Timeliness of local auditor reporting

Public Accounts Committee Closed Inquiry
Opened: 20 Jan 2023 Closed: 24 Sep 2023 Parliament page
In 2021 the Committee reported that the system of local government audit in England was close to breaking point , reinforcing concerns about councils’ ability to budget effectively. Subsequently, in October 2022, the Committee reported that the pandemic had exacerbated existing failures in the local audit market , with a … Read more
1 Recommendation
27 Conclusions
1 Report
1 Oral session
1 Event
Activity timeline 4 events
24 Sep
2023
Report published
23 Jun
2023
Report published
16 Mar
2023
Oral evidence
16 Mar
2023
Formal meeting (oral evidence session) · The Grimond Room, Portcullis House
Oral evidence sessions 1 session
16 Mar 2023
View on parliament.uk
Timeliness of local auditor reporting
Catherine Frances · Department for Levelling Up, Housing and Communities Jeremy Pocklington CB · Ministry of Defence Neil Harris · Financial Reporting Council Sarah Healey · Department for Digital, Culture, Media and Sport Tony Crawley · Public Sector Audit Appointments Ltd
Title HC No. Published Items Response
Sixtieth Report - Timeliness of local auditor reporting HC 995 23 Jun 2023 28 Responded
Recommendations & Conclusions
28 results
2 Conclusion Accepted
Sixtieth Report - Timeliness of lo…
Explain actions to mitigate local audit delays impacting accountability and central government department accounts.
Delays to the publication of audited accounts for local government bodies increases the risk of governance or financial issues being identified too late and hinders accountability for £100 billion of local government spending. There are ways in which auditors can … Read more
Government Response
The government agrees and states the recommendation is implemented. It explains that Minister Rowley has updated the Levelling-Up Committee on urgent work to clear the audit backlog, and the department has written to local authority Chief Executives emphasizing their role and monitoring financial health.
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3 Conclusion Accepted
Sixtieth Report - Timeliness of lo…
Develop the market and workforce for local audit, outlining plans, metrics, and milestones.
Long-term market and workforce development are essential if the Department is to resolve the current problems with local auditor reporting and create a more resilient system for the future. Much of the focus to date has been around short- term … Read more
Government Response
The government agrees and states the recommendation is implemented. The Permanent Secretary has written to the Committee setting out the FRC’s plans for the Local Audit Workforce Strategy and will provide a further update before the end of 2023 detailing actions across the local audit system.
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4 Conclusion Accepted
Sixtieth Report - Timeliness of lo…
Set out contingency plans for delayed establishment of ARGA if legislation is not passed.
Delays to establishing the Audit, Reporting and Governance Authority (ARGA) and handing over responsibilities for leading local audit to the FRC, risk performance deteriorating further. The Department rejected the Redmond Review’s proposal to create an Office of Local Audit and … Read more
Government Response
The government agrees and states the recommendation is implemented. Its contingency plan for legislative delays to ARGA's establishment involves establishing "shadow system leader arrangements" at the FRC, which includes appointing a director and publishing an MOU, with full arrangements anticipated to start later in 2023.
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5 Conclusion Deferred
Sixtieth Report - Timeliness of lo…
Address the lack of incentives and sanctions for timely local auditor reporting by October 2023.
There are no consequences for local government bodies or local auditors failing to deliver audited accounts on time. Audit contracts cannot specify the delivery of opinions by a certain date. The FRC and the Department say that they want to … Read more
Government Response
The government agrees but states that work on incentives and sanctions requires careful consideration and is a longer-term issue. It is prioritising clearing the audit backlog and commits only to exploring transparency and considering wider consequences once the backlog is resolved.
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6 Recommendation Accepted
Sixtieth Report - Timeliness of lo…
Require the Department to urgently agree permanent measures for complex local accounts and their audit.
Government, local bodies and standard setters still lack a shared view of how to ensure that local public accounts, and the audit of them, are fit for purpose. Local government accounts have become increasingly complex. They have to meet financial … Read more
Government Response
The government agrees and states the recommendation is implemented. It references Minister Rowley's evidence and letter updating on early work to review complex areas of local authority accounting, and the Permanent Secretary has written to summarise this work, with a further update expected after the summer.
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1 Conclusion Accepted
Sixtieth Report - Timeliness of lo…
Government progress on improving timeliness of local government audit opinions reviewed.
On the basis of a report by the Comptroller and Auditor General (C&AG) we took evidence from the Department for Levelling Up, Housing and Communities (the Department), the Financial Reporting Council (FRC), and Public Sector Audit Appointments Ltd (PSAA) about … Read more
Government Response
The government agrees, stating the Minister has outlined work by DLUHC and FRC to clear the audit backlog. The NAO and department are proposing final deadlines for auditors and local bodies to complete outstanding audits, with implementation anticipated by year-end, measuring progress by audits completed.
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7 Conclusion Deferred
Sixtieth Report - Timeliness of lo…
Department confident in audit timeliness improvement despite auditor market exit concerns.
We asked the Department why it was confident that performance on audit timeliness would improve and what signs of improvement it would be looking for. The Department described its particular focus on valuation issues which it told us has been … Read more
Government Response
The government agrees with the committee's observation on audit timeliness, updating that early work to deliver reforms and review complex accounting areas, including asset valuation, is underway. A further update will be provided after the summer once this work has progressed.
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8 Conclusion Accepted
Sixtieth Report - Timeliness of lo…
Early accounts deadline risks exacerbating local audit backlogs and pressures.
We challenged the Department on whether its plans to bring the accounts publication deadline forward for 2022–23 would present a risk to progress. The Department told us it would keep this under review.20 However, local audit providers and local authorities … Read more
Government Response
The government agrees with the committee and has set a target implementation date of December 2023. DLUHC and FRC are leading work to clear the backlog of delayed audits by proposing new final deadlines for auditors and local bodies, with a period of engagement over the summer.
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9 Conclusion Accepted
Sixtieth Report - Timeliness of lo…
Late local audits hinder financial assurance and risk identification for councils.
The audit process provides a key element of assurance for financial planning, budgeting and management in local government bodies and accountability for £100 billion of spend, but this only works effectively when audit work is timely. We pressed the Department … Read more
Government Response
The government agrees with the committee's observation and is undertaking cross-system work to address the backlog of local audit opinions. It also reminded local authority chief executives of their role in timely financial reporting and emphasized that auditors must continue to use existing statutory powers to highlight concerns early.
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10 Conclusion Acknowledged
Sixtieth Report - Timeliness of lo…
Local audit delays cause knock-on problems for Whole of Government Accounts and central departments.
Local government audit delays are also creating problems in other parts of government. For example, delays to the completion of 2020–21 local audits are adding to uncertainty around progress with the Whole of Government Accounts, which will be published more … Read more
Government Response
The government agrees with the committee's observation on audit delays impacting other accounts. It outlines ongoing urgent cross-system work, including letters to local authority executives and DLUHC's monitoring, to address the overall local audit backlog.
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11 Conclusion Acknowledged
Sixtieth Report - Timeliness of lo…
Local audit delays threaten NHS accounts due to shared auditor pools and sector changes.
We also asked the FRC about the risks local audit delays cause to NHS accounts. The FRC emphasised the challenges the health sector faces due to structural changes in the last year.29 This will be reflected in the NHS requiring … Read more
Government Response
The government agrees with the committee's sentiment regarding local audit delays impacting NHS accounts and describes ongoing cross-system work, including letters to local authority executives and DLUHC's monitoring, to address the overall audit backlog and ensure timely financial reporting.
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12 Conclusion Deferred
Sixtieth Report - Timeliness of lo…
Local audit delays caused by authorities, auditors, and regulatory pressures on complex valuations.
The Department described the local audit system to us as having no ‘single version of the truth’ for what is holding up individual audits, in some cases issues being with the authority preparing the accounts and in other cases the … Read more
Government Response
The government agrees with the committee's observation and will provide its approach in October 2023. It will also explore how greater transparency around audit delays could influence behaviour and consider a wider system of consequences in the longer term after clearing the backlog.
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13 Conclusion Deferred
Sixtieth Report - Timeliness of lo…
Absence of audit contract deadlines for opinions challenges the independence-timeliness balance.
The Society of London Treasurers told us there also needed to be consequences for late sign-off of accounts, suggesting auditors should report on the causes of delay to audit committees. The Society also queried whether better contract management might help … Read more
Government Response
The government agrees and will write to the Committee in October 2023 with its approach, but states that exploring incentives and sanctions for late sign-off is a longer-term consideration requiring very careful thought, to be addressed after the current backlog of delayed local audits is cleared.
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14 Conclusion Deferred
Sixtieth Report - Timeliness of lo…
Insufficient oversight and sanctions for local authorities missing draft account deadlines.
Compared to the level of scrutiny over the quality of their audits, local audit providers highlighted a contrasting lack of oversight or sanction over the quality and timeliness of 28 Qq 97–99 29 Q 40 30 TAR0011 31 Q 40, … Read more
Government Response
The government agrees with the committee's observation and will write to the committee in October 2023 with its approach to addressing the lack of oversight. It commits to exploring how greater transparency around audit delays could influence behavior and will consider a wider system of consequences for the longer term, once the backlog of delayed audits is resolved.
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15 Conclusion
Sixtieth Report - Timeliness of lo…
Department fails to explore Scottish approaches to address English local audit delays.
The Department told us that, while Scotland was a very different market to that operating in England, its information was that there are not the same timing issues as it was facing in the English context. When we asked whether … Read more
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16 Conclusion Deferred
Sixtieth Report - Timeliness of lo…
New local audit contracts significantly increase fees, improving financial viability for providers.
We recommended in 2021 that the Department ensured PSAA’s procurement exercise for the next round of audit contracts covering 2023–24 to 2027–28 financial years bring fees into line with the costs of work and be appropriately funded. The procurement completed … Read more
Government Response
The government agrees with the committee's observation on audit fees and market viability, confirming that the FRC plans to progress the Local Audit Workforce Strategy and will provide a further update on determined actions before the end of 2023.
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17 Conclusion Deferred
Sixtieth Report - Timeliness of lo…
Local audit market faces persistent capacity challenges despite recent procurement efforts.
When we asked PSAA about its confidence in the future of the market, it cautioned that the procurement had been very tough, having only secured 90% of the capacity PSAA needed in the initial round. PSAA described this outcome as … Read more
Government Response
The government agrees with the committee's observation on market challenges, stating that the FRC plans to progress the Local Audit Workforce Strategy and will provide a further update before the end of 2023 detailing necessary actions across the local audit system.
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18 Conclusion Deferred
Sixtieth Report - Timeliness of lo…
Critically low number of ageing key audit partners threatens local audit resilience.
There are less than 100 key audit partners registered to perform local audits.52 We asked PSAA whether it felt there were enough audit partners in the market. PSAA described the number of key audit partners on the register as ‘worryingly … Read more
Government Response
The government agrees with the committee's observation. The Permanent Secretary has written to the Committee outlining the FRC's plans for a Local Audit Workforce Strategy and will provide a further update by the end of 2023 detailing the determined actions across the local audit system.
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19 Conclusion Deferred
Sixtieth Report - Timeliness of lo…
New local audit qualification launch delayed, hindering efforts to boost auditor supply.
In 2021 we recommended the Department accelerate training to increase the supply of auditors quickly. The Department told us that it has worked with the Chartered Institute of Public Finance Accountancy (CIPFA) in developing a new qualification it now expects … Read more
Government Response
The government agrees with the committee's observation on auditor supply, stating that the FRC plans to progress the Local Audit Workforce Strategy and will provide a further update before the end of 2023 detailing necessary actions to address the supply of auditors.
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20 Conclusion Deferred
Sixtieth Report - Timeliness of lo…
New local audit qualification's attractiveness and efficacy for private sector auditors questioned.
We challenged the Department on whether the qualification would equip staff to make judgements that are quite different to those in private audits. The Department accepted that difficult judgements require experience and joint working with council leadership teams. We pressed … Read more
Government Response
The government states it has agreed with the committee's observation. The Permanent Secretary has written to the committee about the FRC's plans to progress the Local Audit Workforce Strategy and will provide a further update by the end of 2023 setting out determined actions.
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21 Conclusion Accepted
Sixtieth Report - Timeliness of lo…
FRC develops long-term local audit workforce strategy, expected for autumn 2023 publication.
The FRC is beginning work on a comprehensive workforce strategy. The FRC told us this will represent a long-term plan including routes into local audit starting with championing public sector audit among people at university and college. When we challenged … Read more
Government Response
The government agrees that the recommendation is implemented, stating the Permanent Secretary has written to the Committee outlining the FRC's plans for a Local Audit Workforce Strategy and will provide further details on determined actions before the end of 2023.
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22 Conclusion Accepted
Sixtieth Report - Timeliness of lo…
Establishment of ARGA, the local audit system leader, further delayed until 2024.
In 2020 the Department rejected the Redmond Review’s proposal to create an Office of Local Audit and Regulation (OLAR) to oversee local audit, partly due to the time it would take for a new body to establish itself.68 It chose … Read more
Government Response
The government agrees and states the recommendation is implemented, detailing the establishment of shadow system leader arrangements at the FRC, including the appointment of a director and a published MOU, and commits to legislating for ARGA when parliamentary time allows.
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23 Conclusion Accepted
Sixtieth Report - Timeliness of lo…
FRC assumes 'shadow' local audit leadership, facing capacity building and dual-role risks.
The FRC said that from its point of view ‘ARGA cannot come in quickly enough.’ In March 2023 it agreed a memorandum of understanding with the Department setting out the ‘shadow’ system leadership responsibilities it will take on in the … Read more
Government Response
The government agrees and states the recommendation is implemented, detailing the establishment of shadow system leader arrangements at the FRC with a memorandum of understanding published in March 2023, anticipated to be fully operational later in 2023 as a contingency for ARGA's legislative delay.
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24 Conclusion Accepted
Sixtieth Report - Timeliness of lo…
Local government accounts remain complex and impenetrable, hindering public accountability and understanding.
We have previously expressed our concern that local government accounts have become impenetrable to many and that unless local authority accounts are useful, relevant and understandable they will not aid accountability.78 CIPFA, one of the bodies responsible for setting the … Read more
Government Response
The government agrees with the committee's observation and has initiated a review of the most complex areas of local authority accounting, focusing on non-investment assets, pensions, and associated auditing requirements, with a further update expected after the summer.
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25 Conclusion Accepted
Sixtieth Report - Timeliness of lo…
Complexity of property valuation arrangements creates disproportionate audit work for local authorities.
In 2021 we reported our particular concern that the complexity of valuation arrangements around property in particular generated levels of audit work disproportionate to the risks faced by authorities. Mazars described how these accounting values had limited importance to local … Read more
Government Response
The government agrees with the committee's observation and has initiated a review of the most complex areas of local authority accounting, specifically focusing on the valuation of non-investment assets and pensions, with further updates expected after the summer.
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26 Conclusion Deferred
Sixtieth Report - Timeliness of lo…
Pursuit of optimal accounting standards obstructs understandable local audit and financial reporting.
We asked whether the desirable pursuit of the best possible accounting standards was preventing accounts being understandable. The FRC recognised the issue, yet despite the consensus it described around the need to reset the purpose of local audit and financial … Read more
Government Response
The government agrees with the committee's observation, stating that early work to deliver reforms and review complex accounting areas, particularly asset valuation and pensions, is underway. A further update will be provided after the summer once this work has progressed.
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27 Conclusion Accepted
Sixtieth Report - Timeliness of lo…
Alternative accounting frameworks risk inconsistency; simplifying standards proves difficult for bodies.
CIPFA’s evidence to us highlights its view that no alternative accounting frameworks are without their disadvantages, and that departures from the existing regime may risk reducing consistency with the rest of the public sector and require adjustments to feed in … Read more
Government Response
The government states it has agreed with the committee's observation. It has begun early work on reforms, including a review of the most complex areas of local authority accounting, particularly non-investment assets and pensions, with further updates expected after the summer.
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28 Conclusion Acknowledged
Sixtieth Report - Timeliness of lo…
Simplified statements for local government accounts delayed amidst severe audit timeliness pressures.
We have previously stated our support for the Redmond Review’s shorter-term proposal for local authorities to publish a standardised statement alongside their accounts to improve transparency to the public.89 The Department told us that work was underway to develop simplified … Read more
Government Response
The government states its response builds on existing commitments to the Redmond Review and its 2021 package of measures to improve local audit delays, without offering new specific actions for the noted delay.
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Government Response AI assessment · 27 of 1 classified
Accepted 13
Acknowledged 3
Deferred 11
Total 1 rec + 27 conclusions