The early warning system designed to identify English councils in serious financial difficulty is in crisis, with hundreds of local authorities failing to meet the legal deadline to publish audited accounts covering £100bn of public spending.
The vast majority – 99% – of English councils did not have their 2022-23 financial accounts signed off by the deadline this year, which experts say is increasing the risk of financial irregularities and risky behaviours going undetected..
More than 900 sets of accounts for councils and other public bodies going back to 2017 remain unaudited. Ministers are considering an amnesty whereby incomplete past audits would be cancelled to clear the backlog.
Ten public bodies – including Slough council, which in effect declared bankruptcy in 2021, and three councils that have between them borrowed billions of pounds to invest in commercial property deals – have not had their accounts audited for the past five years.
Meg Hillier, the chair of the Commons public accounts committee (PAC), said: “This lack of scrutiny of councils’ finances removes any early warning system for local authorities in financial difficulty. The implications for public services do not bear thinking about at both the local and national level, and for the lives of people who depend on them.”
The PAC warned in June that the audit backlog was hindering the accountability for £100bn of local government spending. It said more “horror stories” like the insolvencies in recent years of Croydon, Slough, Thurrock and Woking councils could be going undetected as a result.
Councils that have been unaudited for five years include Spelthorne and Warrington, both of which have borrowed more than £1bn to invest in commercial schemes. Among those missing four years of audits are Woking, which went bust this year with debts of £2bn, Runnymede (£643m debt) and Uttlesford (£302m debt).
More than 300 councils missed the legal audit deadline at the end of the 2022-23 financial year, while three completed theirs on time. One hundred and fifty councils have not been audited since 2020-21, 61 since 2019-20, 22 since 2018-19 and 10 since 2017-18.
Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, described the collapse in audit capacity as a “public administration disaster” with roots in the 2015 scrapping of the Audit Commission, which oversaw the auditing of councils, and its replacement with private firms.
That privatisation, the brainchild of the Tory former communities secretary Eric Pickles, is now seen as a failure. “Before the abolition of the Audit Commission, all local authority accounts were signed off on time and had been for decades. It’s hard to think of a public service reform that has done so much damage,” Whiteman said.
Just 101 people in the country are now qualified to audit local government accounts, according to the Institute of Chartered Accountants in England and Wales. In 2020, an independent review by Sir Tony Redmond concluded that the local government audit market was “fragile” and unattractive to audit firms.
The local government minister, Lee Rowley, recently admitted that the local authority audit market “has not worked as well as it should” and said he was preparing to try to reset the system by in effect declaring an amnesty for unaudited historic accounts. But there are concerns that this will undermine confidence among potential private investors in council regeneration projects and may only temporarily clear the backlog.
The issue is not restricted to local authorities: aside from the 324 councils for which audits are outstanding, there are a further 138 local government bodies, including national park authorities, fire and rescue, waste disposal and police crime commissioners.
Figures provided by Public Sector Audit Appointments (PSAA) show a huge backlog of audit opinions in town halls across the country, with 918 audits outstanding across councils and other local bodies over several years.
Steve Freer, the PSAA’s chair, said: “The scale of the backlog of local audit opinions is becoming more and more serious. It is now very clear that an extraordinary intervention of some sort is urgently required to put the system back on track.”
A Department for Levelling Up, Housing and Communities spokesperson said: “We are taking action to tackle the local audit backlog and make the system more sustainable and timely. In July, the minister for local government wrote to the sector and the chair of the levelling up committee to share proposals to address these issues, agreed in principle with key partners. We intend to begin implementing changes following further engagement.”
Local bodies missing five years worth of audits
Warrington borough council
Spelthorne borough council
Slough borough council
Scarborough borough council*
Rossendale borough council
Luton borough council
London borough of Tower Hamlets
Harlow district council
Copeland borough council
Merseyside Waste Disposal Authority.
*Scarborough council has been replaced by North Yorkshire council.