The National Audit Office (NAO) has declined to sign off on the accuracy of the UK government’s national accounts for a second time, citing widespread unreliability in, and lack of, data supplied by local councils.
The crux of the issue lies in the backlog of local authority audits, meaning only around a shocking 4% of English councils provided data deemed “reliable”. This is down from 10% in 2022/23 – which even then, was a dire reflection on the state of local and national public finances.
NAO: “unacceptable” it cannot sign off on government accounts
The NAO stated that this patchy data is “unacceptable” preventing any firm opinion on the Whole of Government Accounts (WGA), which aggregate the finances of around 10,000 public bodies.
This breakdown signifies a watershed moment. It is now the second time the NAO has issued a completely disclaimed opinion on the WGA. Typically, isolated qualifications would signal concerns about specific figures, but this denial of audit certification reflects a systemic failure across the public sector accounting system.
Multiple contributing factors include the abolition of the Audit Commission and the transfer of audit contracts to a private sector plagued by specialist shortages. The impact of this is amplified by the pandemic, increasingly complex accounting rules, and bold local authority borrowing and investment strategies. In contrast, public bodies in Scotland and Wales, which still have state-run audit systems, have fared significantly better.
In England, of the 407 local authorities that should have submitted audited information into the WGA, 167 or 41% didn’t submit data at all. A further 55%, or 224, submitted data based on unaudited accounts. Only 16 or 4% of English local authorities submitted adequate audited data.
By comparison, in 2022/23, 10% of English local authorities submitted reliable data, 46% submitted unaudited data, and 44% didn’t submit any data at all.
Major implications
Missing or unaudited data from the NAO has major implications. The WGA lacks reliable numbers for hundreds of billions in assets, public sector pension liabilities, and staff costs, undermining confidence in public finances. This opacity hampers government and fiscal bodies like the Office for Budget Responsibility, making economic forecasting and the adherence to fiscal targets more uncertain.
Political and expert voices expressed alarm the last time the NAO did this. The chair of the Public Accounts Committee described the situation as “wholly unsatisfactory,” warning of increasing difficulty in assessing council performance and preventing more council financial collapses. Experts warn that investor confidence and local authority credit ratings could suffer, and long-term borrowing costs may rise, due to this lack of transparency.
“Wholly unsatisfactory”
Geoffrey Clifton-Brown, Chair of the Public Accounts Committee, said of the NAO decision:
The Whole of Government Accounts (WGA) is a vital tool in the management and scrutiny of public spending, and it is therefore wholly unsatisfactory that the Comptroller and Auditor General has had to disclaim the accounts for a second year in a row.
Yet again, failures in local authority audit have led to unacceptable levels of missing and unaudited data. Despite Government publishing its Local Audit Reform Strategy and issuing statutory deadlines, only 16 out of over 400 English local authorities were able to submit audited data, with 167 failing to submit any data at all.
Plans to fix the crisis in local audit are still a long way off from delivering and have so far served to increase the number of disclaimed opinions on local authority accounts. This lack of transparency and ability to hold councils to account will only deepen the current precarious state of local government finances.
It is imperative that the local audit system is restored and that Government acts to bring the WGA fully up to date as a basis for accurate and sound decision-making as soon as possible.
NAO: the government must fix this
The government has published its Local Audit Reform Strategy committing to restoring timely and robust local government audits. Statutory deadlines by which English Local Authority audits must be complete were put in place in the past year, and these should lead to fewer cases of missing data in WGA in future years. But it will take longer for the normal level of audit assurance for English local authorities to be restored.
Head of the NAO Gareth Davies said:
The Whole of Government Accounts contains valuable information on public spending and the public sector’s assets and liabilities. It’s essential that the Government’s reforms to the local government audit system in England are effective in restoring timely and robust assurance in that sector so that the accuracy of the UK’s Whole of Government Accounts can be properly assured.
Even more importantly, local taxpayers in England deserve timely audited accounts from their local council.
Meanwhile, the public have no idea whether or not local and national governments are spending their money wisely, effectively, honestly, or even legally. This shambles cannot be allowed to continue.
Featured image via the Canary
By Steve Topple
This post was originally published on Canary.