On 26th November, the Government’s spending watchdog, the National Audit Office (NAO), refused to sign off the Whole of Government Accounts – for the first time ever. Their press release was clear in its blame for this unprecedented action; the crisis of local audit resulting in the huge backlog of unaudited council accounts in England. There have been warnings about the likelihood of this scenario and – having analysed local audit’s problems for several years – we are unsurprised. We are also worried.
Why does this matter?
The 2022-23 Whole of Government Accounts covers over 10,000 public bodies, including local authorities. As the NAO says, ‘timely, accurate reporting is important in holding leaders to account, and in identifying financial problems… long-term costs to the public purse are visible to policy-makers and Parliamentarians.’ This essential exercise of checks and balances has been impossible when nearly 90% of England’s local authorities have not submitted reliable audited data to the NAO, and in some cases not submitted any data at all.
At a time when an increasing number of councils are effectively declaring themselves bankrupt (something virtually unheard-of less than a decade ago), good transparency and accountability are needed more than ever. As many have warned, if the ‘early-warning system’ of financial verification and analysis that audit provides is deficient, there is a greater risk of more councils going under. As yesterday’s article in the Guardian outlines, ‘when Woking council went bust in 2023 with £2bn of debts, it emerged it had failed to submit audit figures for four years.’ Head of NAO Gareth Davies has pointed out that this is a problem of local and national accountability. At a larger scale, no signed-off accounts makes it likely that Office for Budget Responsibility (OBR) forecasts for the whole UK economy will be inaccurate. This will create more budgeting risks and unforeseen effects.
This is not just about the need for reliable data, however. In our 2023 report ‘Local Audit: Why Public Interest Needs to Count,’ we analysed the effects of the dismantling and privatisation of local audit in the context of austerity, hollowing out and centralisation of governance. As our work outlines, the audit crisis, significantly impacted by the dismantling of the Audit Commission in 2015, is not only hurting the local government sector but stifling democratic participation. Because of the depth of the crisis of local government accountability of which audit is a part, we argued that local audit needs whole-scale transformation, and must be treated as an exercise conducted in the public interest and for the public good.
What should be done?
The new Westminster Government under Labour appears to be taking a less punitive and more supportive approach to local government than the previous administration. This includes clearing the audit backlog, but we are yet to see the draft audit reform legislation promised in this session. This upcoming Audit Reform Bill will need to take seriously the last year’s Parliamentary Committee recommendations on improving local government financial accountability (these followed an inquiry that we and some allies contributed to). The effective financial collapse of Birmingham City Council has focused the spotlight on the multiple crises of local government (especially in England); but we want to see the specific challenges around local audit addressed in the Bill, not just the headline-grabbing business scandals like Carillion. Almost exactly a year ago, we published a joint open letter to the former Government, signed by a range of people with shared concerns about local audit. The recommendations go beyond just a new Audit Reform Act. One necessary component, returning local audit to a public body, as tax expert Richard Murphy advocates, would be only the first step.
Specifically, the Government should:
Ensure robust scrutiny by, for example, developing the remit of audit with more capacity for identifying fraud and corruption, making local government audit committees and scrutiny arrangements more comprehensive and well-resourced, and ensuring greater civil society participation in audit.
Improve regulation and oversight by, for example, doing more to eliminate conflict of interest in auditors, officers and councillors.
Foster greater transparency by amending existing legislation such as the Freedom of Information Act so that there is improved disclosure over external audits and, similarly, over private companies delivering public contracts.
This is not just a story about the destruction and inadequacy of a system of political accountability, it is part of the wider crisis of political legitimacy in the UK and beyond. As part of this, local audit has huge potential to be a genuine tool for accountability and transparency. This unprecedented move by the NAO should be a wake-up call to policymakers.
Research for Action, 27/11/23