System of local government audit close to ‘breaking point’

A report published by the House of Commons’ Public Accounts Committee has said that the government’s oversight of local government audits has become ‘increasingly complacent’.

It revealed that less than half of local authority audits met the deadline for completion in 2019-20, with half of audits examined by the Financial Reporting Council (FRC) needing ‘more than limited’ improvement.

The local audit market is ‘now entirely reliant upon only eight firms, two of which are responsible for up to 70% of local authority audits’, according to the report.

The Committee said: ‘If local authorities are to effectively recover from the pandemic, it is critical that citizens have the necessary assurances that their finances are in order and being managed in the correct manner.

‘Delays and quality issues undermine the value and purpose of audit, reducing the assurance to taxpayers and elected representatives.’

The Public Accounts Committee questions whether the ‘pressing’ need for new system leadership in local public audit, identified in last year’s Redmond Review, is met by the government’s proposal for a future Auditing, Reporting and Governance Authority (ARGA).

This will not be set up until 2023 at the earliest and it is unclear whether it will then be able to fully address the current failings in the market for auditing local authorities.

They also said that the Ministry of Housing, Communities and Local Government (MHCLG) has not given enough ‘credible detail on addressing the urgent problems that cannot wait for ARGA’.

Commenting, Chair of the Public Accounts Committee, Dame Meg Hillier said:

“Our citizens expect public authorities to account for the taxpayers’ money that they spend.

“As public spending and demand on local services have exploded with the pandemic, the accelerating decline in the timeliness and quality of audit of local government spending undermines that accountability and undermines effective spending decisions.

“Even before Covid, the local government audit market was strained. If the market cannot deliver that accountability and clarity about the costs and risks in local government, the government should be more concerned than its slowness to act suggests.

“The Redmond Review of local government audit is a thorough and sensible piece of work, but some of its measures won’t be implemented until 2023, more than four years since it was commissioned.

“And public audit is added as an afterthought to a body which oversees the very different field of company auditing.

“As we embark on the long road to recovery from Covid-19 and transition to a net zero carbon economy, clear, accessible and transparent audit reports will be more important, not less.

“The delays in delivering audits are the tip of an iceberg of issues facing public audit, which need real commitment to resolve.”

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