News / ‘Unacceptable’ audit backlog risks spreading to NHS

23 June 2023 Steve Brown

The ‘unacceptably high’ backlog in the local government audit system may get worse before it improves, according to a report from the Public Accounts Committee.

The problems come despite the committee warning back in 2021 that the system of local government audit was close to breaking point. ‘Disappointingly, since then the situation has only gotten worse,’ said committee chair Meg Hillier (pictured). She added that there was a danger that the ‘rot’ risked spreading to central government finance and the NHS.

Meg Hillier

Back in 2021, the committee reported that just 45% of local authorities had published audited accounts by the statutory deadline – which had already been extended as a result of the Covid-19 pandemic. However, the situation has deteriorated even further. In its report – Timeliness of local auditor reporting the committee said that just 12% of local audit opinions were received in time for the extended deadline for publishing the 2021/22 accounts in local government.

By the end of November 2022, more than 630 accounts, some dating back as far as 2015/16, had yet to be signed off by auditors. There are numerous reasons for the delays, including increased audit regulation and shortage in the supply of external auditors – reducing the number of audit firms in the market and increasing the workload for those remaining.

And with the NHS drawing on the same pool of auditors, the delays in local audit risk spreading to other areas of public spending. The HFMA has previously highlighted difficulties faced by NHS bodies in appointing external auditors or extending existing contracts. It warned last summer that this year’s audit would be even more time consuming, given the need to separately audit outgoing clinical commissioning groups’ three-month accounts.

The committee called on the Department for Levelling-Up, Housing and Communities and the Financial Reporting Council to set out the actions they are taking to clear the backlog of audits and when this will be achieved, including the metrics and milestones that will be used to measure progress. It also called for details of what is being done to limit the impact of the delays on the wider local audit sector.

The government is establishing the Audit, Reporting and Governance Authority to replace the FRC and to oversee local audit. However, ARGA will not be set up until at least 2024 and there has been no confirmation that the legislation needed to establish ARGA will be introduced in the current Parliament. In case this doesn’t happen, the committee said there needed to be a contingency plan. The committee also highlighted the lack of incentives and sanctions around timeliness of auditor reporting and called on the government to explain how it would address this.