PublicSector
The precarious audit picture for local authority finances
Late audits have been commonplace among local authorities over the last two years, meaning finance teams have often had to make do. Emily Twinch examines how efforts to turn the situation around have fared
Illustration: Patrick George/Ikon
Just 1% of local government audits in England for 2022/23 were completed on time. At the end of 2023, 771 sets of accounts were still awaiting sign-off from auditors – and with only 467 local bodies in England, it means the backlog for some stretches back several years.
Government figures show the audit backlog peaked at 918 outstanding unaudited accounts in September 2023. Since then, there has been notable government intervention, starting with the statutory backstop of 13 December 2024, when councils in England had to publish audited accounts including and up to 2022/23. On 28 February 2025, there was a second backstop for accounts up to and including the 2023/24 financial year. There will be a further backstop on 27 February 2026 for 2024/25 accounts.
In a written statement to Parliament in March 2025, local government minister Jim McMahon said clearing the audit backlog was his government’s “vital priority”.
Following the December 2024 backlog, about 95% of bodies had published audited accounts for all years up to and including 2022/23, although only about half (233) had unmodified opinions.
The situation seems to have improved a little but how much? And what is left to do?
There’s still a long way to go to get back on track but I think everyone knows that the solution, while it’s not particularly desirable, is the best option available.
Best solution under the circumstances
The idea for the backstops came from the previous Conservative government in a consultation in January 2024. It realised something needed to be done about the dire situation, which had mainly come about because of increased regulatory requirements after major high-profile accounting scandals including Carillion and Patisserie Valerie. In many cases, councils did not have the staff and resources to cope with these extra demands.
Because of the lack of accurate information held by councils on their accounts, the February 2025 backstop resulted in 224 disclaimed or qualified opinions for the 2023/24 audits of accounts covered by Public Sector Audit Appointments (PSAA) scheme. This accounted for roughly half of the total number covered by the PSAA’s scheme.
Paul Dossett, partner at Grant Thornton and the firm’s head of the local government team, says the backstop measure is a “reasonable halfway house”, adding: “What’s the alternative?” He says Grant Thornton inherited a lot of organisations through the PSAA 2023/24 contract that “had not been subject to audit for years so we were in a situation where councils couldn’t produce accounts”. He adds: “Our sign-off rate of unqualified opinions went down from 83% under the previous contract to about 60-something per cent in 2023/24.”
Tony Crawley, chief executive of the PSAA, tells AT: “There’s still a long way to go to get back on track but I think everyone knows that the solution, while it’s not particularly desirable, is the best option available.”
Image: iStock
Herefordshire Council: a success story
Herefordshire Council was the first and only council in the country last year to receive an unqualified audit opinion by 30 September 2024, which was the previous statutory deadline for local authorities to publish audited accounts.
Director of finance Rachael Sanders tells AT the secret to the local authority’s success is her team’s “dedication, resilience, commitment to accuracy and resolution of issues, and a sense of professional pride as well as joy in the ‘end product’ – the financial statements”.
She says Herefordshire keeps to a detailed closedown timetable and project plan, as well as ensuring there is effective collaboration between finance and audit teams.
The financial statements have been “decluttered” to remove all non-material notes, and working papers are quality checked and signed off internally before sharing with audit.
“We ensure we have a close working relationship and early engagement with external auditors throughout planning stages and year-end, and audit testing to understand emerging sector issues, risks and changes in accounting and auditing standards”, she adds.
What more is left to do?
“The next thing to do is to build back assurance on those audits,” Crawley says. “If you disclaim an audit, the following year the new audit hasn’t brought forward any assurance, so the auditor needs to do extra work to get up to a point where they can give a clean audit opinion on the set of accounts.” He suggests it could take several years for all or almost all of local government audits to be signed off with unqualified opinions.
Daniel Omisore FMAAT, director of finance at Camden Council, believes the government measures have worked well. He says: “The backstop deadlines have delivered their intended results, resetting the local audit system, clearing a significant backlog of unaudited accounts and helping to restore public confidence.” But he adds: “Lasting change will require continued commitment from across the sector.”
Iain Murray, director of public financial management at the Chartered Institute of Public Finance and Accountancy (CIPFA), says: “There is no one thing that needs to change. It’s all a series of small changes and each one of them probably has to pay off. We need to re-establish discipline with audits.”
Public Sector Audit Appointments
local authority bodies opted into PSAA appointment regime for 28 February 2025 backstop (for 2023/24 accounts).
Source: PSAA
of audits in PSAA scheme completed by 28 February 2025.
Source: PSAA
of audits in PSAA scheme outstanding by 28 February 2025.
Source: PSAA
of bodies had yet to publish all audited accounts for financial years up to and including 2022/23, as of 19 February 2025.
Source: PSAA
What more has the government done?
In December 2024, the government published a strategy for overhauling the local audit system in England, which it then consulted on until January 2025. It subsequently came up with 16 new commitments, including simplifying financial reporting requirements. The Ministry of Housing, Communities and Local Government also announced it was handing over £49m of support to bodies to help them clear up their backlogs.
The government has mandated auditors will have to provide a value for money (VFM) report every year by 30 November and on 10 July 2025 it introduced the English Devolution and Community Empowerment Bill to Parliament, which includes provision to set up a Local Audit Office (LAO).
Murray explains the government is thinking of setting up some kind of public body to audit local authority accounts as well as private firms that would make sure “everybody can have an audit”. Murray notes that the bill, along with the setting up of the LAO, recognises that accounting rules for firms might not be right for local authorities. “So making sure that they are applied in a way that makes sense for local authorities and not necessarily kind for large corporates,” he says. “I think it does have the opportunity to make a difference.”
Will the Local Audit Office improve the situation?
In his ministerial statement, McMahon said as well as clearing the backlog “to fix the broken local audit system, systemic reform is clearly also needed”. The LAO is expected to be set up in autumn 2026. Dossett says: “We think that’s a real positive. It’s going to ensure that the focus is on the right things, what taxpayers care about. It needs one organisation to oversee a system.”
Crawley says: “One of the big problems we’ve got is that reforms that came in 2014 fragmented the local audit system, so there’s lots of different bodies involved with specific roles and remits. What the creation of the Local Audit Office does is bring many of those roles back into one body, enabling it better coordinated oversight of local audit.”
Murray agrees. “One of the challenges with the system was it was heavily fragmented,” he says. “Lots of players with quite a narrow remit but not really being able to take that holistic view, so I think the Local Audit Office will help with that.” He points out the LAO is also likely to inspect the quality of the firms auditing local government. It is also expected to take on the remit of appointing firms to audit councils from the PSAA.
But it won’t be plain sailing. As Murray says: “It is a fragile system, so we need to make sure that we don’t bombard it with a whole load of changes at once. To bring the system back to stability, we just need to make sure that we’re doing it in a considered way.” Crawley adds: “Some councils did everything right but still have disclaimed audits.”
It certainly appears the direction of travel is right. But it will need a lot of hard work and focus for the government’s measures to pay off – and, it seems, a bit of luck.
