Local audit is in crisis and must be fixed urgently, according to a report released on Friday (24 November).

Financial Reporting and Audit in Local Authorities by the Levelling Up, Housing and Communities Committee (LUHC) says that the state of local audit is undermining public trust. There is a growing backlog of accounts with uncompleted audits, with delays of up to seven years.

The crisis in audit is hampering efforts to ensure that funding spent by councils is properly accounted for. Local authorities are therefore not being properly held accountable for their decisions and spending, says the report.

The LUHC makes a series of recommendations to help tackle the current crisis, proposing a range of measures to help improve local accounts to ensure they contain the information needed by the public to hold local authorities to account.

“The growing backlog of audit opinions seriously undermines efforts to hold councils to account for their financial management,” says Clive Betts, Chair of the LUHC Committee. “The government now needs to set out urgently what it will do to clear the backlog, re-establish trust in local audit and accelerate its efforts to establish a local audit system leader.”

Local public bodies are responsible for billions of pounds of expenditure each year, delivering public services that taxpayers rely on every day, says Betts. The impenetrability of the current format and content of the accounts is a problem for council officials, councillors and the public. “The government should now lead on work with the audit sector to ensure audits and accounts support the oversight of public spending and strengthen local democracy and accountability.”

The Department for Levelling Up, Housing and Communities (DLUHC) should move quickly to clear the audit backlog and implement the LUHC Committee’s proposed actions by the end of the calendar year 2023, the report recommends. It also suggests that DLUHC introduce backstop dates for publishing audit local authority accounts on an annual basis going forwards.

The Committee’s report also notes the lack of momentum in bringing forward the legislation to establish the Audit Reporting and Governance Authority (ARGA). ICAEW has been calling for action to clear the local audit backlog for some time, alongside calling for the government to take action on audit and governance reform.

Commenting on the publication of the report, Alison Ring OBE FCA, ICAEW Director of Public Sector and Taxation, says: “We are extremely pleased that the Committee has highlighted the critical importance of audited financial statements to the accountability, governance and effective financial management of local authorities in England.”

ICAEW agrees that urgent government action is needed to tackle the crisis in local authority audit, she says. ICAEW endorses the Committee’s call for greater clarity on the purposes and uses of local authority accounts, as well as making them less impenetrable.

“We hope this report will be a watershed moment in turning around local authority financial reporting and audit in England. All of us in the sector must do our part to address the current crisis and seize this opportunity to make future local government financial statements more understandable. This will ensure that officers, councillors and the public can have confidence that public money is being spent effectively and that financial risks are being addressed.”