The FT reports this morning that:
The essence of the story is quite simple. In an effort to save cost a decade or so ago, linked to an effort to undermine public service, the National Audit Office lost its contract to audit all local authorities in the UK, and those audits were put out to tender. The consequence was a massive downward pressure on price. Rather oddly, a market did also not develop. The services are now dominated by one firm, which is Grant Thornton, as the Financial Reporting Council noted this year:
Whatever the cause, the FT notes that just 9 per cent of England's local government bodies had published audited accounts for the 2020/21 financial year by the statutory deadline at the end of September 2021. However viewed, that is a spectacular regulatory failure which the involvement of market players has clearly failed to solve.
This matter is for three reasons. First, that is because of the lack of accountability. Second, once failure becomes endemic systems fail. Third, in the case of local authority audit, systems failure is also likely because unlike the audit of private sector concerns the audit of government is much more comprehensive and does, for example, consider issues like value for money and systems effectiveness. If those reviews are not taking place then there is real risk of failure.
The failure of the local authority audit market is clear indication of the failure of outsourcing. Pounds paid are neither an indication of quality or of efficiency. That is true of most things of life, but it is most especially true when it comes to something so fundamental as a basic control system that is integral to the smooth operation of a major part of the process of government in the UK. Systemic failure is now apparent in this market. Tinkering at the edges cannot solve that crisis. The time to bring local authority audit back out of the control of the National Audit Office has arrived.
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Symptomatic of a much larger problem. I am a District Councillor. My council formed a partnership with 5 other disparate and totally unrelated councils (!) to outsource almost everything- finance, HR, IT etc and it all went to CAPITA. The promise of course was that it would all be more efficient and cost less. The reality was the opposite. Since the Conservatives lost control we have been gradually bringing some of it back in house, saving money and getting better control and service.
May I suggest you change the title? It doesn’t read well.
“The time has arrived to…”
True…..
I have also heard worrying stories about the poor quality, or total lack of, internal audit, as part of the white anting of public services. Morale is also at rock bottom after 11 years of chaos.
Hello,
The national audit office has never audited English local authorities. It used to be carried out by the Audit Commission which would also use accounting firms for a small proportion of the audits. The national audit office’s role now is simply to define the audit by publishing a statutory code of audit practice, and guidance under that. Local authorities are free to appoint their own auditors but most choose to sign up to the central procurement managed by Public Sector Audit Appointments.
The failure was a combination of the model adopted to replace the Audit Commission, the increasing complexity of audit, in particular through the FRC’s more rigorous inspections (regardless of whether you think they are addressing audit failures they are having a significant effect on the resources auditors employ), the reduction in time allowed for local authority audit, lack of interest in audit by many local authorities, and accounting firms bidding too aggressively the last time they bid.
It would also be sensible to think about the audit of the health sector which is also failing, but less publicly so as they struggle to even appoint auditors.
Apologies
You are right, of course
I should have checked and not relied on memory
Hello,
Local authority accountant here. I would agree with the points about aggressive price competition, as well as cost and time overturns when the audit is impossible with the allocated resources (funny that).
Just wanted to add that subject matter expertise is also missing. There are some peculiarities of in LA accounting that require subject matter expertise to audit properly. Without that, the exercise sadly becomes one of checking items on a list and spreadsheet audit.
Thanks
It worries me when I read about ‘peculiarities’. Are local authorities not applying pure GAAP (which one)? If not, what are the main changes?