) has delayed the implementation of the recommendation in the Redmond Review for a standardised statement of service information and HM Treasury’s review of operational property valuation has not been published, despite the anticipated completion in autumn 2022.

Alison Ring, ICAEW’s Director for Public Sector and Taxation, commented: “The NAO report provides a helpful summary of what we already know about local authority audit, which is vital for providing confidence to taxpayers about how public money is managed but the delays are undermining its usefulness.

“The crisis in local audit demands urgent attention. We need to see the formal establishment of ARGA as the system leader as soon as possible and take concerted action to make local authority accounts more relevant and understandable”.

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