Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Scores of local authority accounts in England are set to be published without a clean bill of health as ministers attempt to clear a seven-year audit backlog.
Councils have been given a deadline of Friday to publish their financial statements for the years up to and including 2022-23, even if auditors are unable to complete their work in time.
A significant proportion are expected to receive a “disclaimed” opinion as a result, while others will miss the deadline entirely.
Warrington, which is now subject to a government “best value” inspection because of the scale and nature of its borrowing, has not published audited accounts since 2018.
It said auditors Grant Thornton had resigned its role and that it would not meet Friday’s deadline because of the lack of a replacement.
Lengthy audit backlogs have been caused by a chronic lack of capacity in local government and the audit market that serves it, a situation exacerbated by the pandemic and the increasing complexity of council finances. Some audited accounts that should have been released in summer 2019 are still outstanding.
Both the previous Conservative government and the current Labour government set out backstop dates in an attempt to force publication of accounts and reset the system.
“There is an urgent need to restore confidence in the local audit arrangements, restore timely audits permanently and improve financial reporting,” said councillor Pete Marland, chair of the economy and resources board at the Local Government Association, which speaks for councils.
“Several hundred” sets of accounts were forecast to be published without sign off this week, he said.
The backlog — which has hit English local authorities far more severely than those in Scotland and Wales, where the devolved governments have their own state-run auditors — is now having consequences for the government’s own accounts.
Last month the public spending watchdog refused to sign off the UK’s national books for 2022-23, warning that it was “impossible” to gain assurance when so many local government accounts had not been audited.
Experts expect that many council accounts for the 2023-24 financial year, which must be published by the end of February, will also be disclaimed.
Alison Ring, director of public sector and taxation at the ICAEW, said using “backstop” dates was the “least worst option” if auditors were to get back on top of the latest council accounts.
The exact number of disclaimed accounts expected on Friday remains unclear.
Some 171 council audits for the years 2018 to 2022 remained outstanding as of a fortnight ago, according to figures published by Public Sector Audit Appointments, which appoints auditors to local public bodies. More than one-third of those for 2022-23 had yet to be completed.
Accounts that remain outstanding are likely to receive no opinion or a “disclaimed” opinion, meaning auditors have been unable to complete their checks.
Rob Whiteman, former chief executive of the Chartered Institute of Public Finance and Accountancy, a professional body, said councils were increasingly involved in “very large developments and partnerships” in which “their audit opinions and credit ratings matter to investors”.
“This year’s disclaimed audits will take several years to work through the system, because it becomes the baseline for auditors’ work next year,” he said. “There is therefore a hidden cost for councils in higher fees and potentially more expensive borrowing and contracts.”
Ministers are keen to ensure that a lack of an audit opinion does not damage the reputation of authorities that have been unable to obtain sign-off. Nevertheless, the list of disclaimed audits will include authorities whose financial affairs have been questioned.
Teesside’s regeneration body, the South Tees Development Corporation, was subject to a critical government review about its governance and financial arrangements at the start of this year. Auditor Forvis Mazars has now disclaimed its opinion on the 2021-22 and 2022-23 accounts, saying that it ran out of time before the December backstop.
Grant Thornton said it had resigned as Warrington’s auditor “several months ago” after finding that the value of the council’s 2017 investment in the holding company of Redwood challenger bank had been “materially overstated” in the council’s draft accounts for 2018-19.
The stake would become increasingly material to the council’s finances as the bank grew, Grant Thornton said, but require specialist auditing that was not a focus for the firm.
The Ministry of Housing, Communities and Local Government did not respond to a request for comment.
