The rate of UK local authority audits being completed on time has seen a dramatic downturn during the past two years, posing a significant threat to transparency in the public sector, according to the National Audit Office (NAO).
Fresh data analysis in a report published by the parliamentary body shows that just 12% of 2021-22 local authority audits were completed by the November 2022 deadline, with the backlog of outstanding audit opinions growing to 632.
This is only a slight improvement on the previous year’s figure (9%), which itself represented a major slump compared to the 45% reported for 2019-20.
Gareth Davies, head of the NAO, has argued that this increasing lack of timeliness could spell an erosion of trust and accountability in local authorities.
“It is essential to transparency that the timeliness of local auditor reporting improves and does so quickly,” Davies said in a statement.
“Local government audit provides transparency and accountability to both taxpayers and locally elected representatives. It also provides assurance that local authorities’ financial management is strong enough and delivering value for money.”
Similarly, the publication of the NAO’s 2021 report on the same subject was met with concern from Meg Hillier MP, Chair of the House of Commons Public Accounts Committee, who warned that delays and quality issues “undermine the value and purpose of audit”.
ARGA and the new era
Davies’ statement also called on the Department for Levelling up, Housing and Communities (DLUHC – the acting system leader for local audit in the UK) to continue working with the Financial Reporting Council (FRC) to ensure the timely production of audited accounts for local authorities.
The NAO’s report expands on this, noting that the DLUHC has set out a range of approaches to “increase auditor supply”, including announcing a workforce strategy for local audit led by the FRC.
It also refers to the “pressing need” for system leadership for local public audit, and that the DLUHC has proposed ARGA (the body set to replace the FRC) as the system’s future leader.
However, the report goes onto acknowledge that ARGA is unlikely to be established until 2024 at the earliest, and that the DLUHC has taken “urgent steps to address problems that could not wait for ARGA to be in place”.
This comes amid heightening tensions across the UK’s audit community, as January 2023 marks the five-year anniversary of the collapse of construction firm Carillion.
An overhaul of the country’s audit and corporate governance framework (including the creation of new audit regulator, ARGA) was proposed and agreed in its wake, but little progress has yet been made in terms of concrete action.
“I think it is quite poignant that it is now the five-year anniversary of Carillion collapsing, and the government is yet to deliver good on its promise,” says Gavin Hayes, head of policy and external affairs at the Chartered Institute for Internal Auditors (CIIA).
“Audit reform is really essential in terms of protecting people’s jobs, pensions and livelihoods. And in the case of Carillion, it costs taxpayers millions and millions of pounds.”